Butchers, fake deaths and falling from helicopters: History’s craziest frauds
The Story of Money
The episode explores the historical relationship between financial fraud and economic health through the lens of historian Dan Davies. It ex
Key takeaways
- Tino De Angelis used saltwater in tanks to mimic soybean oil, defrauding American Express of massive sums.
- The Briex scandal involved 'salting' gold samples with alluvial gold to fake a massive Borneo deposit.
Main topics
- Financial Fraud Taxonomy
- The Great Salad Oil Swindle
Notable quotes
Trusting is so much more efficient.
Conclusion
Fraud is an endemic feature of modern economies that relies on the ver
Transcript preview
Speaker 2 (0:00) In 1898, John Nuveen had a vision to underwrite municipal bonds that would propel American infrastructure into the 20th century. More than 125 years later, that vision lives on. Today, Nuveen has grown into a leading global asset manager with expertise spanning public and private markets, still investing with a future in mind. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible. Speaker 3 (0:29) We're going to dig into some of the wildest and most shocking examples of fraud in history. Speaker 6 (0:34) It is not clear what happened. during that helicopter flight. The helicopter arrived without him in it. Speaker 3 (0:41) Sounds like a classic Mafiosa story. What happened Speaker 6 (0:44) to Sam Israel after he tried to fake his own death? He wanted to get back in touch with his family and that's always the biggest mistake when you're dead. Wow. They went to a company called Richmond Fairfield. I haven't heard of that auditing firm, Dan. It's because it doesn't exist. Speaker 5 (1:04) Today on the story of money. How can you tell if an economy is actually working? Does that mean inflation being under control, healthy growth figures, low unemployment? Speaker 3 (1:16) Well, that's what they teach you in economics class or business school. But here's another measure that they certainly don't actually teach Speaker 5 (1:24) you. Yes, because today on the show, we're going to be talking all about fraud. Because the level and nature of fraud, a white-collar crime, actually might be a weird contrarian sign of a healthy economy. I Speaker 3 (1:38) know that sounds weird, but listen on, because we're going to dig into some of the wildest and most shocking examples of fraud in history and ask, is fraud actually natural? Is it an inescapable piece of a properly functioning economy? Well, here we have someone who thinks that is the case, and he's Dan Davis. He's the author of Lying for Money, a book all about financial crimes and how they've shaped today's economy. So, Dan. Great to have you with us. Speaker 5 (2:04) Hello. Thank you very much for inviting me. It's great to be here. Dan, before you became a writer and historian, you were at the coalface of finance. You were a finance industry analyst in the City of London. You worked at the Bank of England. And you were doing this at a time when a huge fraud was being uncovered. Can you take us back to the Genesis moment for Lying for Money? Speaker 6 (2:24) It was the early 2010s. And I can remember pretty vividly. that I was sitting on a desk in the research department with some of my colleagues watching Bob Diamond, who was at the time the chief executive of Barclays, being questioned by a parliamentary committee and going down incredibly badly. Speaker 1 (2:50) Again, George, this was reprehensible behavior. I know Speaker 4 (2:55) that. I know that, Mr. Diamond. I know that, but I'm asking. Did nobody, what kind of firm were you running? You're now out of a job because of the attack on the integrity of the bank. Speaker 6 (3:11) It was just about as bad a performance as you could ever see from someone who'd previously been regarded as a pretty impressive CEO. Speaker 4 (3:20) There was nobody in your firm. when that was happening openly with traders that came to you and said, Bob, you're going to have to watch this because we're going to be in deep trouble. Speaker 1 (3:33) This first came to light during the investigation. Yeah, okay, I hear that. The positive side is the organisation said, we have a problem, we have to fix it. No, Speaker 2 (3:43) just Speaker 1 (3:43) a diamond. From Speaker 4 (3:44) your point of view, that doesn't wash. Speaker 6 (3:48) And it just turned a switch in my brain that I'd been looking at this thing that we'd called the LIBOR affair. for the previous three or four years, I'd always assumed that it was a minor market anomaly or a thing that was a little bit of a regulatory fine and just basically something that was part of the cost of doing business in finance. And actually I realized, oh, this has been a huge multi-trillion with a T dollar fraud. that's been going on for decades, and it's happened, and I never even noticed it. So, Speaker 3 (4:34) Dan, what exactly was LIBOR? Speaker 6 (4:36) LIBOR stands for the London Interbank Offered Rate. It's the rate at which banks in London would lend to and borrow from each other for short-term cash deposits, so about 30 days. And there was one of these interbank offered rate averages. for every major currency. So this figure was, as I say, just put together from a series of phone calls, and it turned out that that figure was being Speaker 5 (5:05) rigged. So Dan, the experiences you say of watching Bob Diamond talk about this fraud and realizing just how big it was, and I remember that testimony as well, it was car crash. But that led you down this path of looking at fraud and financial fraud through the ages. And through that research, you've... Bricknet, you've come to a realization that they all share a fairly similar framework, right? What is that? Speaker 6 (5:31) Well, I think the interesting framework here is that there are two ways that you can deal with someone who knows something that you don't, which is that you can check or you can trust. And of those two, checking is always more reliable. but trusting is so much more efficient. And so that's really kind of the story of the development of the economy. We grow and we gain the ability to build bigger and more complicated economic institutions because we use this incredibly efficient social technology of trusting each other. But that means that there's always opportunities for fraud. And the more that you build and the more you use that, the more opportunities there are, which is how you get countries where there's hardly any fraud. Countries like Lebanon famously has very little commercial fraud. Greece has ship owners who will do business on a handshake. And the reason for that is that they reduce the number of people that they're prepared to do business with. They will check everyone out on less. They are in a very deep, very embedded social web with them. And you can compare that to somewhere like Canada or Australia or the USA, where you can just show up. And if you are polite and you've got a nice suit and you tell a decent story, people will start from a default position of trusting you. And that means that Canada does have quite a lot of financial fraud. But would you rather be the economy of Lebanon or would you rather be the economy in Canada? Speaker 5 (7:21) Touché. We are going to be talking about three different types of fraud today. You've named them the long Speaker 6 (7:27) -term, counterfeiting and control fraud. Speaker 5 (7:30) So, Dan, why this taxonomy? Why try and classify frauds according to different categories or buckets? Speaker 6 (7:36) I put the different kinds of fraud into different categories because they seem to be... exploiting different kinds of trust. So you have direct interpersonal kind of relationships of trust. You have certification by a trusted authority. You have institutions which are meant to be kind of webs of trust and the different kind of frauds. are all attacking different aspects of those social technologies of trust. Speaker 5 (8:10) And let's just start with the long firm, because it sounds a bit like a story of gangsters, organised crime, maybe a Scottish football derby. What exactly is a long firm fraud? The first of these three categories we're going to dig into today. And Speaker 3 (8:27) tell us what it's got to do with salads, because that's one of the most extraordinary quirks of the whole story, is salad economics. Speaker 6 (8:33) So, I mean, a long firm is probably the simplest kind of interesting economic crime that you can get because it's simply theft with a time dimension. You promise value at some point in the future in order to get something valuable today, and then you have no intention of keeping your side of that promise. Speaker 6 (9:00) The thing you're alluding to there is what they call the Great Salad Oil Scandal, which is the Pulitzer Prize winning book of that name, which describes how someone ended up... stealing almost enough money to kind of knock over american express wow by exploiting the properties of salad grade soybean oil that's amazing i mean Speaker 5 (9:29) okay tell us more about this where does this story start Speaker 6 (9:32) well huge character a guy called tino de angelis uh he was originally a pork butcher Handy with a knife, not somebody I'd like to mess with. He liked to give the impression, obviously, as an Italian-American who was big and had a big kind of posse around him, he liked to give that impression of links to organized crime. In fact, he didn't have any, but he liked to give that impression because people thought he might have extra sources of cash flow to pay back all the money he kept borrowing. Speaker 4 (10:04) And Speaker 6 (10:04) after... Having had a good war, basically profiteering in federal food contracts for which he did get prosecuted, he came out of it as an expert in trading soybean oil. And he was, you know, by the 1960s, he was one of the biggest soybean oil traders in the USA. He was a genuine innovator of the soybean oil industry. He was the first guy to use bulk carrier ships to transport. huge tanker load quantities of vegetable oil. But he had this affliction, which often afflicts successful business people, that they get a very strong opinion about prices and they decide to go into financial speculation. In the case of Tino, he particularly believed that the USA was going to end a trade embargo with Russia. there would be this huge source of demand for cheap American cooking oil, and the price of soybean futures was going to go through the roof. And if you've developed that geopolitical opinion, always a really dangerous thing for a CEO to do, then obviously you want to own as much soybean oil as you can. But also you want to own as many soybean oil futures as you can get your hands into. And it seems that... Tino had underestimated quite how expensive financial speculation is. So Speaker 3 (11:36) he needed lots of money suddenly and lots of credit, a bit like putting all your chips on red at the casino. So how did he actually get the money to fund those massive positions? In Speaker 6 (11:46) order to borrow money, particularly if you're someone who's got a reputation like Tino De