Stories of Biggest Scams in the History of Trading: Feat. Carlo Ponzi & Bernie Madoff

by Andrea Unger | Technical

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The world of trading is often portrayed as a kind of jungle populated by unscrupulous scammers ready to jeopardize investors' savings.

And indeed, scams abound in the history of trading...

Just think of the case of Bernie Madoff, the mastermind of one of the most prominent scams in recent decades. In 2008, the well-known U.S. banker, as well as chairman of Nasdaq, was arrested for setting up a Ponzi scheme that caused a whopping $65 million to "disappear."

In this video, we'll discuss the Madoff case and other famous scams in the history of trading that besides being a decidedly interesting topic of conversation can also teach us how to recognize possible threats thus protecting our investments.

By watching the video you'll learn:

  • All about the scam perpetrated by Bernie Madoff

  • How the famous "Ponzi scheme" works

  • Who the "rogue traders" are (with two notorious examples)

  • Some recent scams (involving the crypto world)

Enjoy! 😎


Hey everyone, welcome back!

One of the coaches at Unger Academy here and today we're going to be looking at some of the most famous and biggest scams in the history of trading as well as the signs warning you that something maybe isn't right so that you can avoid falling into a scammer's trap.

Alright, so let's begin this review of the biggest and most sensational scams in recent and not-so-recent history too, with who else but Carlo Ponzi! All of you have surely heard of this name before.

We often hear about the Ponzi scheme, which precisely is one of the most commonly used scam methods to cheat investors.

But now who was Carlo Ponzi and how did he become so notorious? Well, he was an Italian immigrant who had allegedly immigrated to the United States with only $2.50 in his pocket.

He started his career thanks to an arbitrage that allowed him to exchange vouchers, a kind of stamps, issued by the Italian government for US Dollars. Because these coupons were significantly more expensive in America, he was able to make a profit of more than 400%, without taking any risk at all.

Indeed, he promised his first clients returns of 50% after the first three months. And for quite a while, this arbitrage worked, allowing him to create a good reputation, to accumulate several million dollars to manage and even acquire a bank with which he then began his famous scheme.

He promised high returns and generated steady cash flows from new investors, which he would use to remunerate the old investors, to whom had been promised generous returns.

But in reality, Carlo Ponzi wasn't investing the investors' money at all. Indeed, when Clarence Barron, a financial analyst at the time, pointed out that all the response coupons in circulation wouldn't be enough to repay the debts of Ponzi's bank, which were high because of the sky-high returns he was promising, that's when the house of cards began to wobble.

After a short time, in 1920 the Italian Post Office changed the postal conversion rate of those stamps and thus made the Ponzi scheme no longer profitable even in theory.

He was arrested shortly thereafter and imprisoned for more than a decade. He had swindled more than 40,000 investors who lost a total of $15 million, something that, taking inflation into account, would be equal to about $30 billion today, so certainly a huge, a really big amount of money.

This scheme held up, as I previously said because under the promise of high earnings it had generated steady cash flows and additional liquidity which allowed the scheme to carry on and pay off old investors.

Let's continue now with a very famous exponent of the Ponzi scheme scams. I'm talking about Bernie Madoff, who was born Bernard Lawrence Madoff, the banker who managed something like $60 billion before he went bankrupt. Madoff was the chairman of Nasdaq, which is one of the largest stock exchanges in the world and I know it does need no introduction. And his method was precisely the one devised by Carlo Ponzi, which we talked about just now.

In essence, he was able to promise very stable returns by falsifying the financial statements and numbers of his fund. Madoff may not have been flying as high as Carlo Ponzi, who had promised 50% in three months, but he did become well-known in the world of finance for his promise of a 10-12% annual return and this allowed his fund to receive millions of dollars.

The fund was one of the largest in New York and large banks, hedge funds, and very wealthy private investors had decided to invest in it. But Madoff not only swindled these large entities but also defrauded relatives, friends and acquaintances.

His returns, however, were so constant, always on paper of course, that they even called him "The Wizard". The turbulence that everyone experiences sooner or later in the stock market didn't exist for him. His trading technique, he said, was based on a complex hedging calculation that was meant to protect the account from the volatility generated by buying and selling stocks through hedging transactions on options.

In time, after the trials and after all the documents had been thoroughly analyzed, we can say with absolute certainty that neither Bernie Madoff himself nor anyone else on his behalf had ever traded in the right way, or at least not in the way he had said he did because there is no record of it anywhere.

That house of cards fell at the end of 2008, when the housing bubble had burst and many investors began demanding repayments that Madoff's company was no longer able to honor.

Indeed, he had created a Ponzi scheme, and unfortunately many investors lost significant savings. Bernie Madoff passed away last year, in 2021, while serving several hundred years in prison. If I remember correctly, he was sentenced to 150 years in prison.

He had certainly suffered a lot. The last years of his life were extremely troubled. Apart from prison, while he was incarcerated one of his two sons took his own life, perhaps also due to all the media pressure that had been unleashed around the Madoff family and the story in general, and the fact that, as I said, Madoff had not only defrauded banks and big investors but also close relatives and friends, leaving them broke and afterwards, of course, this whole ordeal burned a lot of bridges around him.

Finally, let's quickly take a look at other lesser-known scams, which nonetheless have unfortunately harmed many investors. Let’s look at a recent case in Italy involving Bio-On. Bio-On was a company that boasted to have found a new type of polymer that was easily disposable or even recyclable in many other forms, which is something that, if you think about it, is very difficult for a type of plastic.

Indeed, it was later discovered shortly thereafter that even in this case the financial statements had been falsified and that there was little truth behind the story told by Bio-On. The Italian Tax Police shut down the company in 2019 and arrested its top executives, including Marco Astorri, the mastermind of the scam and president of Bio-On.

Again, the Bio-On stock, listed on the Italian AIM (Alternative Investment Market), shortly before ending up in court, had a strong bullish trend, so it was considered an entirely innovative company that investors believed and invested in.

Another two examples are Jerome Kervièl and Nick Leeson. I've put them together because they are quite similar cases. We could call them in jargon "rogue traders" rather than fraudsters and they both worked as traders for large investment banks.

Kervièl worked for Société Générale, while Nick Leeson worked for Barings Bank. Société Générale lost almost $5 billion because of Kervièl. Barings Bank, the largest Scottish bank up to that time, even went bankrupt.

With a very clever method of falsifying the bank's documents and results, they both managed to fool the company's top management who thought they were making billions instead of losing them. The rogue traders were also paid very well and seemed to be infallible but well, in the end, they were not.

Needless to say, even newer markets such as cryptos are unfortunately not exempt from scams. Indeed, it's even more important to be careful in these cases because they’re hard-pressed markets that have only existed for a short time and therefore could harbor pitfalls.

Two very large crypto exchanges that overnight went bankrupt are an example of this. One is the case of Quadriga, a Canadian crypto exchange that upon the death of its creator could no longer compensate customers who had invested in Bitcoin through Quadriga.

The owner was the sole possessor of the keys to Quadriga's main wallet, where all client funds were deposited. And so, when he died, which, by the way, happened at a really young age and was completely unexpected, the funds therein turned out to be inaccessible.

Mt.Gox is also a similar case that occurred in Japan and cost savers as much as $25 billion. I'll leave you to look further into these cases if you wish.


So, here's the thing: when faced with these schemes, unfortunately, it's easy to be fooled, as we've seen. The key to a scam or Ponzi scheme is based on an intricate mechanism of trust that is built up over the years and the promise of lavish gains, which, as mentioned, can cause very many people as well as many entities, such as banks and hedge funds, that in theory should be more cautious in recognizing these kinds of scams, to fall into the trap.

So please always be very careful when deciding to whom you entrust your savings. Here at Unger Academy, we teach a method to be independent and to be able to create your strategies through a time-tested method.

So if you're interested in learning more, I suggest you click the link in the description below. From there you can watch a video of Andrea Unger, get our best-selling book by just covering the shipping costs, or even book a free call with a member of our team.

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And with that, thanks so much again for watching. We'll see you soon, bye-bye!

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Andrea Unger

Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.