Whether it is a Ponzi scheme or a bank embezzlement, financial scandal is a serious threat to economic stability and public trust. It exploits loopholes in accounting regulations and vulnerabilities within financial systems, costing billions each year. But the scale and nature of fraud and corruption vary across time and place according to systemic economic arrangements. This article quantifies the incidence of financial scandal across three centuries of British history, highlighting periods when such activity was less problematic and others in which it soared.
A notorious example of such fraud is the Bernie Madoff Ponzi scheme, wherein individuals were induced to invest their savings by promising consistent returns on their investments. It was the largest fraud in history, defrauding thousands of people of nearly $65 billion. It highlighted the need for thorough due diligence and skepticism in investing, as well as for stronger oversight by both regulators and investors.
Another high-profile case of financial scandal involved the US investment firm Enron. The company used complex financial structures to hide debt and toxic assets off its balance sheet, making it appear more profitable than it really was. When the stock price collapsed in 2001, Enron filed for bankruptcy, leading to the loss of hundreds of millions of dollars by investors.
In other cases, companies have used aggressive revenue recognition practices to boost profits. These may involve recognising sales in earlier periods than when they actually occurred, or recording growth in sales without commensurate growth in inventory (for example, reversing invoices), or even fraudulently using a practice known as supplier finance to mask debt on the balance sheet.
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