A History of Wall Street Crime and Punishment: The 10 Most Intriguing Cases


As long as there has been a Wall Street, there have been thieves to plunder it. Oddly enough, the nature of the crimes hasn’t changed much over the years. Magnates with rich political ties quietly manipulate the market, maintain a squeaky-clean public image, and try to run off with their bag of loot just as their sandcastles are crumbling. Do they get away with it? More often than not, the answer is yes. Bernie Ebbers, the most unfortunate of the bunch below, is currently serving 25 years in a low-security prison. The rest either received wrist slaps or, as Sun Tzu and Bud Fox have both said, had the chance to “split and re-evaluate.” Jay Gould: Black Friday Robber Baron

This forefather of insider traders was already a railroad magnate at the age of 23. When he opened his first brokerage, Gould raked in a fortune due to his “private sources of information in the field (which helped him) turn almost any success or defeat of the Union Army to profitable account,” according to the New York Times.

The robber baron’s next move? Buy up all the gold in the United States of America. In 1869, Gould almost succeeded. The price of gold, formerly at a low, skyrocketed. President Ulysses S. Grant warned Gould to stop buying, or else the Treasury would suppress prices by releasing its own gold into the market. Gould reacted by spreading rumors about an impending gold shortage while divesting his own gold at a profit.

When the Treasury did take action, on Black Friday, 1869, the price of gold crashed within 15 minutes, with “nearly half of Wall Street … involved in the ruin,” writes the New York Times. A furious mob and militia gathered on Wall Street, according to the Wall Street Journal, but Gould escaped. Eight years later, a trader, angry at his losses, punched Gould and threw him down an eight-foot flight of stairs, the Wall Street Journal reports. Gould, however, survived long enough to con his way into even bigger fortunes. He died of tuberculosis at the age of 56.

WorldCom: He Who Goes Bankrupt With the Most Toys, Still Goes Bankrupt

Bernard Ebbers, co-founder and CEO of telecommunications behemoth WorldCom, managed to simultaneously build a business and personal empire before being handcuffed by the Feds. His WorldCom snapped up more than 60 companies after its 1983 founding, culminating with the $37 billion merger with MCI in 1997. Meanwhile, Ebbers used his own WorldCom stock to back loans on personal investments, including Canada’s biggest working cattle ranch, more than 500,000 acres of U.S. timberland and a minor league hockey team.

By the time WorldCom tried – and failed – to merge with Sprint (S) in 2000, the telecommunications industry was in a recession. WorldCom directors, worried Ebbers would force down the stock price by selling his holdings, loaned Ebbers $408 million to cover his margins. Meanwhile, Ebbers and his executives carved about $9 billion in expenses out of the company books, which roughly doubled the stock price between early 2000-01. By the time the company filed for the biggest bankruptcy in US history in 2002, the stock was at zero, Ebbers’ cover was blown and WorldCom changed its name to MCI. Today, Ebbers is in a low-security prison in Oakdale, Louisiana, serving out a 25-year sentence. Galleon Group: Tapping the Insider Wires New York’s Galleon Group, formerly one of the largest hedge fund managers in the world, touted “the fundamental belief in rigorous investment analysis combined with active trading around core positions.” Post-trial, that translates to deliberately creating a network of corporate insiders, milking them for information, and creating a $7 billion hedge fund from it.

Thanks to an ongoing federal crackdown, Galleon founder and principal Raj Rajaratnam has traded his insider deals on IBM (IBM) and AMD (AMD) for an 11-year prison sentence. Prosecutors wiretapped Rajaratnam’s phone in 2008, after guilt-ridden McKinsey consultant and partner in crime Anil Kumar spilled his soul to lawyers. (Rajaratnam had paid Kumar $500,00 per year, via an offshore account, for inside information on McKinsey clients.) The investigation uncovered a vast insider network, carefully cultivated from the tight-knit South Asian tech and finance community. Twenty-six of those people, including former beauty queen Danielle Chiesi, were charged as a result of the investigation.

Drexel-Burnham: Insider Junk In the mid-1970s, Drexel Burnham Lambert broker Michael Milken realized that below-investment-grade bonds were generally undervalued, and that investing heavily in them was a profitable business. The now-famous junk bond market of the 1980s was born. Milken created more than half of Drexel Burnham Lambert’s profits through his junk bonds, which helped finance mergers and acquisitions, including hostile takeovers by the likes of T. Boone Pickens and Ted Turner. In 1986, Drexel Burnham Lambert made $545.5 million, an annual profit never before seen at a Wall Street firm. Milken himself took home $550 million that year. Milken, however, disdained regulations. The SEC lurked in his shadow for years, trying to catch him for something. In 1986, colleague Ivan Boesky implicated Milken as an inside trader. Milken plead guilty and served about 2.5 years in prison, on top of paying $1 billion in fines. Drexel Lambert Burnham, meanwhile, declared bankruptcy in 1990.

Enron: Magical Accounting The “Crooked E” deserves an “A” for creativity in accounting. Through a slew of special-purpose entities and the magic of mark-to-market accounting, Enron claimed profits before they happened and sunk its losses and debts into offshore shell companies. Independent auditor Arthur Andersen caught none of this.

When Enron stock hit high of $90 per share in 2000, executives, worried their house of cards might collapse, quietly sold off their stock. The stock price plummeted to less than half its former value within the year. The SEC opened an investigation, forcing Enron to reveal $1 billion in debt and losses. The company filed for Chapter 11 reorganization in 2001, the biggest bankruptcy in US history at the time. Most Enron executives served two to six years in prison, with the exception of former CEO Jeff Skilling, who is serving a 24-year sentence. Ken Lay, arguably the master engineer of the scandal, died in Colorado of a coronary just before his sentencing.

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