The Great Fraud

Imagine that you work in a bank as a senior investment adviser.  You have trouble with money, as your own high paying job does not let you lead the lifestyle that you desire.  Picture a fast lifestyle, expensive wine, expensive women.  But you really want that exclusive North Shore or Remuera house, the upmarket bach, and a nice boat to be able to fulfil your dreams.  You read the Herald over coffee, and the answer comes to you in the death notices.

You note there are quite a lot of elderly men dying off in the affluent suburbs.  The bank you work for has a 25% market share, so the chances are one in four of them are our customers.  As you have a high security clearance, you can do a simple search amongst the data base.  Bingo, a lucky strike and there were two clients who had significant funds with your bank.  And reading the client files, it was the guy that had the most dealings with the bank.  But he only died at the weekend, and the kids all seem to live overseas.  The widow might just need some assistance from a trusty bank senior investment adviser like yourself.  You make a note to phone her a couple of weeks later.

It sounds so simple to obtain the prospects for your get rich quick scheme.  The hard part will be gaining the complete trust of the recently widowed.  You make an appointment to see her at home, and take her some flowers or chocolates, a wee appreciation from the bank.  She has done some baking, and makes you a cup of coffee or tea.  You have a sympathetic ear, as you hear how she is coping, and she says that she really does not have a clue about finance and investing.  This is music to your ears, so you begin to help her.  You remind yourself, don't do anything risky for a while, you really need her trust.

Six months later, she tells you she is going to move to London to live with her daughter for a while.  She also tells you she would like more income from the investments as it could be a bit expensive living over there for the next six months.  She would also like you to take control of her account as she has no one else here that can look after it while she is overseas.

It's all so easy.  By now you have the ability to open fictitious accounts using your power of attorney, and you have certified identification.  You have all the information required in which to open an account for her at another bank, from which you will be able to transfer funds all over the world.  You begin your siphoning off process, all in amounts of less than $10,000 so it does not arouse any suspicion by the authorities.  And you remember to credit back to her account quarterly 12.5% of the principal as interest.

It gets easier every year.  Eight years later, you are still in your same job.  You are doing a good job for the majority of your clients.  But you also have your own client list that the bank does not really know about.  But then your cunning plan is foiled.  A little old lady that you befriended sees a documentary on Bernie Madof, and she realises that she is invested unwittingly in a ponzi scheme.  She wants her money back, but the only way you can pay her back is to find more clients.  The markets have turned nasty, and you cannot find anymore people who want to invest in anything other than bank deposits.

The little old lady contacts the authorities, and you suffer the indignity of being sacked.  You know the game is up, and cooperate fully.  You get six years in prison.  The Bank comes to the party and fully pays out the investors.  In the meantime you and your family have enjoyed the high life.  And the bank suffers the indignity of admitting they had a large scale fraud going on, which was virtually undetectable by their own procedures. 

The above is a fictional account of what could have happened.  Frauds such as this could have been going on for years; they just have not been detected.  Hopefully security and auditing procedures will be improved.  But above all, if the returns seem too good to be true, they most likely are.