Fool Me Once: Fraud in history

The South Sea Company was founded to raise money to fund the national debt, and granted a monopoly to trade with South America, at that time in the hands of Spain. Trade was never likely to take place, but that didn’t prevent stock from rising greatly in value. A few people made fortunes from insider trading, using their knowledge to purchase debt in advance. A considerable number were ruined.

Fraud was not invented with the Internet. Right through history, people have come up with scams and schemes to extract money from unsuspecting people in return for pipe dreams that evaporated when the confidence trickster slipped away into the night. Or overreached and was caught, since throughout history the first to be meshed in a con artists rhetoric is often the fraudster himself.

We chance to have evidence of fraud from ancient Mesopotamia: a doctored cruciform monument from four thousand years ago, that attempted to convince the king that the temple revenues were higher than they were. Undoubtedly, the scribe was not the first of human kind to apply what has been kindly called ‘creative accounting’. Fraud is as old as civilization.

I’ve been reading about historic cases of fraud as background to a couple of stories.

The secret Buried Treasure scam

Don’t tell anyone, but I can let you in on a pirate treasure.

Some of the biggest schemes in history have whole books written about them. The Spanish Prisoner letters of the late eighteenth century preceded Nigerian scams by two hundred years, but used the same basic psychology.

In essence, the story told was some version of the following. A wealthy person of high estate (possibly related to the ‘mark’, the person being targeted as victim) is falsely imprisoned in Spain, under another identity. He knows the whereabouts of buried treasure, which he can use to ransom himself free, but trusts no one but the mark to retrieve the treasure. If the mark comes to Spain with sufficient money for travel, the prisoner will hand over the information needed to find the treasure, and will share the proceeds fifty/fifty.

If it looks too good, it almost certainly is

The buried treasure idea is a flexible variant of the get-rich-quick scheme category of fraud, but the past is also littered with countless investment propositions that looked too good to be true, and were. Some fraudsters offered incredible profits from non-existent or failing development schemes, diamond mines, or ship cargoes. Others, more cautious, promised profits just above the market rate, funding returns to early investors with money from later investors.

Some schemes, such as the eighteenth century’s South Sea Bubble, reaped millions, and changed governments and economies. Others affected only a few people, but ruined lives, all the same.

And if you like my canal, I have a bridge I can sell you

In one case in Old Bailey online, the scheme may have begun honestly enough. The solicitor at the heart of it was investigating whether to reopen a canal. As came out at the trial, he very quickly had a report from an engineer to say that the cost would outweigh the return. That didn’t prevent him from convincing his client, a local widowed bootmaker, into investing her life savings: two thousand pounds (around two hundred thousand in today’s dollars) for a promised return of up to ten thousand. The woman didn’t have all the money, so gave a quarter up front and the rest in small amounts, given to the fraudster.

The fraud came to light when the widow was presented with a claim for five thousand pounds from someone who held a paper purportedly signed by her.

Fool’s gold

One hundred and fifty years on, the site of the Great Diamond Hoax of Wyoming doesn’t look like much.

Another variant is ‘salting the mine’. Want to get rid of an old defunct tin mine in Cornwall? Place some rich tin ore in an appropriate place and let your mark discover it. It been working since at least Roman times.

These were all versions of the get-rich-quick scam. Read on next week for Persuasion tricks, Gold-brick scams, and Extortion.

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