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The Actuary The magazine of the Institute & Faculty of Actuaries

The worst 10 frauds of 2009

A list of the worst frauds of 2009 has been compiled by Jim Gee, director of counter fraud services at accounting firm, Macintyre Hudson, based on ‘value, deviousness and economic damage’.

The firm recorded an astonishing 292,799 reports of various big- and small-time scams in the global media. The biggest fraud ever – involving Bernard Madoff and $65 billion – inevitably tops the list. The firm says there is considerable evidence that this fraud was a major cause of the recession, with the widespread sale of financial securities based on sub-prime mortgages, which were known to be worthless.

Bernard Madoff will for ever be famous for having perpetrated what could be the largest fraud ever undertaken, running a ‘Ponzi’ scheme which defrauded investors of up to $65 billion. The investors who lost out included Zsa Zsa Gabor, who lost at least $7 million. Madoff had around 100 signed cheques totalling more than $173 million in his office desk at the time of his arrest. Other famous names targetted by Madoff and his agents included the Prince of Wales. Madoff spent his ill-gotten gains across the globe, buying a £5 million yacht in the south of France called ‘The Bull’. In June he was sentenced to serve 150 years in prison, the maximum sentence allowed.

Pfizer Inc., the drugs giant, was ordered to pay $2.3 billion in America’s largest healthcare fraud settlement, for making false claims about four prescription medications. The payout – a $1.3 billion criminal fine and a $1 billion civil settlement – includes $102 million to be divided among 11 whistleblowers. All of these are thought to be former employees who became so concerned that the company was asking them to break the law and mis-sell the drugs – Bextra, Geodon, Zyvox and Lyrica – that they informed the authorities. Mike Loucks, the acting US Attorney for the District of Massachusetts, said he hoped that the case would send a powerful message to corporate America that “blatant and continued disregard of the law” would not be tolerated. “The size and seriousness of this resolution...reflect the seriousness and scope of Pfizer’s crimes.”

Veronica Hyland was a lawyer who conned a dying millionaire out of more than £90,000 and put his blind wife in a nursing home (where her guide dog was not allowed) while she lived in luxury on their money. She forged a power of attorney document and used blank cheques to cheat cancer patient Les Carrier and his wife Doris, who had Alzheimers. She paid private school fees for her two children, settled debts of £60,000 and bought a £37,000 Audi Avant A4 car, a £6,000 Chihuahua dog and a pedigree cat. The good life ended when Hyland was jailed for 28 months after admitting 16 charges of fraud, theft and false representation.

Wayne Gouvela pretended he was an MI5 agent, conned his girlfriend into believing he was a real-life James Bond and defrauded her of nearly £14,000. Whisky shop assistant Gouvela stole the money after convincing Leanne McCarthy that her boss was trying to poison her with anthrax powder in her mail. Fearing for her life, the teenager let her boyfriend take charge of her post, so he could “decontaminate it”, effectively giving him access to her bank accounts and pin numbers. He won her trust and siphoned thousands from her bank accounts. The unsuspecting McCarthy even signed a bogus version of the Official Secrets Act in the belief that she was part of an important undercover operation. Gouvela was given an 18-month prison sentence.

Howard Manoian was a local hero in the Normandy village to which he had retired. The American was happy to tell how he was wounded in action twice after parachuting into nearby Sainte-Mere-Eglise in the fierce World War 2 battle later depicted in the film ‘The Longest Day’ starring John Wayne. He told how he was shot in the hand and legs by a German machine gun during a fire-fight and then again by a Messerschmitt which strafed the field hospital where he was recovering. France recognised his sacrifice, presenting him with the country’s highest award for bravery – the Legion d’Honneur.

However, his unit was not the fabled 82nd Airborne Division, but the 33rd Chemical Decontamination Company. In fact, after arriving at Utah beach by supply ship, Manoian and his company spent the rest of the war minding a supply dump in Northern France and providing showers for war weary soldiers. His Legion d’Honneur has now been rescinded, his name and photo removed from official records and museums, and ‘feeling poorly’ he has returned to America.

Allen Stanford, the Texas magnate and billionaire cricket impresario, was tracked down to the Virginia town of Fredericksburg and served with legal papers detailing the alleged $9.2 billion fraud charges against him. The U.S. Securities and Exchange Commission sued Stanford, two associates and three of his businesses in February, alleging they perpetrated a $7 billion fraud scheme involving the sale of certificates of deposit through Antigua-based Stanford International Bank Ltd. Stanford, who also faces criminal fraud charges, has denied any wrongdoing. The Federal Bureau of Investigation believes that Stanford was running a giant ‘Ponzi’ scheme. More than 50,000 customers are understood to have invested in Sir Allen’s certificate of deposits.

Enid Bell, 67, and her daughter Lorraine defrauded £612,475 in benefits to fund an extravagant lifestyle. They bought eight houses and luxury cars with the fortune that they swindled. Enid, who masterminded the scam, used at least eight different identities and addresses and set up separate bank accounts to make it difficult to trace the bogus claims. Among the vehicles that they bought was a high-powered Audit TT with a personalised registration plate that looked like LOZZIE B, owned by mother-of-two Lorraine, 30. They have been ordered to repay every pound defrauded to the Department of Work and Pensions and received prison sentences of four and a half years and two years.

Stefano Arrighetti, 45, an engineering student from Genoa, created the “T-Redspeed” system, which was adopted all over Italy to detect vehicles jumping a red traffic light and to store their number plates on a connected computer system. With 108 other people he is under investigation for allegedly rigging the cameras to unjustly trap innocent motorists and in the process rake in fines of 150 Euros (£130) a time. More than one million Italian drivers were wrongly snared on red and landed with flat fines after the lights did not stay on amber for the regulation five or six seconds.

During the two years it was in use, the T-Redspeed system was adored by local governments which raked in hugely increased revenues from fines. Roberto Francini, the police chief of Lerici, who uncovered the alleged fraud, said, “Safety controls cannot be transformed into a form of taxation.”

Cath Wiles, 45, was a trusted member of her council’s finance team, but she invented a children’s home to siphon off £620,000 that was meant to help disadvantaged youngsters and their carers. She carried on the fraud for five years, using the money to fund an extravagant lifestyle that included exotic foreign holidays and expensive cars.

She first stole to pay for a house extension but when none of her colleagues at Blackpool Council noticed the theft, she became bolder, paying in large sums to the fictional children’s home that she called Cherrywood. She later admitted 24 counts of theft and fraud and was jailed for two years and eight months.

Anthony Webster, 23, systematically siphoned £455,000 from the bank account of the then Chairman of Lloyds Bank, Sir Victor Blank. Webster was a high flier who had been rapidly promoted after joining Barclays at 16, having been voted the bank’s ‘best team player’. Webster was jailed for three years for helping to steal the cash – and a further £150,000 belonging to two other customers – but it was also a little embarrassing for Sir Victor that his account was found to be with Lloyd’s rivals at Barclays.