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A Short History of Fraud

posted on: Tue Nov 28 2017

Since the beginnings of life on earth, plants, animals and other organisms have been opportunists. They constantly seek advantages to thrive and reproduce, often to the disadvantage of their own species or family relatives. They also adapt and evolve to remain vital or achieve even further success. 

It’s hard to determine at what point opportunism becomes fraud. But it’s safe to say that fraud has existed since the dawn of bartering and trading commerce.

Historians ponder documented or written chronologies of events. Early records of Greek mythology describe the deity Apate as one of the spirits that escaped from Pandora’s Box. She was the personification of deceit, perfidy and dishonesty. Her male counterpart, Dolos, was a demon of trickery. And her opposite, Aletheia, was the spirit of truth.

The written history of financial fraud begins in 300 B.C. when Greek merchant Hegestratos concocted an insurance scheme to cover a barge load of corn. He planned to sink the boat and collect an insurance claim. Alas, he drowned in the act.

The Bible holds numerous entries on fraud, including this quote from Proverbs 20:17: 

“Bread gained by deceit is sweet to a man, but afterwards his mouth will be full of gravel.” 

Commodity fraud has always been a problem because it’s so hard to keep track of quantities of plant and animal products. Medieval shepherds often misrepresented the number of lambs born to a flock so they could sequester a few of the lord’s sheep for themselves.

The history of money is fraught with fraud due to counterfeiting and other tampering. Wars have always offered a shameful abundance of counterfeiting and other fraud opportunities. In fact, Great Britain did this during the Revolutionary War to reduce the value of American currency, the so-called Continental Dollar. During the Civil War, Union counterfeiters minted Confederate States dollars by the bushel. Later, in World War II, the Nazis forged British pounds and American dollars.

Land swindles rank among the biggest scams in US history. These were exacerbated by the race to punch through a transcontinental railroad. Then the discovery of gold in the Rockies and California whipped speculators into a frenzy.

The original Ponzi Scheme was uncovered in 1920 after Charles Ponzi, an Italian immigrant, collected about $20 million ($230 million in today’s dollars) in a postage rate trading scheme. He was promising extravagant returns. Trouble started when he used new investment funds to pay out impressive returns to earlier investors while keeping a sizeable share for himself. Obviously, it was an unsustainable model. Ponzi did 12 years in jail and was later implicated in a war-time scam during WWII.

More recently, Bernie Madoff took Ponzi’s model to a new level by bilking investors of $18 billion in a scandal uncovered in 2008. This earned him the maximum allowed sentence of 150 years in jail.

Fraud is fueled by innate human greed. History shows that fraud comes in waves. The frequency and size of fraud schemes rise and fall with innovations and the eventual corrections that follow big losses.

Since the development of the Internet by the federal Defense Advanced Research Project Agency (DARPA), online fraud has exploded exponentially with advanced associated electronic technologies like processor speeds, credit cards, email, networks, powerful databases and cell phones.

Today, the pace of fraud is relentless. New and darker forces are lurking in the shadowy recesses of cyberspace. Individual hackers have been superseded by criminal organizations and enterprises. Even large, state sponsored teams are implicated in fraudulent dealings that affect individuals, organizations and entire nations.

Brute force attacks and social engineering efforts employ even more sophisticated software tools. Cyberspace is infested with malware, trojans, worms, spiders, ghosts, bots, spyware, rootkits, ransomware and other bad actors. Billions of dollars are surrendered to cyber criminals every year.

Fortunately, companies like Kount are applying the best and brightest minds to counter present and future iterations of online fraud. We are perfecting ways to fight fraud fast. Here is a two-minute video by Kount COO Rich Stuppy on how our omnichannel environment attacks fraud in milliseconds.