Flashback Friday: The Greatest Scams In Modern History

In the July, 1979 issue of High Times, writer Michael Chance outlines the ten greatest hustles, cons and rip-offs in history.
Steve Cooper

From the July, 1979 edition of High Times comes Michael Chance’s fascinating story, “Scams: The Greatest Hustles, Cons and Rip-Offs of Modern History.”

The Western world loves nothing more than a great scam. Give them a simple thief and they will jail him for life. Give them a good con man and they will elevate him to the highest office, apotheosize him in the arts and literature, and throw fortunes at his feet. The victims of a scam may arouse our sympathy, but the perpetrators often elicit awe, envy and maybe a few books and a movie. Indeed, con artists, hucksters and magic beans have never had it so good.

The players and their marks are now so numerous that a language has followed in their wake. Such commonplace terms as rip-off, fix, and kickback were virtually unknown a generation ago. The word scam has only recently attained dictionary status and appears routinely in quotation marks in that most bottom line of language, the New York Times. Etymologists claim that this decade has been surprisingly barren in the generation of new words, but scam has arrived. It looks like it’s going to be even bigger than bustle. The scam is a way of life. A philosophy. Maybe even a political system.

The term rip-off derives from a popular scam of the mid ’60s. At that time kilos of Mexican marijuana were often sold in small, compressed “Texas bricks” that were each individually packaged in about two ounces of heavy wrapping paper. A rip-off dealer—and there were many, as this pot dominated the summer market for a good many years—would saw off a two-ounce corner of the brick, keeping the severed dope and bringing the total weight of the brick, including paper, to a kilo. You paid for two ounces of paper on each kilo. The exposed corner was there so you could examine the pot, supposedly. Some of these dealers today are successful commodities brokers.

Scam masters aren’t new to Western art and literature. Witness Mark Twain’s Duke and Dauphin from Huckleberry Finn, or Melville’s enigmatic The Confidence Man, acclaimed by many critics as having best captured the national consciousness long sought after as the elusive Great American Novel. Even more than Moby Dick. Edgar Allan Poe, always in need of some spare cash to fill his opium pipe, once wrote a fabricated account of traveling around the globe in a balloon. The story was an assignment from a New York newspaper that hoped to bolster its sagging circulation. The story, an eyepopper during the earth-bound period, worked. After Poe’s death the “hoax” was discovered.

Not quite in the same league, but close, was H.L. Mencken’s phony account of the history of the bathtub in the respected pages of the American Mercury. Mencken claimed that the bathtub was a relatively new innovation with its antecedent in the early Egyptian public baths. Complete with a brief bio of the European inventor of the bathtub, the stories generated a froth of academic studies. When months of research failed to substantiate Mencken’s claims, he said he was “flabbergasted” that anyone had believed the story in the first place. And of course there is Clifford Irving, whose phony biography of Howard Hughes earned him two years in the slammer.

A war-weary world roared with laughter when Hans Van Meegeren, arrested for allegedly selling a hot Vermeer to Hermann Goering, claimed in his defense that he had painted the picture himself. The skeptical art experts of the Nazi elite ordered him to paint another Vermeer as they watched, which he executed to perfection. He had, it turned out, produced a half-dozen Vermeers between 1939 and 1943 and sold them for more than $3 million. Twenty years later the great art institutes of Europe again suffered humiliation when the famed art forger Emil de Hory confessed all. De Hory, incidentally, is a close friend of Clifford Irving.

The world of academia has never paid much homage to scam masters, perhaps because they are too close to home. Often a philosopher’s stone turns out to be made of clay. Such was the case when the Piltdown Man, discovered by a road crew late in the 19th century and purported by many of the leading anthropologists to be the missing link, turned out in fact to have been a college prank.

Scams for the common man are perhaps as old as religion. Even before bingo, the numbers rackets and lotteries were taken from private hustlers and officially sanctioned as generators of state revenue. There was the carnival. Today the carnival is tightly regulated and relatively harmless, but from the Depression to the late ’50s it was considered a sort of Sodom and Gomorrah on wheels. Not to be confused with circuses that have wild animals and talented performers, the carnival is simply a motley rolling assortment of rides, games and sideshow freaks, probably a hybrid between vagabond theater groups and gypsy caravans that got it together on the road.

The carnivals played small towns in the South and Midwest, paying stiff nuts to the local officials and making it up through an assortment of crooked games. Like policemen’s balls, carnivals were allowed to operate gambling games in otherwise verboten areas, with presumably half the take going to the group or organization that sponsored them. After setting up revival-meeting-sized tents, some filled with new cars, tractors, radios, guns and other prizes, the carnies would throw open their games of skill and chance to all comers.

More than one carnival was burned to the ground by storms of angry townspeople after a local had lost the family farm trying to win a Kewpie doll at the six-cat tent. Competition for the backwater dollar was tough, what with riverboat gamblers and snake-oil hucksters on the loose everywhere, so the resourceful carnies developed a catalog of gimmickry that soon brought the scam dollar to their corner: basket-toss games with hidden assistants who, by pulling wires, could cause the ball to bounce out; lead-lined milk bottles for the one-ball pitch; hidden magnets and metal slugs in the pool games; loaded dice; stacked decks; they didn’t miss a trick. The carnival was also a haven for pickpockets, ex-cons and misfits who exchanged notes on their various talents. Several states outlawed carnival games altogether, and the others were soon eclipsed by Las Vegas, Atlantic City and a host of laws.

A little higher rank on the scam scale is accorded to the originators of chain letters. The chain letter is the most primal version of the pyramid scheme, the most ancient and peculiarly American of the pie-in-the-sky come-ons. An advanced construct, the Ponzi scheme, or “pyramiding,” flourished earlier in the century, and today its most sophisticated form, deficit-financed capitalism, has been adopted as the national-economy model for the West. All of these scams have as their common thread the device of forwarding money to the designers and perpetrators from those below on the premise that equity will eventually be forthcoming from those below them, or in the case of the economy, future generations. There are, of course, finite limitations on this geometric progression. This is what Harry Truman meant when he said, “The buck stops here.”

The most recent chain letter to make its inventors a fortune was the “chain of gold” letter that originated in San Francisco, a city that for some reason has always ranked high on the con artist’s itinerary. The letters are sold to each mark for $100. Fifty dollars goes to the seller of the letter, and $50 goes to the top name on a list of 12. Each time someone else buys the letter, the purchaser’s name moves one notch up the list. If the chain is unbroken, the buyer purportedly collects more than $100,000. The catch is that the first half-dozen names on such lists ordinarily belong to the same person or group who hatched the scheme in the first place. The sixfold logarithm eventually nets them money if they can find a few suckers to invest early, with the guarantee that those people will beat the bushes for new investors in hopes of getting back their original investment and maybe something extra. Of course, they seldom do. After plucking scores of gullible San Franciscans the letter leaped to the New York theater scene, another popular breeder culture for get-rich-quick gimmickry, where it reportedly netted a number of big-name Broadway fish. Theater people, like San Franciscans, little old ladies and students, seem to be a favorite target of scams.

The classic pigeon-drop has always been a favorite in certain areas—particularly San Francisco, Boston and Madison, Wisconsin, owing partly to the large numbers of students, artists and geriatrics in these towns. Its victims are almost always sweet, elderly grandmothers trying to make a fast buck. It works like this:

A young, well-dressed woman suddenly pops up in front of the elderly mark waving an envelope and yelling, “Look what I found!” The envelope is apparently stuffed with money, and she shows it to the mark, wondering what she should do. The older woman usually suggests they call the authorities. So they call the younger woman’s lawyer, who tells them to come right over. He tells them, after checking with banks and the police, that no one has claimed the money and they may be the lucky owners. There’s only one catch: the two must provide matching funds to prove “good faith.” Both $20,000 sums will be kept by the police, or a bank, for a while, then if no one claims the money it is theirs.

Of course the younger woman has no such stake and, in spite of the preposterous story about “good faith” funds, the presence of the “lawyer” more often than not overrides the mark’s suspicions, so she coughs up the $20,000. The cons seldom set up a pigeon who doesn’t have the money. Once the funds are withdrawn and delivered to the lawyer, the three set out for the bank or wherever, and at one point the lawyer leaves the room on some pretense, the younger woman soon excuses herself to go to the bathroom, and both vanish. In Madison, Wisconsin, this ploy was executed by Chicago-based con artists so frequently that there are now semiannual warnings against it in the newspapers.

A lot of scam artists these days scorn U.S. currency in favor of precious metals and jewels. Phony gems, gold fever and international contrabandistas are the stuff these intrigues are made of, too numerous to mention but one: A well-heeled Texan, introducing himself as an oil tycoon, strode into one of Houston’s high-roller jewelry stores and picked out a rare black pearl that sported a six-figure price tag. A few days later he was back, saying that his girl friend was so enthralled with the bauble that she just had to have another to make a pair of earrings. He would pay any price for an identical pearl.

The store scoured the world’s jewelry exchanges at the daily insistence of the Texan and at last found a European buyer claiming to have a line on just such a pearl. It cost, however, twice what the original did, hard cash. A buyer was dispatched to examine the pearl that, he assured the home office, was the mirror inage of the original. After a final confirmation with the overjoyed Texan the pearl was purchased and the buyer winged it back to Houston. The store called the Texan—he wasn’t in. He was never seen again, and the pearl turned out to be the same one they’d sold him.

Also worthy of note in this league is Stanley Rifkin, the Los Angeles bank accountant who through the miracle of electronics recently managed to buy $12 million worth of diamonds from the Russians with money that only existed on computer tapes. Rifkin, a computer analyst who had already ripped off the Security Pacific Bank for $10.2 million, contrived to reroute some of the bank’s computer funds to Switzerland, where he scored the diamonds. It was a week before anyone noticed.

Banking and law officials are particularly reticent about Rifkin’s case because it spotlights the simplicity of computer crime. Bunco squads have warned for 20 years that computer crime would be the wave of the future, and they were right. Not only have the biggest contemporary frauds and swindles involved computers at some strategic point, but the rising popularity of home computers no doubt augurs further enlightenment to techno-outlaws and headaches for those concerns that stash their money in electronics.

A Long Island, New York, man made a bundle with his home computer by programming it with every municipality, church and school district in the nation, then billing them for items they did not receive. Using letterheads of two bogus companies, the man sent invoices seldom exceeding $400 for items such as snow pellets and insecticides to thousands of cities in all 50 states. Few questioned such petty expenditures, and those who did assumed it was a mistake. The scam netted its mentor over $1 million a year until tripped up when a city attorney in Richland Hills, Texas, demanded repayment of two $245 checks the city had paid for nonexistent items. They received the checks back, but they bounced and the city attorney launched an investigation that turned up the operation. Had the checks been good the man might still be in business.

A more minor-league computer scam was scored by two business-machine salesmen in New York who were falsifying grades at the Queens College data-processing center. For the right price, dumb students and even nonstudents could make Phi Beta Kappa, and scores of them paid it. The electronic wizards were nailed when a physics instructor noticed the discrepancy between his handwritten grades and the computer printout.

But these scams for the most part are small potatoes. When hustlers sit around in the cell-block or in the Plaza Hotel, they talk about the legendary scam artists, confidence players who have sold national monuments and caused entire banks to collapse and entire economies to teeter on the brink of destruction. And to be a great scam it not only has to be questionably legal and financially successful, it must show up the victims to be the greedy fools that they are. Herewith, the ten greatest scams of all time.

Top 10 Scams

The Man Who Sold the Eiffel Tower

Though no one has ever bought the Brooklyn Bridge, there have been buyers for other landmarks—such as the Eiffel Tower. In 1925 an important French bureaucrat, Monsieur Dante, held a highly secretive meeting of scrap-iron dealers in a swank Paris hotel. Monsieur Dante told those assembled that the French government was taking bids on the demolition of the Eiffel Tower. The government could no longer afford to maintain the structure and could use the more than 7,000 tons of steel involved. This was all top secret.

Andre Poisson, a socially ambitious scrap-metals dealer, was determined to get the job. After making himself conspicuous with a series of ever more attractive bids, Poisson was finally summoned aside by Monsieur Dante. In situations like this, Dante explained, it was customary for an additional sum to expedite bureaucratic procedures: in other words, a bribe. Poisson paid for the Eiffel Tower and didn’t find out until Monsieur Dante was in Vienna that the government bureaucrat he had been dealing with was in reality Count Victor Lustig, one of the cleverest con men of all times.

Fortunes came and went through Lustig’s hands, always acquired through his assumed title, elegant clothes, high manners and the lordly society he frequented. Born in Czechoslovakia, Lustig was a bright scholar who spoke six languages. His quarry was mainly the European and American ocean-liner set. He worked closely with the legendary Nicky Arnstein, king of the ocean-liner, gamblers, who taught him how to pick out the nouveau riches and the gullible old rich. Time and again Lustig conned well-heeled travelers out of thousands of dollars in investment deals. Often, he would talk a partner into accepting a deal. Both would put up their money, Lustig would hold it and disappear at the next port of call.

The Rumanian Box Hoax

The other scam that Lustig perfected involved a prop called the Rumanian Box. A glossy mahogany affair replete with brass knobs, dials and gears, the box was crafted to Lustig’s specifications by a famed New York cabinetmaker and toted by Lustig to the playgrounds of the idle rich.

At a Palm Springs hotel he once spent a week and thousands of dollars winning the confidence of Herman Loller, a former auto mechanic turned tycoon through his parts-supply business, which was currently threatened by the larger auto manufacturers, who were making their own parts. After a brief acquaintance and much urging, Count Lustig finally agreed to show Loller how he made his living. After closing the curtains in his room Lustig exhibited the impressive box to his awed friend. There were two slots, each the size of a dollar bill, into which Lustig put a thousand-dollar bill. Six hours later, he explained, there would be two of the bills. The pair went to Loller’s yacht to wait. When they returned again Lustig fiddled with the controls and out came two thousand-dollar bills from the box. He told Loller he could cash them at any bank, but not the same bank, since they had the same serial number.

Loller paid $25,000 for the box but was never able to make it work. For six months he refused to believe he had been ripped off, blaming instead his own ineptitude with the controls for the box’s failure to manufacture money. Finally his enraged wife smashed the box with a hammer and destroyed it.

Lustig avoided imprisonment for 30 years and talked his way out of over 40 arrests. He once talked a vengeful sheriff, who had paid $10,000 for the box, out of shooting him by repaying his money. The sheriff was soon arrested for passing counterfeit bills. Lustig finally got nailed on a counterfeiting scheme.

The Great Ponzi Scheme

No one, excepting banks, insurance companies and the U.S. government, has ever pulled off quite such a masterful scam as Charles Ponzi. Boston residents went wild when Ponzi promised people that he would return their original investment plus 50-percent interest in 90 days. People were skeptical at first, but after he had maintained the operation without default for four months they began investing in droves.

Ponzi explained that he made money from investments in international postal-reply coupons. It was a vague story involving fluctuating rates of interests, inflation and rediscounting, with agents buying and mailing all over Europe. But Ponzi would say that he, like Rockefeller, had a right to some amount of secrecy.

After four months working Boston’s blue-collar North End, Ponzi was so successful he moved his Foreign Exchange Company, as it was now called, to classier digs. He also offered a deal where anyone who could get someone else to invest would be given ten cents on each dollar invested. Great lines of people appeared, paying their cash and receiving a slip of paper with the maturity date in return. Within six months his operation was forced to move to bigger quarters yet.

Ponzi, a poor Italian whose last job before starting his investment company was that of a $16-a-week stock clerk, from which he was fired, was now the toast of Boston upper-crust society. He and his wife moved to a mansion in suburban Lexington. They drove in a chauffeured limousine. He purchased controlling interest in the Hanover Trust Company and was soon recommended and installed as president. He bought the company that had employed him as a stock clerk barely a year after he had been fired, and he fired the man who fired him.

Ponzi was undone when the city editor of the Boston Post did some checking and found that all the postal coupons sold in the world the year before added up to only a fraction of Ponzi’s inventory. At first the expose only brought Ponzi more business; the day after the article appeared the line to Ponzi’s door was four blocks long and over $1 million was taken in. The newsman had to fight his way through the crowds to reach his office next door to Ponzi’s. But when Boston banks, which were seriously threatened, joined in the investigation, Ponzi’s secret was soon discovered: he had simply been robbing Peter to pay Paul. He would pay off the first debt with the second investment and so on. In all $15 million was involved, of which about $5 million was never recovered.

The Man Who Stole Portugal

Alvaes Reis, “the man who stole Portugal,” perpetrated perhaps the cleverest scam of all time. He managed to convince the firm of Waterlow and Sons of London, the company that printed money for the Bank of Portugal, to print money for him, using the real paper and the real plates. Reis convinced Sir William Waterlow, with the aid of forged documents and pure inspiration, that the government of Portugal wanted to issue three million pounds for circulation in their African colony of Angola. The notes would not need new serial numbers, for the government would stamp the word “Angola” on each note. The project was, naturally, top secret.

Reis and his partners (he had three) got the money, took it to Angola by suitcase, and, in order to facilitate distribution of the bills, opened a bank. They were a huge success and next tried to buy controlling interest in the Bank of Portugal. Reis’s theory was that at some point the bank would discover his fraud, and he could prevent investigation by running the bank. Behind all this was Reis’s real dream—to follow in the footsteps of his childhood hero Cecil Rhodes and create a Portuguese-African empire with himself as its leader.

As a youth, Reis studied engineering but was rejected by the government for a post in the colonial bureaucracy. He overcame that by forging a diploma from the University of London and had no trouble getting hired as a railway inspector in Angola. By the time he was 25, Reis had become inspector of public works for the colony, but this was not what Reis had in mind. He started his own company for the exploitation of Angola’s rich mineral deposits, especially gold and diamonds. Reis went looking for money in England and Holland to finance his company’s projects. He failed totally and had to go back to working for the Angolan railroad. Confident that he could pay the money back with ease after his company’s future discovery of diamond mines, Reis transferred $200,000 of the railroad’s money to the firm of Alvaes Reis. He was arrested for embezzlement, found guilty, served three months in jail during which he thought up and set up the bank-note scheme, was retried and acquitted.

Immediately on being freed he set the plan into action, with his key confederate appearing before Sir William Waterlow with forged credentials from the Portuguese government. It was the Bank of Portugal that eventually uncovered Reis’s monumental swindle. Suspicious of massive purchases of their stock, the bank’s directors grew very curious about Alvaes Reis. Police raided his Angolan bank and found great bundles of brand-new money. They should have been forgeries but were genuine in all detail. Finally, someone checked the serial numbers. It was the worst financial disaster in Portugal’s history, helped usher in the Salazar dictatorship and ruined one of the world’s greatest printing firms.

The South Sea Bubble Explosion

Another famous swindle with great political reverberations goes by the lovely name of the South Sea Bubble. The scene shifts from Portugal in the 1920s to London in 1711. There were a lot of rich people in London as in all of England at the beginning of the 18th century. Fortunes were being made in shipping, in banking, in trade and in investments. The economy was solid and it was growing and speculation was in the air. Through a treaty that terminated the war of the Spanish succession, Britain was awarded the right to trade with the Spanish colonies. The average Londoner knew nothing about the Spanish colonies (or, for that matter, about South America or anywhere else in the world except England and Europe) but that they were reported to be a source of endless riches—gold lying on the ground waiting to be picked up, etc. The South Sea Company sold this fantasy to the people of England, and they showed their faith in their (and the company’s) dream with a response so strong it has been described as mass hysteria.

The South Sea Company sold the people of England the chance to get in on the exploitation of the South Seas. Everyone invested, from the uneducated to the newly rich businessmen to the great nobles of England. In 1745 the Prince of Wales was named a governor of the company. He was soon replaced in that position by his father, King George I, who invested 60,000 pounds of his own—an enormous amount of money in those days.

In 1719, the South Sea Company took over the national debt of England. Everyone who had any power was deeply involved in the company’s fortunes. Naturally, such success did not go unimitated, and soon half of Europe was investing in the fantasy of untold riches, the promise of enough for all. People invested in companies that sprang up all around, companies that promised to fish for treasure in the sea, to extract silver from lead, to import jackasses from Spain.

The South Sea Company, believing its hold on the credulity of half a continent to be threatened by these imitators, tried to stop them by law. In revealing the fraudulent nature of these other companies, the South Sea Company burst its own bubble. People started to sell their stock, and the value of that stock dropped from 1,000 pounds a share to 180 pounds in less than two months.

Thousands of people went bankrupt. England’s economy was in serious trouble. Paper money was almost worthless. Unemployment rose and there were food riots. The crash echoed through Europe, followed by a smallpox epidemic — thought by some to be God’s punishment for fools. In the resulting arrests and trials, many of England’s leading citizens were found guilty. The South Sea Bubble was a disaster both for the company and the greedy, speculating public.

The Grand Central Station Swindle

Though it was Lustig’s style, he was not the man who peddled part of Grand Central Station. That happened in 1929. The impressive-looking stranger who approached Tony and Nick Fortunato in their Manhattan fruit store told them they had fortunately been among other successful fruit stands being considered to lease the information booth in the middle of Grand Central Station. Too many dumb questions were being asked at the booth, questions that could be handled at less cost by the ticket clerks. The agent, whose card read “T. Remington Grenfell, Vice-President, Grand Central Holding Corporation,” pulled out detailed blueprints showing plans for the conversion of the booth and specifications for a fruit stand.

The Fortunato brothers hesitated at the $100,000 advance lease, but the idea of doing business in the midst of the world’s busiest railway station convinced them to follow Grenfell to his offices for more details. A waiting chauffeur-driven limo drove them to a building next to Grand Central Station, where they entered through an office door labeled “Wilson A. Blodgett, President, Grand Central Holding Company.” As they entered, the Fortunatos overheard Blodgett finishing a phone conversation with their competitors. “Have your certified check in my hands by noon tomorrow and the booth is yours,” he told them. Horrified, Grenfell explained that the Fortunatos had just come to close the deal. Blodgett, after some consideration, decided the only fair thing to do would be to let “the first one here with the check have the lease to the booth.”

The next morning the brothers were at the bank when it opened and from there went immediately to Blodgett’s office with the money. The lease was signed and congratulations offered.

The lease called for the brothers to take over the booth on April Fool’s Day. They arrived to find business as usual in the information booth. Telling the information attendants that since it was after nine o’clock, “you and the others are supposed to be out of here,” they then had workmen begin stacking lumber and building materials next to the booth, obstructing traffic. A cop checked the lease and the blueprints and rousted a vice president of Grand Central Station who told the brothers that there was no such animal as the Grand Central Holding Company. Blodgett’s office was empty, their check had been cashed. After a year’s investigation the culprits were never found. Tony and Nick remained convinced the Grand Central Railroad itself was behind the swindle and for years would go to the information booth at the station and shake their fists and shout at the men in the booth.

64,000 Ghosts

But the biggest example of a swindle featuring a company’s financial success based on imaginary assets is both very recent and very close at hand. It is the case of the Equity Funding Corporation of Beverly Hills, a scandal that broke in 1973 and involved a record-breaking $2 billion worth of phony insurance policies.

Equity Funding Corporation of America went into business in 1960 with $10,000. Its growth in 13 years to assets of $1 billion set a new growth record. But that growth was based on sheer fantasy.

What started Equity Funding on the road to corporate fame and fortune was something called “leverage.” A salesman would tell a client, “You’re prepared to spend $300 on insurance. Instead of spending $300, spend $100—and put $200 into mutual funds.” The idea was to borrow against the mutual-fund investment to pay the premium on the insurance. The expectation was that earnings plus growth would be greater than the interest cost of the loan. Leverage meant using the same money twice. Of course, the customer had to pay two commissions, and there was no guarantee as to the financial health of the mutual fund. It was merely a debt that had to be repaid.

Insurance salesmen loved it. The public loved it. And most of all, Wall Street loved it. Equity Funding, with its unique concept and dazzling growth, became a “glamour stock.” By 1968, reported assets approached $200 million. The company moved to new quarters, the top floor of 1900 Avenue of the Stars, and its president, Stanley Goldblum, occupied the largest office in Century City. At this point, the worst crime that had been committed could be generously called creative bookkeeping.

In 1970, the stock market went through one of its periodic erosions, and Equity’s stock dropped from $80 to a low of $14 a share. It was then that Stanley Goldblum and his chief financial officers decided in favor of massive and outright fraud.They simply created imaginary people all over the United States and sold them life-insurance policies. More than 64,000 phony policies in all, totaling over a billion dollars. Using the principle of leverage, these policies were then resold, for cash, to other insurance companies. And, of course, Equity’s assets appeared to be growing tremendously, driving back up the price of the stock, making Equity Funding an attractive investment opportunity again.

These fictitious policies created a very big headache for the officers of Equity Funding, since the insurance business is tightly regulated by the government. Every detail had to ring true, and the fraud had to be kept hidden from most of the firm’s employees. Files had to be established for each “policy holder”; computers were specifically programmed, making them accomplices to the swindle; death certificates had to be forged. It all worked until Goldblum fired one of Equity’s vice-presidents as an economy measure. His name was Ronald Secrist, and he blew the whistle, ending the amazing story of Equity Funding. But, as of this writing, none of the Equity officers are in jail. Stanley Goldblum was, however, indicted in Los Angeles for mail fraud, bank fraud, securities fraud, the filing of false documents with the Securities and Exchange Commission and 41 other counts.

Don’t Ever Trust No Skirt

You would think that for a female to become a swindler she would have to be good-looking, or at least charming. Cassie Chadwick was neither of these, but she was certainly convincing. She began her career in Canada by going on a shopping spree financed solely by some business cards she had had printed with her name and the legend “Heiress to $15,000.” One of Cassie’s earliest discoveries is that people like to lend money to people who already have a lot of money.

Cassie’s shopping spree ended when she was arrested, but the intensity of her personality was such that the judge at her trial, instead of jailing her as a criminal, acquitted her on grounds of insanity. Cassie created a reality to suit herself, changing her name and history at will. In various incarnations she was the young Canadian heiress Elizabeth Bigley, who mortgaged her sister’s furniture while she was away on a trip; the wealthy Toledo clairvoyant Madame de Vere, who was sent to the Ohio penitentiary for nine years for forgery; and finally Mrs. Leroy S. Chadwick, the wife of a doctor and a prominent figure in Cleveland society.

But most of all Cassie Chadwick owed her good fortune to being the illegitimate daughter of Andrew Carnegie. At least that’s what she said. She once appeared to a carriage full of waiting lawyers (this was in New York in 1902), leaving Andrew Carnegie’s house with nearly $1 million worth of notes, just signed by Carnegie himself. The notes were later found to be forgeries. While inside the house, Cassie’s interview was with Carnegie’s housekeeper, its subject a maid’s references. The notes had been signed by Cassie at Mr. Carnegie’s kitchen table.

Cassie Chadwick lived a life of fabulous wealth in Cleveland. Once, to surprise her husband, she had the house redecorated while they ate dinner out in a downtown restaurant. She bought everything, and in great quantities, too—jewelry, paintings, furniture, the only seal dress ever made in Canada. Once she bought eight grand pianos as gifts for friends. So when Harry Rickey, an editor of the Cleveland Press, discovered Mrs. Chadwick was being sued for failure to pay a debt of $190,000, he got curious. After a lot of detective work by Mr. Rickey, his newspaper printed Cassie’s whole story, starting when she was heiress to a mere $15,000, straight through to the millions coming her way from the sometimes paternal Andrew Carnegie. She was arrested, and her “credit” was found to have come close to $2 million.

Cassie, backed up by her claim to the Carnegie fortune, seemed to cast a spell on bank presidents. Charles T. Beckwith, president of the Citizen’s National Bank of Oberlin, Ohio, had loaned Mrs. Chadwick $240,000, four times the total capitalization of his bank. Cassie died in prison but had a good run first, made possible by her wits and the greed of rich men who loaned her money at enormous rates of interest.

They Sold Plenty of Nothing

Two modern examples of empires built on a combination of assets both real and imagined were those headed by Billie Sol Estes in Texas and by Tino DeAngelis in New Jersey, both during the ’60s. The Billie Sol Estes scandal had severe repercussions for the administration of John F. Kennedy. The “salad-oil swindle’’ ruined one major brokerage and financially threatened scores of banks, trading companies and businesses.

Billie Sol Estes, a classic con man, started out with no money, just a small farm in west Texas. By the time he was 28, he was so successful he was named as one of the ten outstanding young men of 1953 by the U.S. Junior Chamber of Commerce. Through the Jaycees, Estes made many valuable contacts, and through one of them he obtained $100,000 in mortgage money. With this capital, Estes branched out into many businesses, including fertilizer and grains.

He had some unusual ideas about how to do business. “If you get into anyone far enough,” he’d say, “you’ve got yourself a partner.” In just that way, Estes joined up with a New York chemical manufacturer, an association that gave Estes some amount of financial credibility. To gain control of the anhydrous ammonia market, he lost millions of dollars undercutting other manufacturer’s prices, driving them out of business. He also took advantage of every price-support allowance offered by the U.S. government. He has been called “a welfare-state Ponzi”—he had an amazing ability to make money with the help of the Department of Agriculture.

Everything was set up to make millions of dollars. The only problem was, Estes’s setup had been so expensive to develop that he needed to raise more capital to start the money rolling in. He decided he would raise the money on nonexistent anhydrous-ammonia storage tanks. He collected more than $30 million in mortgages on imaginary tanks. He would rent an imaginary tank from a farmer and pay each farmer rent equal to the amount of the mortgage the farmer paid him. He made no money on the mortgages themselves but used their paper value as collateral for $22 million in loans.

Called “the biggest wheeler-dealer in all of west Texas,” Billie Sol Estes was not well liked. He ran for a seat on the local school board and lost to a write-in candidate. Blaming his defeat on the local newspaper, he set up a rival paper. The local paper then did a thorough investigation of Estes and printed the first story of his mortgage fraud. He served six years in jail and lost every cent he had.

Anthony DeAngelis started his remarkable career as a butcher, a field for which he showed great aptitude. He revolutionized the hog-dressing industry and made a fortune in meat during World War II, probably through the black market. When he was 35, DeAngelis bought stock control of a large meat-packing firm that sold its stock to the public and was listed on the American Stock Exchange. Five years later, the firm went bankrupt. Luckily, DeAngelis had diversified his capital before the bankruptcy and, with the help of the U.S. government, went into the salad-oil business.

The “Food for Peace” program brought surplus oil to sell to needy countries. To broaden his market, DeAngelis traveled through the world lining up orders. He was the first to take salad oil to the foreign marketplace. He took care of domestic competition for this market by buying the oil in the Midwest and selling it overseas, at a markup to the export companies. It was these companies that jumped at the chance to back him to put the scheme into operation. But no one could figure out how DeAngelis made any money. He paid the highest prices for domestic oil, paid transportation costs and finally sold the oil to export companies so cheaply there was no competition. Since everyone was making money, no one asked questions.

By the late 1950s, the business had grown to over $100 million a year, 75 percent of all the oil shipped overseas. But the real money, as usual, was coming in in the form of loans from bankers, brokers and businessmen in the United States and Europe. DeAngelis swindled hundreds of millions of dollars from these financial experts, his real victims. They would loan him money to buy more oil, but he was buying phantom oil. When DeAngelis was finally investigated (brought about by the failure of a Russian wheat deal), his miles of storage tanks were empty, and the money was gone. Many people thought DeAngelis did not work alone, and there are rumors he was backed by the Mafia. None of the money (over $100 million) was ever found. Anthony DeAngelis served seven years of his 20-year sentence and was paroled in 1972.

Uncle Sam’s Scam

Last, but far from least, there’s contemporary capitalism, which often differs from Charles Ponzi’s scam in only one respect: inflation. By devaluing tomorrow the money that is paid or owed today, the banks, insurance companies, the federal government and others who take money on the premise that they will return it in goods or services have only to pay back a portion of the money they received in the first place. Not only that, but it has been cleverly contrived so that people are forced to turn their money over to these institutions to earn piddling interest or they will lose even that.

Consider: a man has $1,000 he is saving for a Jacuzzi bathtub. If he hides it in his stereo, a year from today its buying power will have been reduced by the roughly 10-percent inflation to a real value of only $900. But if he puts it in a bank and earns 6-percent interest, the real value will have shrunk to only $954, and he will have avoided being ripped off for $54. This mark’s money is then taken by the scam masters who loan it out at even higher rates—up to 20 percent—or make long-term pledges such as social security and life insurance. Since it isn’t their money, they can’t lose. And since inflation will always go up higher than the rate at which they collect interest, these scam masters will always be rich. If it were not for inflation, this scam would, like the chain letters and Ponzi schemes everywhere, reach its finite limitations and collapse. Accordingly, price increments are subtly but inexorably advanced 10 percent each year, on transportation, food, clothing, shelter and virtually all the necessities of life that are currently subject to the scam master’s control. It is a condition of business, and any manufacturer or worker who fails to inflate by this rate will lose his or her line of credit and become an “enemy of the state.”

Again, like chain letters and Ponzi swindles, capitalist schemes are occasionally challenged. But always at a safely detached distance. For instance, when Nelson Rockefeller died, the New York Daily News, among others, characterized his father John D., the grand old man of the clan, whose business card read ‘‘John D. Rockefeller, Capitalist,” as a crook whose ‘‘special interest rate with the railroad” and “ruthless methods” made a billion dollars at a time when most people existed on the bare necessities of life, or less. Yet it is unthinkable that any newspaper in America would say the same sort of thing about the very much alive and kicking David Rockefeller, the most potent of the Rockefeller descendants, who in his capacity as head of the world’s largest capitalist monetary nerve center, Chase Manhattan Bank, is undisputed scam champion of the world.

It may seem odd to think that a whole culture embraces this scam, unprotesting, but it is hardly singular. The South Sea Bubble and the Great Depression were both similar monumental scams and little more. People like the fairy-tale finish that a scam culture promises, the lottery winner and the pot of gold under the pea. Many people in the Western world would rather live with poverty and gambler’s hope than with modest security and the certainty that nothing will change overnight. Capitalism may be a scam, but almost everybody loves a scam.

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