the largest financial frauds all seem to have one unexpected thing in common: they never start out as frauds. they begin as legitimate business ventures to various extents, and then somewhere along the way something goes wrong. sometimes the business plan is flawed and so revenue starts faltering, sometimes expensive mistakes are made, but either way money is lost and the company finds itself in financial trouble. instead of fessing up to it, though, they try to hide it, and that’s where the fraud starts to come in: forged documents, cooked books, misrepresentations to investors. the justification is usually that it’s just a bit of temporary trouble, and if they can weather the storm by cheating a little bit to avoid spooking clients, banks, and investors, everything will be fine once they get back on their feet. in essence, “fake it till you make it”. frequently, things never get better, and as time goes on the amount of lying required to keep the business from collapsing immediately increases day by day, digging the hole deeper. sometimes, the business model is fundamentally flawed, and there’s no chance of fixing it because all the accounting is just filled with fake numbers that do not represent the real state of the business. usually it’s only a sole individual or a handful of executives that keep the fraud going, totally alone in their knowledge, sometimes in charge of hundreds or thousands of other employees below them who are completely unaware. at some point there’s no hope of ever returning to legitimacy, it’s just a matter of keeping it up one day at a time until eventually you get caught, an extremely stressful situation. this is why usually, when it all comes out and the executives in charge of the fraud are confronted, their overall sensation is a feeling of relief. the thing is, it’s a little bit scary just how easy it is to pull off a fraud in those circumstances, because the system isn’t really set up to catch fraud at that scale. big companies trust each other a shocking amount, and are relatively easily fooled by even sloppy forgeries since they aren’t neccessarily on the lookout for them.

the book also has some good overviews of various interesting historical frauds i hadn’t heard of before, like the poyais scheme perpetrated in the early 19th century by gregor macgregor. macgregor invented a fictitious central american colony called “poyais”, putting together an elaborate booklet describing it as a thriving colony in an edenic paradise where cash crops flourished and the rivers ran with gold. macgregor sold millions of fraudulent “poyais bonds”, “exchanged” british pounds for worthless poyais dollars he had printed, and in the end 250 settlers even set out on an expedition to emigrate to the fictional territory. the ending is a bit grim because of course where poyais was supposed to be the settlers found nothing but treacherous uninhabited jungle, over half of them died before they managed to return to england.