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Fraud BasicsFraud Basics: Criminal Innovation Through History

How criminals exploit new technology - from ancient insurance scams to AI fraud, understanding patterns that help predict future attacks

Fraud Through the Ages

These stories are true. Each one ends with a source so you can check the facts.

The Shipwreck That Wasn't (Athens, 4th century BCE)

In ancient Greece, you could borrow money against a ship's cargo. The deal was simple: if the ship arrived safely, you repaid the loan with interest. If the ship sank, you owed nothing. The lender took the risk.

Hegestratos saw an opportunity. He owned a ship sailing from Syracuse to Athens. He and his partner Zenothemis went to local moneylenders and borrowed against a full cargo of grain. Then they sent the cash home to Marseilles and loaded the ship with nothing.

The plan: sink the ship mid-voyage, blame the sea, and keep the money. No cargo would survive to contradict them.

Two or three days into the voyage, Hegestratos crept into the hold at night. He started cutting through the hull.

Someone heard the noise. The crew came down to investigate. Caught in the act, Hegestratos ran. The crew chased him across the deck. He flung himself into the sea, trying to reach the small dinghy the ship towed behind it.

He missed. He drowned.

The passengers managed to save the ship. It limped into harbor at Kephallenia, where Zenothemis faced a problem: an empty cargo hold and a lot of questions. He tried to convince authorities to send the ship to Marseilles instead of Athens, where his creditors were waiting. They refused.

The case went to trial. Zenothemis sued a man named Demo, claiming the cargo was his. Demo hired his nephew, the orator Demosthenes, to write his defense. That speech survived for 2,400 years. It's the oldest documented maritime loan fraud case in history, complete with disputed paperwork, a botched cover-up, and a partner who swore he knew nothing about any of it.

Sources:

The Empire Goes to the Highest Bidder (Rome, 193 CE)

On March 28, 193 CE, the Praetorian Guard murdered Emperor Pertinax. They'd only been paid half of the bonus he'd promised them.

Now they had a problem: a dead emperor and blood on their hands. So they did what seemed logical. They climbed the walls of their camp and announced that the Roman Empire was for sale.

Two senators arrived to bid. Sulpicianus, father-in-law of the dead emperor, was already inside the camp negotiating. He offered 20,000 sesterces per soldier. A fortune.

Didius Julianus rushed to the camp when he heard the news. Standing at the gate, he shouted his bid: 25,000 sesterces per man. Ten years' wages. The guards talked it over. They opened the gates.

That night, Julianus walked into the Senate surrounded by armed guards. The senators voted him emperor. What else could they do?

He lasted 66 days.

The armies on the frontier heard what had happened. They were disgusted. Three generals declared themselves emperor instead. One of them, Septimius Severus, marched on Rome.

The Praetorian Guard did the math. They sent word to Severus: we'll switch sides. The Senate did the same. They declared Severus emperor and sentenced Julianus to death.

An assassin found Julianus alone in his home. His last words, according to the historian Cassius Dio: "But what evil have I done? Whom have I killed?"

Source: Cassius Dio, Roman History, Book 73; World History Encyclopedia↗

When a Third of the Money Was Fake (America, 1860s)

Before the Civil War, there was no national currency. Thousands of banks printed their own money, each with different designs, different sizes, different colors. If you ran a store in Ohio, you might handle dozens of different banknotes in a single day.

Counterfeiters had never had it so good.

By the 1860s, estimates suggested as much as one-third of all paper money in circulation was counterfeit. Every time you accepted a bill, you were gambling. Merchants subscribed to registers that described the latest forgeries, listing which banks had been counterfeited and how to spot the fakes. It was difficult to know the value of any particular note.

Ohio became a counterfeiting hub. The rural areas made perfect hideouts for printing operations. The cities provided ready markets. By 1847, U.S. Marshal Daniel Robertson had collected the names of "upwards of 50 counterfeiters" in Ohio alone. Allan Pinkerton, before he became famous as a detective, got his start when he stumbled across a band of counterfeiters in Illinois and helped take them down.

The Treasury fought back. They embedded colored fibers in paper that couldn't be reproduced. They hired master engravers to create designs too intricate to copy by hand.

In 1865, legislation established a new agency to solve the problem. Its name: the Secret Service. Its original mission was suppressing counterfeiting. Protecting the president came later.

Source: U.S. Marshals Service Historical Reading Room↗

The Country That Never Existed (London, 1820s)

Gregor MacGregor had the resume of a hero. He'd fought alongside Simón Bolívar in the Venezuelan War of Independence. He'd married Bolívar's cousin. He had medals, stories, and the easy confidence of a man who'd shaped history.

In 1821, he arrived in London with an opportunity. He was, he announced, the Cazique of Poyais, a Central American territory the size of Wales. A native king had granted him the land. MacGregor had documents to prove it.

Poyais, he explained, was paradise. Fertile soil. Friendly natives. A capital city called St. Joseph with a cathedral, a bank, and an opera house. Gold in the rivers. The climate was perfect. All it needed was settlers.

MacGregor opened offices in London, Edinburgh, and Glasgow. He sold land certificates. He issued government bonds paying 6% interest. He printed Poyaisian money. He published a guidebook describing the country in detail: its history, its government, its economy, its people.

Investors fought to give him their savings. In 1822, two ships carrying about 250 settlers sailed for the promised land.

They arrived at a jungle coastline. No city. No port. No farms. No gold. Just mangrove swamps and mosquitoes. The guidebook had described buildings that didn't exist, roads that had never been built, a civilization that was pure fiction.

The settlers had no supplies for survival. Disease spread. By the time a rescue ship arrived months later, more than 180 had died.

Back in London, MacGregor expressed shock. He blamed the expedition's organizers. Some of the survivors believed him. When the press exposed the fraud, several victims actually defended MacGregor in public.

He fled to France and tried the scheme again. A French court put him on trial. He was acquitted. He returned to London for one more attempt. Eventually he retired to Venezuela, where he was welcomed as a hero of the revolution.

Gregor MacGregor died in 1845 at age 58. He was buried in Caracas Cathedral with full military honors.

Source: Encyclopaedia Britannica, The Craziest Scam: Gregor MacGregor Creates His Own Country↗

The Wizard of Boston (1920)

Charles Ponzi found a loophole. After World War I, European currencies had collapsed. An international postal reply coupon bought in Italy for the equivalent of one cent could be redeemed in America for six cents' worth of stamps. The math was real. The opportunity was legal.

Ponzi told people he'd figured out how to scale it up. Invest with him, and he'd return 50% profit in 45 days. Or 100% in 90 days. Your choice.

In January 1920, 18 people gave him $1,800. He paid them back on time. Word spread. By July, Ponzi was taking in $250,000 a day. He bought a mansion. He bought a stake in a bank. He posed for newspaper photos and gave interviews about his financial genius. By some accounts, as many as two-thirds of Boston's police force invested with him.

The math never worked. Where did the money come from? New investors. Ponzi paid old investors with fresh deposits, skimming the difference. As long as money kept flowing in, everyone got paid. The system ran on belief.

Beginning in July of 1920, the Boston Post ran a series of articles pointing out the simple impossibility of Ponzi's enterprise. A financial analyst named Clarence Barron did the calculations: to cover his investments, Ponzi would need 160 million postal coupons. Only 27,000 existed in the entire world. State banking officials audited him. By August it was clear he was insolvent, owing about $3 million more than he had in assets.

Then the Post dug up his past: he'd served prison time in Canada for forgery and more time in Atlanta for smuggling immigrants. The genius investor was a convicted criminal.

On August 12, 1920, Ponzi was arrested.

He went to prison again. He was eventually deported to Italy, drifted to Brazil, and died penniless in a charity hospital in 1949.

His name became a noun. A hundred years later, we still call it a Ponzi scheme.

Sources:

The Teenager Who Automated Phishing (AOL, 1995)

In 1995, America Online was how millions of people accessed the internet. You paid by the hour. Your credit card was on file. And if someone from AOL staff sent you a message, you trusted it.

A teenager named Koceilah Rekouche saw the opportunity. He wrote a program called AOHell. It wasn't complicated. Press a button, and it would blast messages to AOL subscribers asking for their passwords and credit card numbers. The messages appeared to come from AOL employees, requesting users to verify their account and billing information.

People replied. Of course they did. No one had ever seen an attack like this. The messages looked official. There was no reason to suspect they weren't real.

AOHell spread through hacker circles. Other teenagers built their own versions. Within months, thousands of AOL accounts had been compromised. Credit card numbers were stolen. The technique had a name now, coined in those same chat rooms: phishing. A nod to "phone phreaking," the old-school art of hacking telephone systems. And a reference to fishing, casting out bait and waiting for someone to bite.

AOL fought back. They added warnings. They filtered suspicious messages. The attackers adapted. They found new tricks. The arms race had begun.

Thirty years later, phishing is still the most common way attackers break into systems. The tools are more sophisticated. The fake messages look better. But the core technique is what a teenager first automated in 1995: pretend to be someone trustworthy, ask for credentials, and wait.

Source: M. Rekouche, Early Phishing↗, arXiv:1106.4692

The Billion-Dollar Typo (Bangladesh, 2016)

The attackers had been planning for over a year. Reconnaissance on Bangladesh Bank began in late 2014. Phishing emails hit staff inboxes in early 2015. By January 2016, malware was inside the network. The hackers studied how the SWIFT terminal worked, how payment orders were formatted, when staff were on duty and when they weren't.

They chose their moment carefully: Thursday evening in Bangladesh, when the offices would close for the weekend. Friday in New York, when the Fed would process payments. Saturday and Sunday in Bangladesh, when no one would notice anything wrong.

At 8:36 PM Bangladesh time on February 4, 2016, the hackers started sending payment orders. Thirty-five requests, totaling $951 million, all from Bangladesh Bank's account at the Federal Reserve Bank of New York. The money was to go to accounts in the Philippines and Sri Lanka.

They'd disabled the SWIFT printer so no one would see the confirmation receipts. They'd deleted the logs. Everything was going according to plan.

The first five orders went through. $101 million moved.

Then a banker at Deutsche Bank, which was routing one of the transfers, noticed something odd. The payment was going to an organization with "fandation" in the name. Not "foundation." Fandation. A typo.

He flagged it. Deutsche Bank stopped that transfer and alerted the Fed. The Fed stopped the remaining 30 requests. $850 million stayed in the account.

The $20 million sent to Sri Lanka was recovered quickly. But the $81 million that went to the Philippines was laundered through casinos, converted to gambling chips, and cashed out before investigators could trace it. Recovery took years of legal battles across multiple countries. As of 2025, all $81 million has finally been recovered.

One typo. That's what stopped a billion-dollar catastrophe. The attackers, later linked to North Korea's Lazarus Group, had planned everything except how to spell.

Sources:

The Inheritance That Vanished (2020s)

Divya Gadasalli was 25 years old when she swiped right on a man named Jerry. He was charming. He was interested in her life. He shared her fascination with cryptocurrency. They texted constantly.

Jerry wasn't pushy. He didn't ask her for anything. He just mentioned, casually, that he'd been doing well with crypto trading. He showed her screenshots of his returns. Impressive numbers. When she asked questions, he explained patiently. He seemed to genuinely want her to succeed.

Divya had money. Her father had been murdered in 2015, and she'd received $8 million from her family's estate.

Jerry suggested she invest a small amount. Just to try it. He connected her to his "trading partners" and their investment platform. She transferred $10,000. The platform showed her account growing. She transferred $86,000 more. The numbers kept climbing. She transferred six figures. Then more.

The money was gone the moment she sent it. The platform was fake. The numbers were fake. Jerry was fake.

By the time Divya understood what had happened, she had transferred $8 million. Her entire inheritance. Gone to strangers she would never find.

The scam has a name: pig butchering. The term comes from the idea of fattening a pig before slaughter. Criminals spend weeks or months building trust, never rushing, never pushing. They introduce the "investment opportunity" only after the emotional connection feels real. The fake platforms show fake profits to encourage larger deposits. When victims try to withdraw, they're told to pay taxes first. Or fees. Or penalties. Then the site vanishes.

Many of the scammers work from compounds in Southeast Asia. Some are trafficking victims themselves, forced to run fraud operations under threat of violence.

In 2023, Americans reported losing $1.14 billion to romance scams. The real number is higher. Most victims never report it. They're ashamed. They fell in love with someone who didn't exist.

Sources:

Why This History Matters

  • New tools, old tricks. Technology changes, but human nature doesn't. Every scam above exploits the same weaknesses: greed, trust, and the desire to believe.
  • Good controls make cheating expensive. The crew who heard Hegestratos cutting the hull, the banker who spotted the typo. Systems survive when people are trained to be suspicious.
  • Studying real cases sharpens your fraud sense. Patterns repeat across centuries. The Poyais scheme is a 19th-century rug pull. Ponzi invented the playbook for crypto scams. Pig butchering is the same romance con that marriage swindlers ran in the 1800s.

Generated with AI assistance. Reviewed by humans for accuracy.

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