One of the first recorded financial crimes was committed by one of Ancient Greece’s founding fathers, the philosopher Thales of Miletus. He cornered olive farmers by reserving exclusive use of all the presses and renting them out when demand peaked. Figuratively and literally, he squeezed the market for profit. By doing so, he managed to go down in history as the first market manipulator.
Throughout time, the stories change a little, but the tricks remain the same. In 1950s Chicago, two dubious traders made millions of dollars when they cornered 98% of the onion market! And in modern times, the same patterns are repeated – whether it is in cryptocurrency or social media, or in more traditional forms.
The paper from which the above historical examples were taken, “Behaviour-pattern conduct analysis”, is a 2022 study by the Financial Markets Standards Board (FMSB) that provides insights into more than two centuries of market manipulation. The names which the paper applies to the six groups of financial manipulation aren’t very exciting – price manipulation, improper order handling, reference price influence, misuse of inside information, misleading customers and markets, and circular trading – but they do give us a clear list of things to watch out for, which are just as relevant now as they were a century ago. As usual, it’s very rare for anything genuinely new to come up in the world of finance, and this is true of financial crime.
In the recent past, we have heard how social media influencers have benefitted by spreading fake news and inflating asset prices. New communication technology has been an ideal medium for modern scammers. But it’s not a new thing; it was happening in 1814!
More than two centuries ago, conspirators Charles de Berenger, Sir Thomas Cochrane and six others used the then-cutting-edge semaphore telegraph to spread a false rumour that Napoleon Bonaparte had died in battle. With investors believing Britain had won a major victory, gilt prices soared. Having ‘pumped’ the value of gilts, the conspirators went on to ‘dump’ them, selling them for a huge profit. Fortunately for law enforcement, social media platforms have a characteristic that the semaphore telegraph did not: communications can be recorded.
Whilst the world may change, the causes of financial crime don’t seem to. According to the report, the recent move to working from home has increased the incidence of insider trading – cohabiting couples from different companies working side by side can increase the risk of one trading on confidential information.
In February 2024, Houston-based Tyler London brought 46,450 shares in TravelCenters of America after overhearing his wife’s confidential conversation that BP was planning a merger with the company. Tyler’s wife reported his US$1.76m profit to BP … and has since filed for divorce. In May 2024, Loudon was fined and handed a two-year prison sentence. Mr Loudon took advantage of his remote working conditions and his wife’s trust to profit from information he knew was confidential. It’s the same old crime (we used to call it ‘pillow talk’ insider trading), but the circumstances are just different.
Innovation in financial services does seem to come with an expectation that financial crime will follow. In 2022, without admitting any wrongdoing, celebrity influencer Kim Kardashian paid US$1.26m to settle a claim that she had not disclosed the payment she received for promoting a cryptocurrency (which is now practically worthless).
The report makes some recommendations, mostly for investment firms, about how to minimise the risk of financial crime. The most relevant recommendation, which applies to us all, is have a “culture of curiosity”. It states that there can be “real value in questioning”, and there are no stupid questions. The story of the Emperor’s New Clothes is as relevant today as it always was! Curious questioning can be enough to detect and, sometimes even, quash financial crime.
In an age where the pace of change has increased, we need to be aware that people and criminals haven’t changed much at all. We can learn from the past – as Mark Twain didn’t say “History doesn’t repeat itself, but it rhymes” – and we can use our natural curiosity to protect us from fraud.
We are always happy to help to prevent financial crime, wherever we can.
Philip Wise | philip@sussexretirement.co.uk
Managing Director and Chartered Financial Planner
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The Financial Conduct Authority (FCA) does not regulate direct investments into crypto-assets or NFTs. There are no consumer protections (including FSCS protection) for those who buy crypto-assets or NFTs. If you buy crypto-assets or NFTs, you should be prepared to lose all the money you invest.
