Games of Greed: Excess, Hubris, Fraud, and Theft on Main Street and Wall Street

By Torsten Dennin

Examining the consequences of greed in today's society

Fear and greed are among the strongest motivators. They influence all our decisions. Every day, we see the lives of the fabulous and famous in the press, on TV, and on social media, and we envy them for their luxurious lifestyle. We want it all too!

Games of Greed reveals how some of these people let greed get the better of them. This book connects the dots between the Panama Papers, Bernie Madoff, famous rough traders, and con artists like Nick Leeson, Jérôme Kerviel, Billy McFarland, and Jordan Belfort, the real Wolf of Wall Street. It reveals the excesses of Main Street and Wall Street and Silicon Valley, and even loafing Las Vegas—art heists, stock markets, bitcoins, and festival fraud.

​In this insightful book, Torsten Dennin demonstrates the pitfalls of greed through many examples of people who, like Icarus, flew too high and fell with catastrophic consequences. In the current day and age of increasing financial tensions and fewer planetary resources, his analysis of greed is both relevant and timely.

• Language: English
• Publisher: Greenleaf Book Group
• Release date: Jan 31, 2023
• ISBN: 9781632996428

Book preview

Introduction

Three great forces rule the world:

stupidity, fear, and greed.

—ALBERT EINSTEIN

FEAR AND GREED are among the strongest motivators—consider FOMO, the fear of missing out, and the desire to get rich quickly without much effort. Most of us desire to upscale our lives, maybe with better food, more traveling, a luxury car, a bigger house. TV and social media are continuously feeding us more fodder for our dreams by showing us the lives of the rich and famous: houses, cars, yachts, private jets, living in fantastic places. Tempted, we want it all!

If you search Google images for greed, you will encounter many depictions of rather pompous individuals—the majority of them older white men—hoarding money. Greed, in our understanding, is an irresistible craving, an unstoppable longing to possess more. Like an addiction, greed is limitless. More money is always better than less money.

FROM DEADLY SIN TO SOCIAL BENEFIT: GREED IN RELIGION

Materialism and greed are on the naughty list of most religious philosophies. In the Buddhist tradition, craving holds us back from the path to enlightenment. In the Hindu Bhagavad Gita, Lord Krishna calls covetous-ness a great destroyer and the foundation of sin. Muslims are warned in the Quran to be on guard against greed. More specifically, a Muslim should not save and hoard great sums of money but should instead distribute it to those who are in need of it. Even today, a Muslim is not allowed to benefit from lending money and then accepting payments of interest.

The same prohibition against making money has long been mirrored in Christianity, too, as the church historically forbade Christians from lending money and charging interest. This was later softened to usury—charging excessively high interest rates.

To keep the economy rolling, Jews, whose professions were restricted to occupations barred to Christians (like money lending), filled this gap starting in the Middle Ages in Europe. But also in Judaism, Talmud and Midrash warn that greed is futile, depicted as a goal with no end and one that will not lead to human happiness. (One who loves money will never be satisfied with money, Kohelet 5:9.)

In the catechism of the Catholic Church, the tenth commandment forbids greed and the desire to amass earthly goods. Greed—also known as avarice, cupidity, or covetousness—is, like lust and gluttony, a sin of desire. Pope Gregory released a list of seven deadly sins and virtues in 590 AD. These mortal sins, also called cardinal sins, in Roman Catholic theology, are the gravest of sins, representing a deliberate turning away from God. Thomas Aquinas called them capital sins because they are the origin of all other sins. Dante Alighieri defined most of the capital sins as perverse or corrupt versions of love for something or another: lust, gluttony, and greed are all excessive or disordered love of good things, while sloth is a deficiency of love. All capital sins are associated with pride, which has been labeled as the father of all sins.

Corruption, greed, and the scandalous lives of the clergy were one of the triggers that led to the Protestant Reformation in the beginning of the 16th century in Europe. Reformers like Erasmus, Zwingli, Luther, and Calvin had strong reactions to these unsustainable conditions. After many conflicts, this led to a split in the church, into Catholics and various Protestant churches. Protestantism developed a rather materialistic view on life. Success and hard work were deemed signs of an individual’s election (God’s favor) or even eternal salvation, which helped plant the seeds of capitalism.

Enlightenment, the first industrial revolution, and the rise of science and technology drastically diminished the influence and the dominion of the church. Adam Smith, one of the founding fathers of classical economics, built on this house of thoughts and proposed in 1776 that individual self-interest is ultimately the best way to a prosperous economy, because he believed that human desire for money, success, or fame was a strong motivation for people to improve products, innovate, and compete with others. Therefore it was determined that greed made people want to do things, since they would be rewarded for their efforts. Remove the reward, and you remove the incentive to work. Clearly, history shows how the concept of greed has changed over the centuries, as it rose from deadly sin to economic and social benefit.

FROM HOMO ECONOMICUS TO NEUROECONOMICS

Finance and economics focus on how people make and use money, and on how the economy and economic activity work. Decades ago, modern economics trashed the theory of Homo economicus, which had long been a model for human behavior that suggested a person has an infinite capacity to make rational decisions.

Still, many models in finance and economics rely on the assumption that humans are rational and will attempt to maximize their utility for both monetary and non-monetary gains. Yet despite numerous high-flying mathematical models, nothing can truly explain the erratic movements in stocks or other asset prices. Practitioners are aware that financial markets are driven by two powerful emotions—greed and fear, causing irrational market behavior like speculative bubbles and crashes, that are inconsistent with the hypothesis of efficient markets.

Both greed and fear are also among the animal spirits that John Maynard Keynes identified, affecting the economy and financial markets profoundly. Keynes spoke of animal spirits as the human emotions that affect everything from consumer confidence to buying and selling securities.

Because finance and economics are both social sciences (and are not natural sciences with provable laws), they rely on methodologies from other fields of study to climb their tree of knowledge—especially the field of psychology.

Richard Dawkins’s famous book The Selfish Gene influenced biology and inspired the branch of evolutionary economics. Methods of biology like evolutionary processes and psychology each influenced modern theories of economics and finance.

Behavioral finance is the study of the effects of psychology on investors and financial markets. It focuses on explaining why investors often appear to lack self-control, act against their own best interests, and make decisions based on personal biases instead of rational facts. Behavioral finance typically encompasses five main concepts: mental accounting, herd behavior, emotional gap, anchoring, and self-attribution. Greed and fear fall into the concept of emotional gap—meaning non-rational decision-making based on these emotions. Herding, meanwhile, is notorious in the stock market as the cause behind dramatic rallies and sell-offs, when people tend to mimic the financial behavior of the majority of the herd.

Richard Thaler and Daniel Kahneman did groundbreaking work in applying psychological insights to economic theory, particularly in the areas of judgment and decision-making under uncertainty. Their nudge theory proposes positive reinforcement and indirect suggestions as ways to influence the behavior and decision-making of groups or individuals, proving the importance of psychology to human economic behavior.

In a step further, neuroeconomics—the application of the medical field of neuroscience to economics—can dive deeper into the understanding of neuronal signaling, using brain-imaging techniques like positron emission tomography, magnetic resonance imaging, or mass spectrometry. Understanding chemical changes in the brain and the firing of cells will bring us closer to understanding how neurons control individual economic behavior.

GAMES OF GREED

Meanwhile, greed and fear will continue to influence financial markets and our private lives. The following fourteen chapters give an insight into different games of greed. Some of these real-life stories have been adapted into best-selling books and blockbuster movies, as the best stories are always written by life itself.

The first chapter gives a sneak peek into the Pandora, Paradise, and Panama Papers. These and other data leaks from offshore tax havens are a wake-up call for the rich. Julian Assange, WikiLeaks, and Edward Snowden made whistleblowing socially honorable, and gave the mighty and powerful a reason to fear that their names—and fortunes—might be revealed. Only multinational corporations and the global elite have been able to hide their wealth within complex offshore structures, which do not reveal the names of their owners, either to facilitate money laundering or simply to save on taxes. Welcome to the blurry world of high finance.

Chapters 2 and 3 discuss pyramid schemes, as invented by Charles Ponzi of the eponymous Ponzi schemes, which promised investors enormous profits within short periods of time. Ponzi did this by paying earlier investors with money that came in from later investors. Running the biggest Ponzi scheme of all time, Bernie Madoff took the money of the rich and famous for decades. During the meltdown of the global financial crisis of 2008, he finally confessed, and it would later be revealed that Madoff had no money. The massive returns he promised his clients were nothing but smoke.

Almost thirty years earlier, the political movements of glasnost and perestroika put an end to Communism in Russia, and the new market economy has since been leaving many ordinary Russians behind. Some disillusioned investors put their money into Mavrodi Mondial Moneybox, known as MMM, with expectations that they, too, could become as rich as the oligarchs. But MMM turned out to be nothing more than a massive pyramid scheme, and investors lost everything.

Enron and WorldCom in chapter 4 are best-practice examples for corporate greed—including how management can enrich themselves and ruin investors and employees alike. Anyone who thought new and improved accounting standards and tighter financial regulations would make that kind of fraud impossible should take a look at the now-disgraced darling of the German stock market in 2020: Wirecard.

In finance, it’s a thin line between a star trader and a rogue trader. Chapter 5 looks at how a single trader can ruin a whole bank, as Nick Leeson did with the UK’s Barings Bank in 1995, and how Jérôme Kerviel of French banking giant Société Générale played a risky game and lost $5 billion in a 2008 trading scandal. And how Yasuo Hamanaka of Japan’s Sumitomo Corporation got the copper market wrong, losing $1.8 billion in 1996.

Gambling capital Las Vegas—a.k.a. Sin City—conjures up images of fast money, hookers, and drugs. It turns out, successful traders share many characteristics with successful gamblers, like the big whales who bet $1 million per hand. Chapter 6 introduces Edward Thorp, a man for all markets: blackjack legend and hedge fund manager. His tactics were picked up by Bill Kaplan and the MIT Blackjack Team, who would go on to lift more than $100 million from casinos.

Chapter 7 spins to Brazil, where in 2014 a huge systematic network of bribes was uncovered in Operation Car Wash. Like a cancerous ulcer, more and more dirt hit the fan in Brazil’s political scene. Billionaires went to jail, and two governments ended up stumbling.

In Silicon Valley, success is hard to achieve. Fake it until you make it, is one road to success, which also can turn very, very wrong. In chapter 8, Elizabeth Holmes, former illustrious CEO of the health start-up Theranos, chased unicorns—and learned her lessons the hard way, after bilking investors of millions and endangering real people’s lives.

In The Thomas Crown Affair, Hollywood embraces the idea of a criminal mastermind and gentleman gangster stealing famous pieces of art. The reality is mostly less thrilling. In chapter 9, we look at how, in 1990, real thieves stole artwork worth more than a billion dollars from the Isabella Stewart Gardner Museum in Boston. This is one of the biggest art thefts in history—unsolved as of this writing.

Nothing captures greed quite as well as the spirit of Wall Street, in this case represented by pop culture icons like Gordon Gekko, Jordan Belfort, or Bobby Axelrod, as depicted on the silver screen. Chapter 10 shows how a culture of greed tipped the dominos toward the global financial crisis of 2008.

Kleptocracy (chapter 11) spins to Malaysia, and one of the biggest financial scandals of all time, involving embezzlement of more than $4.5 billion: the 1Malaysia Development Berhad Scandal. As of today, its mastermind is still in hiding with hundreds of millions of embezzled funds.

Chapter 12 shows a different kind of greed, focusing on the story of Jeffrey Epstein, well-known billionaire and alleged sex trafficker. For decades he abused underaged girls, running an international sex trafficking ring for the rich and famous, and yet was never held fully responsible because of his money and connections—and conveniently committed suicide—or so it’s believed—from his prison cell in 2019.

Chapter 13 takes us to the Fyre Festival, that luxury music festival in the Bahamas organized by Billy McFarland. Unfortunately for a lot of people, it turned out to be a massive fraud, and attendees found themselves stranded in a real-life version of The Hunger Games and Lord of the Flies.

In crypto scams (chapter 14), the blockchain raises pyramid schemes to the next level. The awkward teenage years of cryptocurrency have included heists, fraud, unregulated ICOs, and scams. I will examine two of these schemes that seemed quite genius: OneCoin and BitConnect.

Games of Greed connects the dots between the revelation of the secret Panama Papers and Ponzi pro Bernie Madoff with other famous rogue traders and con artists like Nick Leeson, Jérôme Kerviel, Billy McFarland, and Jordan Belfort, the real Wolf of Wall Street. This book spans from excesses of Main and Wall Street to Silicon Valley, and to loafing Las Vegas, from art heist to stock markets, bitcoins, and festival fraud. In a roller coaster ride of individual stories, I show that these schemes are connected to the human mindset, rooted deep inside of us. Meaning, we’d better be prepared for more games of greed in the future.

Meanwhile, enjoy the ride!

Wake-Up Call for the Rich: The Pandora, Paradise, and Panama Papers

The global elite use tax havens and shell companies to hide their wealth from the public or greedy governments. In exotic places like the British Virgin Islands or the Cayman Islands, tax avoidance mingles with money laundering, funding of terrorism, and sex and drug trafficking. But whistleblowers and leaks like the Pandora, Paradise, and Panama Papers put accomplices like Mossack Fonseca and Appleby on the front page of the news, and the rich and famous were exposed.

I have had a close look at the Panama Papers and I must admit that, even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice.

—MARK PIETH, lawyer and anti-corruption expert at the University of Basel, Switzerland

WORKING FOR BOUTIQUE law firm Bendini, Lambert & Locke, Harvard graduate Mitch McDeere (played by Tom Cruise) learns during a trip to the Cayman Islands that most of the firm’s work involves helping wealthy clients hide money in offshore shell corporations and other dubious tax-avoidance schemes. That’s part of the plot of the movie The Firm (1993), based on the 1991 novel by John Grisham.

From what we see in pop culture and media reports, when the world’s ultra-wealthy look for tax havens to shield income and wealth from what they perceive as greedy domestic governments, they turn to a secretive bank in Switzerland or a tiny island nation such as the Cayman Islands, Bermuda, or the British Virgin Islands.

What is a tax haven?

A tax haven is a country that offers foreign businesses and individuals no or minimal tax liability for their bank deposits in a politically and economically stable environment. While individuals might create shell companies in tax havens to hide their wealth, corporations are usually directly incorporated in the tax haven in order to defer taxes.

Many of the countries used as tax havens for individual wealth are also utilized by corporations. The Tax Justice Network’s 2021 assessment of corporate tax havens listed the British Virgin Islands, Cayman Islands, and Bermuda as the top three corporate tax havens. The Caymans have become a popular tax haven among the American elite and large multinational corporations because there is no corporate or income tax on money earned outside of its territory. Instead of paying income taxes, offshore corporations pay an annual licensing fee directly to the government.

THE PARADISE AND PANAMA PAPERS

Welcome to the elite club of money laundering, funding of terrorism, and sex and drug trafficking.

On November 5, 2017, the news exploded like a bomb. The first details of another major data leak of international offshore and tax havens were released: The Paradise Papers listed heads of state, high-ranked government officials, persons of public interest, and corporations—along with their financial activities. While many of the activities were legal, they showed questionable ethical and moral standards and revealed a host of other activities used for illegal purposes, including fraud, tax evasion, and even evading international sanctions.

The Paradise Papers constitute a set of more than 13 million confidential documents relating to offshore investments, originating from the legal service provider Appleby from Bermuda, but with offices in other offshore locations including the British Virgin Islands, the Cayman Islands, Isle of Man, Jersey, Guernsey, Mauritius, and Seychelles, as well as the financial centers of Hong Kong and Shanghai.

Named after their exotic tax haven destinations in Bermuda, the Paradise Papers came to light one year after the leaking of the Panama Papers, and they revealed almost double the information. The Panama Papers were leaked from the database of Mossack Fonseca & Co., the fourth-biggest offshore law firm in the world. More than 200,000 offshore entities were revealed, some of the activities reaching back to the 1970s.

LEAKS: IF IT BLEEDS, IT LEADS

•Pandora Papers (October 2021)

•Mauritius Leak (July 2019)

•Paradise Papers (November 2017)

•Malta Files (May 2017)

•Bahama Leaks (September 2016)

•Panama Papers (April 2016)

•Swiss Leaks (February 2015)

•Luxembourg Leaks (December 2014)

•Offshore Leaks (April 2013)

The Panama Papers are perhaps the most significant offshore leak to date, consisting of 2.6 terabytes of data leaked from the law firm Mossack Fonseca in Panama in 2016. The following year, 2017, saw the release of 1.4 terabytes of data in the Paradise Papers, most of which were from Appleby.

The Paradise and Panama Papers constitute an avalanche compared to the size of former data leaks like the Swiss Leaks (2015), the Luxembourg Leaks (2014), or the Offshore Leaks (2013), all of which added together are nearly 1/10 of the data size of the Panama Papers alone.

In October 2021, the release of the Pandora Papers topped all of the above: 2.9 terabytes of data from 14 different offshore service providers, with locations ranging from Belize to Vietnam to Singapore, and to far-flung archipelagos such as the Bahamas, Seychelles, and Mauritius. Because of the multitude of service providers, offshore locations, and prominent clients, the data leak was named for the artifact in Greek mythology known as Pandora’s box—as a source of great and unexpected trouble.

THE FIFTH ESTATE:

FROM JULIAN ASSANGE AND

WIKILEAKS TO EDWARD SNOWDEN

The new millennium brought in a new prime time for whistle-blowers. Broadly speaking, a whistleblower is someone, usually an employee of a company or a government agency, who discloses information to the public or some higher authority about any wrongdoing in their company or agency that is deemed illegal, illicit, unsafe, or fraudulent.

One of the most prominent whistleblowers, Julian Assange, has been confined in Belmarsh maximum-security prison in London since April 2019 without formal conviction, and is awaiting extradition to the US to face charges that could result in 175 years of imprisonment. That’s what you get if you confront the mightiest nation, its military, and its secret service with any wrongdoings.

Assange is an Australian editor, publisher, and activist who founded WikiLeaks in 2006. WikiLeaks gained international attention in 2010 when it published a series of leaks provided by US Army intelligence analyst Chelsea Manning. One video that was leaked shows how the US military covered up gunning down a group of civilians, including two journalists and two children, in Iraq (which the US government called collateral murder).

After the 2010 leaks, the US government launched a criminal investigation into WikiLeaks. Feeling protected by the country’s liberal press laws, Assange applied for a work and residency permit in Sweden. But when he arrived, he found he’d been set up: He was accused of rape and sexual assault by two women in the wake of a WikiLeaks conference in Stockholm. Facing extradition to the US, he breached bail and took refuge in the Embassy of Ecuador in London in June 2012, where he spent the following seven years in isolation.

In April 2019, Assange’s asylum was withdrawn following a series of disputes with Ecuadorian authorities, and the British police were invited into the embassy, where they arrested him. Shortly after the arrest, Sweden dropped the rape investigation.

Another prominent whistleblower, Edward Snowden, created the biggest intelligence leak in the history of the US in 2013 when he revealed a number of global surveillance programs, many run by the National Security Agency (NSA) and a global alliance of intelligence agencies with the assistance of several telecommunication companies. Today, Snowden lives in Russia, whose government has been granting him asylum after the US Department of Justice unsealed charges against Snowden of violating the Espionage Act of 1917 and theft of government property.

Starring Benedict Cumberbatch as Julian Assange, the movie The Fifth Estate (2013) narrates the story of WikiLeaks, while Snowden (2016) tells the story of a young CIA subcontractor and whistleblower who copied highly classified information from the NSA and leaked it to the press for ethical and moral reasons.

In 2008, Rudolf Elmer in Switzerland illegally disclosed confidential bank documents to WikiLeaks detailing the activities of Swiss bank Julius Bär in the Cayman Islands and its role in alleged tax evasion. Other whistleblowers sold tax CDs to local governments for money. Other examples relevant in this book are Sherron Watkins and Cynthia Cooper, who were whistleblowers in the cases of Enron, an energy trading company in Houston, Texas, and of telecom giant WorldCom, uncovering corporate fraud encompassing billions of dollars. Harry Markopolos blew the whistle on billion-dollar wealth management guru Bernie Madoff in 2000, 2001, and 2005, declaring his system a fraud. Unfortunately, he was ignored by the US Securities and Exchange Commission.

EXPOSED . . .

The Pandora, Panama, and Paradise Papers exposed tax schemes of global elite, but also included evidence of crimes such as money laundering for child prostitution rings. Together, the Pandora, Paradise, and Panama Papers revealed illegal activities of upward of 100,000 people and companies, including different heads of state and top government officials from