How Intelligo Would Have Flagged These 5 Major Financial Frauds

History is riddled with financial frauds that cost investors billions. But in hindsight, many of these scandals exhibited clear warning signs that could have been caught with a comprehensive due diligence platform like Intelligo. We analyzed five major 21st century fraud cases, and identified common red flags that serve as early indicators of financial misconduct.

1. Stephen Walsh, Paul Greenwood, & WG Trading Fraud (2009)

Fraud Type: Misappropriation of funds and fraudulent commodities trading 

Amount: ~$554 million Summary: Stephen Walsh and his partner, Paul Greenwood, principals of WG Trading Company, LP, and WG Trading Investors, orchestrated a fraudulent commodities trading and investment advisory scheme from at least 1996 through February 2009. They solicited approximately $7.6 billion from institutional investors, including charitable foundations, university endowments, and pension plans, under the pretense of engaging in a conservative "equity index arbitrage" trading strategy. Instead, they misappropriated hundreds of millions of dollars for personal use and to cover unrelated investment losses. To conceal their actions, they issued false promissory notes and fabricated account statements reflecting fictitious returns.

Red Flags:

• Consistent, above-market returns claimed over an extended period

• Lack of transparency regarding the specifics of the trading strategy

• Use of complex financial instruments, such as promissory notes, which obscured the true financial condition of the investment entities

• Personal use of investor funds for lavish expenditures unrelated to the purported investment activities

Outcome: Both individuals pleaded guilty to securities fraud. In October 2014, Stephen Walsh was sentenced to 20 years in prison. Paul Greenwood, who cooperated with authorities, was sentenced to 10 years in prison in December 2014.

2. Russell Wasendorf & Peregrine Financial Group (2012)

Fraud Type: Embezzlement & falsified financial records Amount: ~$215 million Summary: As CEO of Peregrine Financial Group, Wasendorf forged bank statements for decades, manipulating financial records with Photoshop to fabricate non-existent assets.

Red Flags:

• A single individual controlled key financial reporting, creating an internal control risk

• Avoidance of external audits and government scrutiny

• Extravagant spending despite reported low profit margins

Outcome: Attempted suicide upon discovery, left a confession note, survived, and was sentenced to 50 years in prison.

3. Tom Petters & Petters Group Worldwide (2008)

Fraud Type: Ponzi scheme Amount: ~$3.7 billion Summary: Petters lured investors with promises of high returns from consumer electronics investments, but his company fabricated purchase orders and set up shell companies to sustain a Ponzi scheme.

Red Flags:

• Previous conviction for check fraud in his 20s

• Business model dependent on constant refinancing and new investors

• Reports of luxury spending and extravagant gifts to business associates

Outcome: Sentenced to 50 years in prison.

4. The HealthSouth Scandal & Richard Scrushy (2003)

Fraud Type: Accounting fraud & insider trading Amount: ~$2.7 billion Summary: Scrushy pressured employees to falsify earnings reports to meet Wall Street expectations, maintaining the fraud for years through his tight control over financial reporting. Red Flags:

• History of aggressive business tactics and ethical gray areas

• Suspiciously consistent earnings growth, even during downturns

• Whistleblower complaints were ignored or silenced

Outcome: Acquitted of fraud but later convicted of bribery and corruption in a separate case.

5. Allen Stanford & Stanford Financial Group (2009)

Fraud Type: Ponzi scheme & securities fraud Amount: ~$7 billion Summary: Stanford ran an elaborate Ponzi scheme, promising high-yield certificates of deposit (CDs) while using new investor money to fund his luxurious lifestyle. Red Flags:

• Prior investigations for financial misconduct

• Unrealistic investment returns that were "too good to be true"

• Use of offshore banks to evade regulatory scrutiny

Outcome: Sentenced to 110 years in prison.

Common Red Flags in Predicting Fraud

Looking at these cases, some recurring signs indicate a high likelihood of financial fraud: • Past legal or financial issues (even small frauds or regulatory violations) • Unusually consistent or high investment returns • Lack of transparency (single person in control, avoidance of audits) • Excessive luxury spending that doesn't match reported earnings • Frequent refinancing or reliance on new investors to pay old ones • Whistleblower complaints that go ignored

Identifying warning signs through Intelligo’s due diligence platform and background check reports can help investors avoid financial disasters. If you're investing in a company or hiring an executive, looking deeper into financial histories, internal controls, and past misconduct is crucial. Schedule your free demo with Intelligo today.