Financial services companies, from banks to private equity firms, have never been more vulnerable to catastrophic losses caused by dishonest employees and employees duped by dishonest third parties. We live in a time of monumental risks and monumental losses.
The recent UBS announcement of a $2 billion trading loss caused by “rogue employee” Kweku Adoboli would have caused considerably more uproar just a generation ago. Ponzi schemes date back to the 19th century (Charles Ponzi coined the expression by stealing $7 million in 1920, but William “520%” Miller invented the scheme in 1899), but few in the 19th century or even the 20th century could have foreseen a Bernard Madoff, who cheated investors out of a record $65 billion. These losses make the $1.3 billion that Nick Leeson cost England’s Barings Bank in 1995 look like bus fare.
Read the full article: Understanding crime insurance for 'rogue employee' losses