27 Times Companies Tried to Trick Consumers

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MALICIOUS MANEUVERS

There are plenty of ways to get ahead in business, but few as effective (or illegal) as manipulating the market to create artificial demand and inflate the price of products. Though all companies want consumers to pay as much as possible for their goods, the following brands are ones that went especially far and suffered consequences for manipulating markets for their own gain with deceptive or monopolistic practices.

De Beers
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DE BEERS | CREATING ARTIFICIAL SCARCITY FOR DIAMONDS

The discovery of plentiful diamond mines throughout South Africa in the 19th century should have driven their prices down permanently. Instead, English-owned De Beers Mining acquired virtually all the nation's diamond mines. It then used its monopoly to limit supply and keep prices high through the 20th century, along with the help of an advertising campaign that made diamonds synonymous with love and marriage.

1400 Smith Street in Houston
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ENRON | SAYING EXPECTED ENERGY PROFITS WERE ACTUAL PROFITS

Before being outed as one of the biggest scams in U.S. history, Enron was a politically influential Houston-based marketing and financial services firm once ranked as the sixth-largest energy company in the world. That is, before a sudden single quarter-loss of $618 million in 2001 sparked an SEC investigation into Enron's transactions. Most of its top executives were tried with fraud for using a practice called mark-to-market accounting that claimed projected profits as actual ones, inflating share values (which low-level employees were forbade from selling) to a peak of $90.75 before they plummeted to $0.26 in December 2001.

the NASDAQ building on Times Square in New York, USA
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ATHENA | GAMING THE NASDAQ STOCK EXCHANGE

In 2009, the U.S. Securities and Exchange Commission took on its first high-frequency trading manipulation case by sanctioning Athena Capital Research. The company's form of financial fraud involved making large stock sales or purchases in the final two seconds before the Nasdaq exchange's 4 p.m. close to manipulate prices to its benefit. Despite an email paper trail of employees using laughable codenames for the fraud, the SEC fined Athena only $1 million.

TY cat beanie baby
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TY | HOLDING BACK ON STUFFED ANIMAL SUPPLY

In the echelon of now-worthless collectibles, Beanie Babies inspired a peculiar economic bubble in the 1990s that made Ty the first billion-dollar plush company ever, as even adults paid big bucks for the collectible toys believing their values would skyrocket over time. This was largely thanks to founder Ty Warner's refusal to supply them to retailers in large quantities or for under $5 apiece, and a policy of quickly retiring the models. Today, most original Beanie Babies sell for about 50 cents apiece.

H&M
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H&M | DESTROYING CLOTHING THAT DIDN’T SELL

In 2010, a university student discovered unworn clothing shredded in the dumpster outside a Manhattan location of the international clothing retailer H&M, as well as a nearby Walmart. Rather than donating to charity, both stores were likely destroying unsold merchandise to prevent it from flooding discount channels and undercutting what they could charge in-store. An H&M spokeswoman insisted this was not company policy and it would not happen again.
JP Morgan Chase and Co
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JPMORGAN CHASE/HSBC | MANIPULATING SILVER MARKETS

Together, JPMorgan Chase and HSBC controlled so much of the silver market — more than 85 percent — that it became easy to manipulate. They came under scrutiny in 2008 for allegedly earning billions through tactics such as manufacturing rumors that silver prices would depress, so they could cash in when they did. The suit was dismissed in 2013.

hands holding $20 dollar and 20 Euro for exchange
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"THE CARTEL" | COLLUDING OVER CURRENCY EXCHANGE

Four U.S. and U.K.-based banking giants collectively known as "The Cartel" pleaded guilty in 2015 to collusion and antitrust violations, which allowed them to manipulate dollar-to-Euro exchange rates from 2007 to 2012. Traders colluded using coded language and instant message chats to influence rates in their favor, and the banks were fined a collective $3 billion by the Department of Justice as a result.

broken telephone receiver hanging
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WORLDCOM | SHADY ACCOUNTING IN TELECOMMUNICATIONS

In another notorious case of stock manipulation, telecommunications giant WorldCom inflated the company's own value by exaggerating profits in 2001 and recording operating expenses as investments to hide $3.8 billion in costs for simple office supplies. In 2002, an internal audit uncovered the fraud and reported it to the SEC. WorldCom's stock price plummeted from $60 per share to less than 20 cents, and its CFO and CEO were sentenced to prison terms of five and 25 years respectively.

penny on stock paper
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STRATTON OAKMONT | PENNY STOCKS FRAUD AND MONEY LAUNDERING

Penny stocks are frequently subject to market manipulation by brokerage firms such as Stratton Oakmont, a defunct Long Island trading company whose frauds were colorfully depicted in “The Wolf of Wall Street.” In 1999, the company's chairman and president both pleaded guilty to 10 counts of securities fraud and money laundering, rendering worthless the risky shares they'd sold to the public with promises of quick and easy payoff.

hand holding one penny with man's midsection in background
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LEBED BIZ | 15-YEAR-OLD STOCK TRADER WITH AN ANGLE

For proof of how easy it is to manipulate the price of penny stocks, look no further than Jonathan Lebed, who was only 15 when the SEC prosecuted him for the practice in 2000. From his bedroom in New Jersey, Lebed made hundreds of thousands posting to online chat rooms encouraging strangers to buy stocks he already owned, driving up their price. In 2001, he and the SEC negotiated an out-of-court settlement by which he paid $285,000 and admitted no wrongdoing.

Sketchers store
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SKECHERS | BIG CLAIMS FOR FOOTWEAR

Skechers enticed consumers to buy this line of footwear on false pretenses, claiming without proof that the shoes would help wearers lose weight and quoting a chiropractor married to a Skechers marketing executive. The company paid the Federal Trade Commission $40 million to settle charges of false advertising, making consumers who bought the "muscle-toning" shoes eligible for refund.

steel long pipes in crude oil factory during sunset
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EVERSOURCE | UTILITY FACES ACCUSATIONS OF LIMITING SUPPLY

In October 2017, a paper published by the Environmental Defense Fund alleged that energy companies Avangrid and Eversource had artificially limited pipeline capacity to increase electricity costs for customers throughout New England. The companies reportedly pocketed an extra $3.6 billion through these practices, which also caused scarce pipeline capacity to go unused during the region's "Polar Vortex" in 2013-14. Eversource called the report "a complete fabrication."
Sketchers store
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DISNEY | LOCKING FAVORITE FILMS AWAY IN THE 'VAULT'

The "Disney Vault" refers to Walt Disney Pictures' policy of suspending home video sales for their most beloved films at random, imposing an artificial scarcity of their animated classics that drives up consumer demand. Disney controls their own market by making movies available only on a "limited time" basis, prompting fans to buy for fear their favorite films will be once again locked in the vault.
Standard Oil Refinery No. 1 in Cleveland, Ohio, 1897
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STANDARD OIL | ACTIONS MADE THE ARGUMENT FOR ANTITRUST

Once the world's largest oil refinery, Standard Oil went defunct in 1911 when the Supreme Court ruled the company was an illegal monopoly. Founder John D. Rockefeller bought out competitors to consolidate power and undercut refineries that wouldn't sell with tactics such as buying up barrels to create shortages, orchestrating price wars between his own subsidiaries, and even limiting trains available for shipments through his relationship with railroad companies.

silver bullion bars and price chart
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THE HUNT BROTHERS | STOCKPILING SILVER AND SILVER FUTURES

Billionaire brothers Herbert and Nelson Hunt launched a scheme to corner the commodities market on silver in 1974. They stockpiled silver and silver futures to control more than two-thirds of the market, causing demand and prices to rise to more than $50 per ounce. The U.S. government eventually intervened by introducing and suspending rules in the commodity market, in 1980 causing silver prices to slide from their high of $48.70 to under $11.

McRib is seen at a McDonald's restaurant
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MCDONALD'S | MAKING THE MCRIB SEEM LIKE A RARE TREAT

The McRib is an ever-elusive pork sandwich that was first introduced to the McDonald's menu in 1981 and scrapped in 1985. Since then, the sandwich has become famous as a limited-time offering with multiple "farewell tours" and tracking sites devoted to it, inspiring a theory that its return is precipitated by falling pork prices. More likely, however, McDonald's is imposing scarcity to generate publicity and demand for a product not popular enough to remain on the menu full-time.

hand holding tulip bulbs
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TULIP BULB CRAZE | NETHERLANDS GO CRAZY FOR A FLOWER

Tulips newly imported to the Netherlands from Turkey in the early 17th century became subject to a flurry of speculation causing prices to soar, so at one point people could trade a single tulip for an entire estate. Though the market was believed limitless, bulb buyers depleted supplies, furthering scarcity and demand, until finally prices collapsed as once-proud tulip owners panicked and sold at a loss.
light bulbs on blackboard
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THE PHOEBUS CARTEL | LIGHT BULBS' PLANNED OBSOLESCENCE

In one famous case of planned obsolescence, a group of major light bulb manufacturers like Philips and General Electric founded the Phoebus cartel in 1924 to carve up their global market into regions with specified manufacturers and production quotas for each. They also engineered bulbs to cost more with shorter life spans, of 1,000 hours rather than 1,500 to 2,000. The anti-competitive cartel was intended to expire in 1955, but dissolved instead due to World War II.
Apple Store
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APPLE | SLOWING OLDER IPHONE MODELS

Another more recent case of planned obsolescence came to light when Apple admitted to deliberately slowing down older phones through software updates, perhaps sparing some battery life but pushing customers to buy pricey newer phone models. Though the tech company pledged to be more transparent in the future, it was investigated for the practice by the United States, Israel, and France.

Hogarthian image of the 1720 "South Sea Bubble" from the mid-19th century, by Edward Matthew Ward, Tate Gallery
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THE SOUTH SEA CO. | DOMINATING TRADE JUST HID WEAKNESS

With a debt to the British government worth 10 million pounds, the South Sea Co. in 1711 purchased a monopoly on all trade with the Spanish colonies of South America. Investors convinced by the poorly managed company's affluence and projected dominance in international trade paid large sums for reissued stocks that did not reflect the SSC's actual value. When management sold their stocks, the bubble burst, banks nearly folded, and the government outlawed the issuing of stock certificates until 1825.

hand holding a smartphone with screen showing the Google maps app, satellite view of New York City
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LG DISPLAY | PRICE-FIXING OVER SCREENS

LG Display and two other major electronics manufacturers pleaded guilty in 2008 and agreed to pay $585 million in criminal fines for conspiracy to fix the prices of LCD display panels worldwide. LG paid $400 million, the second highest fine ever imposed for price-fixing, for selling panels at artificially-inflated prices from 2001 to 2006.
stack of CD cases
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MUSIC COMPANIES | CD PRICE FIXING

In 2000, an FTC antitrust case revealed the nation's five largest music companies had made illegal marketing agreements starting in 1995 to end a price war, hike up the costs of compact discs, and restrict retailers from offering discounts. The settlement forbade further such marketing agreements but levied no fines against the companies, which then controlled 85 percent of the $15 billion CD market.
Samsung
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SAMSUNG | COMPUTER MEMORY PRICE-FIXING

Samsung was one of five manufacturers participating in another international price-fixing scheme, this one to inflate the price of DRAM, or dynamic random access memory. The conspiracy fixed prices for sales to only certain computer manufacturers, and resulted in more than $646 million in fines, including $300 million for Samsung alone.
Chanel No 5 eau de parfum vaporizer bottle and its retail presentation box
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CHANEL AND OTHER PERFUME BRANDS | TURNING UP THEIR NOSES TO SEPHORA

Chanel, Dior, and Yves Saint Laurent were among 13 cosmetics brands fined by France's antitrust authority in 2006 for fixing prices in the country from 1997 to 2000. brands colluded to determine prices and limit discounts at certain retailers such as Sephora, and were issued fines up to $17.32 million for LVMH (Louis Vuitton), the world's largest luxury-goods group.

Lufthansa Airbus A340-300 taking off
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LUFTHANSA AND OTHER AIRLINES | SURCHARGES TO KEEP PRICES ALOFT

Yet another price-fixing scheme involved 21 primarily international airlines that from 2000 to 2006 sought to protect post-9/11 profit margins with artificially inflated passenger and cargo fuel surcharges. Lufthansa and Virgin Atlantic came forward in late 2005 to admit involvement, prompting a Justice Department investigation leading to four prison-sentences for executives and more than $1.7 billion in fines.

high voltage tower
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CALIFORNIA UTILITIES | GENERATING AN ELECTRICITY CRISIS

One of the major factors that caused California's electricity shortage and rolling blackouts from 2000 to 2001 was market manipulation on the part of major players in the state energy market, including Enron. Traders took advantage of the state's financial incentives and partially deregulated market with codenamed manipulation techniques that laundered electricity from out-of-state and "overscheduled" congested power lines to create artificial shortages.

Pill bottles
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GENERIC DRUG COMPANIES

The attorney generals of 45 states and the District of Columbia accused nearly 20 prominent generic drug companies of fixing prices for at least 15 medicines, while also dividing customers and portioning up shares of the market in secret, contributing to soaring drug prices. Two former executives for Emcure, one of the companies accused, long ago pleaded guilty to price-fixing and dividing the market for doxycycline and the diabetes drug glyburide, but the case goes on.

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