How The First Ever Telecoms Scam Worked

How The First Ever Telecoms Scam Worked
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    Around the world, big financial companies have spent huge amounts of money
    setting up private high-frequency trading networks.
    Rather than use public data links, they send stock market news
    flashing through the air between towers like this.
    Actually, this tower was built for floodlights, but it's the tallest thing for a long way around,
    so the trading companies paid to have their antennas put on it.
    Getting financial news just a hundredth of a second faster than your competitors
    can give an advantage to your company. Or, rather,
    it can give an advantage to the computers that make your company's decisions.
    Now, this could be an artifact of our weird, 21st-century,
    hyper-capitalist technology race.
    Or it could be part of a tradition that goes back to 18th-century France.
    It is warm here.
    The optical telegraph sounds a bit ridiculous,
    like one of those things you find in lists of failed Victorian inventions,
    or something made up by some steampunk enthusiast.
    But for a few decades in the late 18th and early 19th century,
    semaphore lines were the fastest way of getting information between major cities.
    There would be a chain of towers, like this one,
    on hilltop after hilltop after hilltop, each a few miles apart.
    An operator at the start of the line would use gears and levers
    to move the semaphore arms into a position to convey the start of a message.
    When they locked in, the next tower along the line would copy them.
    When they'd locked in, the next tower would copy that,
    and the first tower could start on the next position in the sequence,
    and so on and so on, all the way down the line.
    It wasn't lightspeed, but it was fast.
    Britain had a line for the Admiralty, from London to Portsmouth.
    In Russia, Tsar Nicolas had a line 750 miles long.
    And this system, here in France, was invented by Claude Chappe,
    and at its peak, it had more than 500 stations like this
    across 3,000 miles of France.
    And while it depended a bit on the weather and the operators,
    on a good day a message could travel at hundreds of kilometres an hour.
    There was just one problem for anyone who wanted to use it for profit:
    these lines in France were for official government use only.
    You could not pay to send a message through them.
    But that didn't stop two French brothers with a plan.
    Now, there are a lot of versions of this story in the English-speaking world.
    It's been copied from author to author, from article to article, retold and retold,
    until there are a lot of seemingly-reliable English sources all with different details.
    So, I hired a French-speaking researcher,
    who went to the archives in the city of Tours and translated the original documents.
    Here was how the first telecoms scam worked.
    The Paris stock exchange influenced every other stock exchange in France.
    The faster you knew its movements, the more money you could make elsewhere in the country.
    So François and Joseph Blanc, down in Bordeaux in the south of France, hired someone up in Paris.
    I do like how classy French names sound in English, by the way;
    those names translate as Frank and Joe White.
    But, anyway, François and Joseph Blanc hired someone up in Paris.
    If there was a major movement of the Paris Stock Exchange,
    that agent in Paris sent parcels with coded messages
    to the telegraph operators in the town of Tours,
    about half way down the telegraph line to Bordeaux.
    Those were actually packages of clothes, so they looked innocent,
    but the type and colour of the clothes told those operators what the news was.
    And those telegraph operators had also been bribed by the Blanc brothers.
    Now, there are 96 possible positions of those two telegraph arms.
    So the semaphore operators weren't sending individual letters or characters.
    Instead, each pair of two symbols in a row meant a different word or phrase,
    and there were more than 8,000 possible phrases written in a big codebook.
    And the code books were only held by senior officials in the big towns.
    So if you were just somewhere in the middle of France, like here,
    you were just looking at the previous tower and copying it.
    You didn't know what you were sending.
    But there were a few arm positions that everyone knew,
    and those were reserved for control signals,
    like 'please wait' or 'backspace, I messed up the last position'.
    So now that the operators in Tours knew how the stock market had moved,
    they added specific, deliberately wrong signals
    and sent those down the line to Bordeaux,
    then immediately they used the 'backspace' signal to correct them.
    'Whoops, sorry, just messed up there.'
    That wrong signal with the hidden message would still go down the line,
    it just wouldn't show up in the official transcripts.
    In Bordeaux, at the end of the line,
    the brothers paid another person to watch the sempahore tower for the mistaken signal,
    which gave them the news way ahead of anyone else.
    And they used that news to make a spectacular amount of money.
    Now that does seem a bit overcomplicated,
    but the brothers couldn't use the telegraph
    to send the signal all the way from Paris down to Bordeaux,
    because in Tours, half way down,
    there was a telegraph manager who would check the signal,
    and decode it to make sure it still made sense.
    The mistake and correction would be removed there.
    The scam worked for two years, until people started to get really suspicious about their success.
    And one of the telegraph employees who had been bribed confessed on his deathbed,
    either to ease his soul or to recruit a replacement.
    Everyone involved - everyone involved who was still alive, at least - was arrested.
    The Blanc brothers were found guilty of bribery,
    and the telegraph operators were found guilty of receiving bribes,
    but there wasn't actually any law about misusing the telegraph system,
    so the brothers were just ordered to pay the costs of the trial and nothing else.
    They got away with the money.
    And the French government, very soon after,
    approved new laws that not only banned private signals on these lines,
    but banned the idea of private semaphore networks altogether.
    You couldn't even build your own.
    These weren't lightspeed, high-frequency trading network microwave towers.
    But even now, when it comes to the stock market, time is money.
    The Blanc brothers were a good century and a half ahead of their time.
    Thank you to Victoria Harrison who spent a lot of time in the archives
    researching and translating sources; any errors in retelling are mine and not hers.
    Pull down the description to see some of the original documents that we worked from.
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