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Riches-to-rags billionaires

Last updated on: June 12, 2007 12:12 IST

Billionaires fall from golden perches for many reasons, from an inability to recognize underlying weaknesses in their industries to failing to diversify their holdings once they reached the top.

Their stories are cautionary tales, warning aspiring entrepreneurs on their way to riches not to get too cocky once they get there. And while many are still far richer than most, losing billions hurts.

Sanjiv Sidhu has the bruises to prove it. He amassed a giant fortune through his software company, i2 Technologies, and in 2000 was the 24th-richest man in America with $10 billion, making him then wealthier than investors Carl Icahn, George Soros and Kirk Kerkorian.

But like many victims of the tech bubble, Sidhu lost most of his money--fast. By the end of 2001 his net worth fell to under $1 billion. He sold roughly $500 million in stock before the crash. Today his stake in i2 is worth just $100 million.

Alberto Vilar struck tech gold buying up stocks like AOL and Yahoo! in their infancy. With an estimated net worth of $1 billion in 2001 he acted the part of a billionaire benefactor, pledging hundreds of millions of dollars to opera houses and ballet theaters in New York and around the world.

Then the bubble burst, pummeling Vilar's portfolio just as charitable obligations asked him to make good on his pledges. By the time the markets hit rock bottom, Vilar was left with nearly nothing. Instead of coming clean, he allegedly stole money from at least one of his wealthy investors. He's fighting the charges.

Martha Stewart was already in prison when she became a billionaire. Martha Stewart Living Omnimedia soared 90% during her five-month stint for obstruction of justice, and she hit the $1 billion mark behind bars. Soon after she left, her shares dropped 40%. Today she is worth only about $550 million.

Breaking the law doesn't always leave you richer. Former Enron chairman Kenneth Lay lost more than $400 million in 2001 as Enron collapsed in one of the greatest corporate falls in history. But he wasn't even the biggest loser in the Enron debacle.

In 1985 Robert Belfer, founder of Belco Patroleum, merged his oil outfit with Houston Natural Gas. The resulting company was renamed Enron. Belfer resigned after the merger to pursue his own investments, but kept his Enron stock, worth more than $700 million at the top.

After the company filed for bankruptcy, Belfer's oil fortune was a mere $110 million, money he'd pocketed in stock sales during the years before the company's collapse.

So the next time you find yourself dreaming of becoming a billionaire, remind your future self to diversify your holdings when you get there. That's the only real way to ensure that you'll keep breathing that rarified, gold-scented air.

Duncan Greenberg, Forbes