Why We Trust Fraudsters!

From Enron to Wirecard to Theranos and FTX, elaborate investment scams can remain undetected long after the warning signs appear. What are investors missing?

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[marcusmoonstein]

I'm 54 years old, and I've been targeted three times in my life by con men. The only time they got me was the first time and it was for a trivial amount of money (luckily!). Years ago I watched a police documentary about the detectives who investigate this type of crime, and the lead detective gave some warning signs of a potential con:

1. Humans are by nature mutually helpful and also like to make easy money. Con artists know this and so often craft a story about how you can make lots of easy money while simultaneously helping other people in some way. Basically, you'll be convincingly told that you can make tons of cash and feel virtuous about it at the same time.

2. There is often a convincing reason for time urgency. You will be told that you only have a short period of time to take advantage of this once-in-a-lifetime opportunity, and if you don't act quickly you'll regret it for the rest of your life. This appeals to FOMO and discourages the mark from digging deeper into the story. (Note that this doesn't always apply as some con-artists will spend years building up a relationship with their mark).

3. The con artist will often try to take the mark outside of their familiar surroundings. Unfamiliar surroundings increase sensory overload, and this leaves less cognitive resources available to critically examine the story. Often combined with time urgency.

4. The con artist will usually take the mark outside their field of expertise. It's very difficult to BS a farmer about farming, but easier to con them about the vast mineral wealth hidden under their land.

5. The con artist will often flatter their mark by telling them how astute, smart or lucky they are to invest in this enterprise while other people are too stupid to see the opportunity right in front of them. Who doesn't like to be told that they're smart?

[chancerobinson]

“It is harder to convince people they have been fooled than it is to fool them in the first place.” - Mark Twain

[ashleygordon]

My father always said ‘those who speak often about honesty and integrity usually possess little of either’. Forty years later I can say his advice is universally true. The second I detect any mention of honesty, integrity, greater good or self proclaimed worthy values, I run a mile. Now the business scene is rife with claims of superior social values. Believe it at your peril.

[vbrown]

As a fundraiser for non-profits that provide services for youth and poor communities, I often apply for grants from large companies like these investors. They usually require audits, financials, board lists, and lists of other donors, among lots of other info, before they'll even THINK of granting a non-profit $10K. They'll even question budget expenses like living wages and benefits for staff. Then they'll act like it was such a heavy lift and sacrifice for them to allocate $300K among 50+ non-profits in one year. But then turn around and make statements like these to their shareholders, that it was just a drop in the bucket for them to lose millions by investing in these scammers.

[mvs]

We shouldn't dismiss the media and their lack of professional journalism. They promote people and never challenge their absurd assertions. The part about Kevin O'Leary, pure gold.

[dcnative]

My number one red flag is anyone or anything telling me to "Hurry! Act now before it is too late! Don't miss out!" Any pressure to rush into a commitment is a big red flag. And part of that includes efforts to pressure someone to make a decision based on emotion rather than common sense. And also to stay away from making important financial decisions when tired or distracted. Lastly ask questions. Some people are afraid of appearing stupid but "pride goeth before the fall." I don't care if someone thinks I am as dumb as a bag of hammers. And in fact this can be an advantage because often con artists get careless when they think their mark is dim.

[foobarFR]

One big red flag : the use of FOMO. If the person doesn't want, or even doesn't let you have time to consider and think about a business proposition or discuss it with your relatives (ie : talking to your wife/husband, etc.), flee
FOMO is the easiest way to get scammed.

[extreme]

I love getting a scam ad during this video about how scammers trick us. It’s like a pop quiz in the middle of a university lecture to see if you were paying attention.

[ogzombiebreakfast]

Dear Lord, I got an ad during this video but I was looking at a different screen and 100% thought you were showing an example of one of these fraudsters and the rhetoric they use.

[Itriedtakennames]

For Theranos, I think there was a desire to see it as a story of “bright, college drop-out newcomer comes in and shows all those stuffy so-called “experts” how its done.” While you cant implicitly trust experts, knowing a field doesn’t make you a good or bad person, there is a strong and kind of odd theme in the US that “not being an expert” is somehow better than spending 10 plus years to actually understand a complex field.

[carolgebert]

One red flag I look for: When I am told to stop thinking. "You don't need to think too hard about this one." or "The experts all agree that..." or "The evidence is overwhelming" without actually presenting any evidence.

[jnauttube]

My red flag is overly complex business models. Like enron if you ask, "so how is it you make your money" and the answer is, "it's complicated", run

[sapphiron]

My parents got fooled by a ponzi scheme when they were young and raised me to be extremely prudent with my finance. No such thing as "easy money" and "low risk, high return", only "if it seem too good to be true, it probably is". Never really appreciate those lessons until i managed to dodge a banking scandal involving fraudulent bond which affected 40000+ people who lost most if not all their life saving from it.

[jacobprice]

One of the saddest moments in my professional life so far was speaking to an elderly pensioner who had most of their retirement savings basically stolen about 10 years ago. “He just seemed so trustworthy, I had such confidence in him”.

That’s what makes these people such parasites.

[Zeerse_Chef]

I saved my mum from a con a few months back. Somehow they had got hold of a shareholder list with my dad's name and number (who has passed some time ago) and claimed that due to a takeover of the company, her tiny number of shares had multiplied many times in value, all she had to do was send them several thousand £s to get the larger amount. She was suspicious but she was half convinced. They had tried to convince it was sensitive share price information and sent her an NDA even with docu-sign to make it more seem more legitimate, no doubt to try to avoid her even speaking to me about it.
They were based in the US and the FCA here was aware of them but only listed them as trying to sell un-licensed investment products, disappointingly, despite me reporting them as attempting fraud, that remains the only warning on the FCA site.
Bottom line is, organisations who genuinely owe you money, never need you to send them money first.

[benfel]

I have experienced this human behavior first hand when I was trying to raise funds for my tech startup. I was presenting my realistic business plan with plainly and honestly assessed and presented risks outlined clearly. I really struggled to raise the funds. Whilst in one meeting with a group of investors, I noticed all they talked about was another company they had all invested in. That company did not present the truth and played on greed etc. I could see how unsafe the investment was after 10 mins but all they did was fight over who was getting more stock etc. It was like children fighting over a shiny toy in the playground and these are businessmen in charge of billions! In the end, 18 months later, the company totally collapsed and it turned out they had never even built a product in the first place! A big less on learned there!

[joeblow]

Canadian here: a big issue is that a lot of business side fraudsters aren't heavily punished or even investigated at times. You'd be surprised how readily government will give out grants and interest free loans to businesses that can't repay them (without collateral). It's sort of an old boys club in the sense that as long as there's not too much fraud we don't punish fraudsters because a decent potion of business actors are engaging in it but not enough to ruin the high trust market exchange.

[farmalmta]

I read an article years ago written by a con artist on how fraudsters play on three weaknesses, which nearly everybody has to some extent or another:
1) greed
2) desire to be liked
3) desire to be the hero.
Once they figure out your primary motivation and weakness, they're expert at playing up to it.
He said that the worst result for fraudsters is when they encounter a person who simply says no and sticks to it. Trying to mentally joust with a con artist is just playing into their strengths. Simply say "no" and nothing else AND STICK TO IT. Just "no". They'll move on to more gullible marks.

[oonaamookhao]

“If it sounds too good to be true, it probably is.” Words to live by.

[JCNvid]

I worked for 3 years for a conman.

A)They used honestly, it's true, believe me, etc really often.
B) they get bored with business data, because they work on other principles than sound business
C) they are always coming up with new gimmicks. New lies, new products, new shinny things to avoid talking about issues.
D) they like to discuss popular topics so that other feel they are on top of everything, even if they know zero about the topic.
E) they will always try to pay for lunch.