No Con Hurts Like an Affinity Con
Losing money doesn't feel very good. Losing it as victim of a con feels even worse. And being conned by a trusted friend multiplies the hurt.
But there's a special department of psychic pain for having experienced all of the above while fancying oneself a savvy insider in the ways of Wall Street. That bitter recognition now confronts the victims of Bernard Madoff, accused of perpetrating perhaps the biggest pyramid scheme of all time.
Madoff's theft is stunning in its size, a suspected $50 billion, and in its victims, some of the world's most sophisticated financial firms and multi-multi-millionaires. The stunning part, though, is how closely the Madoff ploy resembles the affinity frauds that have ransacked the less affluent and supposedly less worldly.
An "affinity fraud" targets members of a specific group. The group can be ethnic, religious or social. Immigrant communities are especially vulnerable.
In the Seattle area, a mortgage broker preys on fellow Filipinos at their church, helping them "buy" homes that, in fact, were kept in someone else's name. A black preacher runs a scam — the "Church Funding Project" — that steals almost $3 million from over 1,000 African-American churches. The congregants thought the funds were being invested. In Los Angeles, two Korean "money managers" defraud Korean immigrants of about $4.5 million.
In the last case, the con artists paid off early investors with the dollars coming in from new investors. As word spread in the Korean community that these guys were financial wizards, more people handed them their hard-earned savings.
Though on a far grander scale, Madoff's pyramid scheme contained the identical elements. Madoff swindled major European banks and famous hedge funds of many billions. But the affinity-fraud centered on cheating old friends at the mostly Jewish Palm Beach Country Club.
Madoff disarmed these wealthy business leaders and philanthropists with his kindliness, low-key demeanor and devotion to funding good causes.
Many of these club members are now cleaned out. They're selling their Palm Beach mansions and closing their charities. And piled onto the shock of staggering economic losses is the very public spectacle of having been taken — and by Bernie.
Textile magnate Carl J. Shapiro had been close to Madoff for nearly half a century, regarding him as a son as well as his money manager. Not knowing of the plot, Shapiro, now 95, had helped acquaintances at the club connect with Madoff. (The con man wouldn't take just anyone's money, a selectivity that added to his aura.)
The hoax has stripped over half a billion dollars from Shapiro's personal fortune and family foundation. Madoff's unmasking as mastermind of this super fraud was "a knife in the heart," Shapiro told Shannon Donnelly of The Palm Beach Daily News.
Were there red flags? Madoff's steady return of 1 percent a month, in bad times as well as good, should have been a warning. But in fat years, other hedge funds delivered far more extravagant gains, convincing investors that Madoff's strategy was a conservative one. That put his marks off their guard.
In this era of deregulation, almost any clever soul can commit a financial crime. The rationale behind eviscerating the Securities and Exchange Commission — that markets would take over the job of disciplining the imprudent — doesn't hold up very well in this case. If members of the Palm Beach Country Club couldn't figure out they were being scammed, what chance do less experienced investors have?
But even a well-policed financial system would be hard pressed to protect people blinded by friendship. The betrayal part is why no con hurts like an affinity con.
To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
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