Alleged con men Bernard Madoff, Greg Manning and Marc Dreier are offered the benefit of the doubt by assuming alcoholism. No excuse, just one possible explanation that fits.
Under watch:
I have long maintained that if 80% of felons are alcohol and other-drug addicts, a similar percentage of those who commit white-collar crime—including those who perpetrate Ponzi and other con artist-type schemes—are also addicts. Charles Ponzi was an alcoholic. The behaviors suggest that those listed below are as well (and if not, they are likely children of particularly emotionally abusive ones).
Unfortunately, the number of celebrities outed as alcohol or other-drug addicts are inversely proportionate to the number of attorneys, businessmen and politicians who are not. Occasionally we run across a non-professional con artist, in whom we are more likely to have a chance at confirming addiction. We might argue there should be no difference in the incidence of addiction among cons of various stripes. Alex Molina, the then 21-year-old who claimed to be homeless on Oprah Winfrey’s “Wildest Dreams” show in 2004, moved Oprah to spend tens of thousands of dollars to help her turn her life around. But when Alex claimed to have been sleeping on park benches and washing in Wal-Mart restrooms, she was actually, according to her aunt Magda Marroquin, “living in my apartment…[She] begged me not to say anything to ruin her chance of a new life with Oprah.” It sounds like a young lady worthy of compassion, until we learn from Marroquin that “she’s not the sweet kid you see on TV….She beat me up in front of my own children….She’d sleep all day and party all night.” Oprah paid $40,000 for a 30-day stint in rehab, which, if Aunt Magda is to be believed, confirms that Molina was both a con artist and an addict.
A study by the National Association of Securities Dealers found that people with financial education and higher incomes are more likely to fall for investment scams because of the sense they are too smart to be conned and that we are wired to make so many critical decisions—including those involving money—emotionally. Consider the fact that addicts in recovery admit to having been the world’s greatest con artists when using. Think of the likelihood that alcoholism drove those featured in the stories below to have a need to wield financial control over others, even if we lack definitive proof of addiction. It’s crucial to understand the impetus for criminal financial cons because, while much of what transpires during financial bubbles comes to light after such bubbles burst, there is a tendency for such schemes to continue as con-men seek prey, who are desperate to regain their lost fortunes.
Bernard Madoff, 70, who is behind what may have been the largest Ponzi scheme ever, arrested on charges of fraud and, by his own admission, bilking investors out of $50 billion. Madoff used his standing in the Jewish community and as former head of NASDAQ to commit what is referred to as “affinity fraud,” which requires a high level of trust among fellow members of a similar religion, club or other group. According to Donna Rosato in a November 2006 Money piece entitled “Hello, Sucker,” con artists infiltrate a social group and persuade new friends to enroll in the scheme. “Members of that inner circle become an unwitting sales network, spreading word to family and friends….Once people you trust have embraced a scheme, it runs against human nature not to be swept up in it….When we go along with peers, activity in a part of the brain that thinks analytically may decrease, presumably reducing our skepticism. And when we go against consensus, there’s a reaction in the part of the brain usually triggered by fear. So we’re afraid to go against the crowd.” As Ronald A. Cass wrote in a Wall Street Journal article entitled “Madoff Exploited the Jews:” “Pressing a fellow parishioner or club member for hard information [on the promises made] is like demanding receipts from your aunt—it just doesn’t feel right. Hucksters know that, they play on it, and they count on our trust to make their confidence games work.”
Madoff apparently took full advantage of this, the best explanation for which is alcoholism. As I wrote in the top story, “How do Alcoholics Get Away with Financially Abusing Others?” in the Winter 2007-2008 issue of Wealth Creation Strategies (online at www.DougThorburn.com).
“Addicts suffer damage to the frontal lobes of the brain, the seat of reason and logic. The lower brain centers, responsible for survival, instinctual actions and reactions, emotions and herding, are undamaged. We might hypothesize that this allows the primitive brain to override the restraints of the logical brain, allowing alcoholics to better connect with others at an emotional level. This should be helpful to a con-man when attempting to tap the primal instincts and bilk the mark.”
I concluded that financial thuggery is perpetrated by people who are good at disconnecting their victims’ thinking from economic or other reality and getting them to buy and do things they would never ordinarily consider. Since alcoholics have the ability to connect at the emotional level better than most and feel the need to wield power over others, the great con-men are often alcoholics.
Barron’s asked Madoff in 2001 how he accomplished the high, steady returns he claimed to have earned his investors. “It’s a proprietary strategy. I can’t go into it in great detail.” Although his “proprietary strategy” has been employed by con-men for hundreds of years (Ponzi only made it famous), be suspicious of anyone claiming to have a “secret formula” that can’t be described, especially when it comes to investment acumen.
Numismatic stamp expert Greg Manning, 62, who Spanish prosecutors have asked U.S. authorities to indict in an alleged postage stamp investment fraud that rocked Spain two years ago. A “no loss” stamp investment program (“Invest with me! You can’t lose!”) that prosecutors allege was a Ponzi scheme resulted in catastrophic losses for Spanish retirees. Manning allegedly arranged the purchase of cheap stamps and prepared them for sale to clients of Afinsa Bienes Tangibles for more than $128 million, which prosecutors estimate was over 800 times Manning’s cost. Although we Americans don’t hear much about foreign Ponzi schemes, it doesn’t mean they don’t exist. The financial mania was a worldwide phenomenon, as is alcoholism.
Lawyer Marc Dreier, 58, hit with criminal charges over defrauding investors out of $380 million by selling phony investments. He surrendered to authorities in New York after returning from Canada, where he was charged with impersonation while attempting to fraudulently complete a business transaction. Separately, he allegedly attempted to secure funds from New York asset-management firm Fortress by impersonating another attorney. In civil actions, Wachovia Bank filed suit against Mr. Dreier and his firm, alleging that the firm defaulted on loans of about $12.7 million. The complaints allege that Dreier fabricated promissory notes by an unnamed New York real estate developer and sold them to hedge funds. He also fabricated supporting financial statements. Mr. Dreier is known for his “flashy” lifestyle, four “dazzling” homes on two coasts, an Aston Martin and a 123-foot yacht. We suspect he is also known for heavy drinking, but as is all-too-common in cases involving lawyers, politicians and CEOs, the journalists aren’t saying. The odds that he is just plain rotten, assuming he is guilty of the charges alleged, are only 20%. The likelihood that he is an otherwise decent human being, led astray by the particular effect of the chemical CH3CH2OH on his brain, is 80%. We’ll give him the benefit of the doubt and suggest that alcoholism is the best explanation for someone respected as an incredibly capable lawyer who benefited from a “fantastic” education and worked “very, very hard.”