and How to Smell a Rat: The Five Signs of Financial Fraud (Fisher Investments Press)
Ken Fisher Interview Part 4
Stockerblog: I wanted to talk just a bit about con men versus con women. Do you see more women becoming con artists in the future or do you think it will primarily be men?
Fisher: The history, as I mentioned in the book How to Smell a Rat
, is almost exclusively men. In fact, one of the points I make in the book is that up to this point in time, which can be very different in the future as you allude to, is that one of the best ways that you can protect yourself against Ponzi schemes is to just simply invest with women, not men, because we don’t have this extensive history of women doing this. But I do believe that women are as smart, as capable, and when you look at other forms of criminality, you actually see their presence and in some types of criminality, predominance of female criminals. So, for example, when you look at a different form of embezzlement, this is where somebody in a small business embezzles from the business. Traditionally, that felony has been overwhelmingly female. Because there is more money in doing securities embezzlement than there is from embezzling from a company, and because there is somewhat greater ability in controlling your environment doing that, I do believe we will see an increase in future cycles of female Ponzi scheme embezzlers who say "The only mistake that Madoff made was not getting out of the country fast enough."
Stockerblog: Is the person on the rainmaker side just as culpable as the back office person or the person who runs the scheme?
Fisher: Oh sure. Absolutely. People who are participatory to a Ponzi scheme should have known that they were participatory to a Ponzi scheme. They should have known something was up. People around Alan Stanford knew something was up.
You think about Madoff. This is one of the sad dilemmas of this. Madoff's behavior was that he wanted to stay away from his employees so his employees wouldn't figure him out. So he came in and supposedly traded European markets at night when the employees would be away, and then he would leave. He was trying to minimize the contact with his employees in his otherwise normal business so that he can pull this off.
Nobody pulls this stuff off by themselves in volume. The notion from the beginning that Madoff acted alone, which is what he claimed, was a ridiculous notion. I believe that he wanted that as a notion because if he could convince people of that and they couldn't figure out who else was participatory, they wouldn't get other people to testify against him, against other family members, against Lord only knows who. Nobody can pull off these large Ponzi schemes acting by themselves, it's just too much to do. It's impossible to envision that someone who's participatory to an event at that kind of scale, doesn't have at least some ability to sense that something's wrong, even if they don’t know exactly know what it is.
Stockerblog: But it almost seems like the person who is bringing in the money is the key. If you don't have that person bringing that money in, they can't perpetrate their fraud. Doesn't there have to be a sales aspect to the person. I'm sure there are con men out there who have tried to swindle people and couldn't even get anybody to give them a hundred bucks. Do you see what I'm getting at? Is there a personality trait?
Fisher: A lot of the small-time Ponzi scheme people do it themselves without any extra help. If you are small enough, you can do it by yourself. The feature where you start to need help and you need that sales function is when you get bigger. A lot of what people like Madoff did was use intermediaries, because the intermediaries never get that close to them. If you look at all the intermediaries that have gotten stung by the Madoff event, you scratch your head and say "Gee, I wonder why they didn't figure it out." The answer is that he paid them well enough for them not to think about it twice.
Stockerblog: So the head of the scam doesn't have to be a super salesperson as long as either the staff or the people who will refer business to them do the selling for them.
Fisher: They have to have the scheme figured out, however. And usually a lot of these people themselves will upon occasion, will act as the salesperson. It's usually down the vein of "I'll take ten minutes with you. I really don't have a lot of time. I'm very busy. I'm very important. You know, your brother-in-law Joe has been a happy client for four years. Go ask Joe the questions, and then when your want, here's the forms, and we'll take your money. I wouldn't take your money normally because you're not wealthy enough to be one of my clients but because of your brother-in-law, and I've already got Joe, in this one instance, I'll take you." They encourage the person to go to their brother-in-law who's been with him for four years, thinks he's had great returns, thinks everything is wonderful, never had a clue, and the person would put the money in.
But you're absolutely right. Most of these entities don't have huge sales organizations of their own. But Stanford did, and the people didn't figure it out because they're paid enough to not figure it out.
Stockerblog: It seems like you have to have that sales orientation personality trait just to get the thing going. You have to be able to sell it to your intermediaries, you have to be able to sell it to your staff.
Fisher: I think there's something to that. The nature of people wanting the high return, low risk feature with slow steady returns, and never a bad year, and too good to be true, is such a powerful weakness in all of us, that things that should be common sensical to us, we just don't look at.
Charles Ponzi was on the one hand, an Italian American Catholic in Boston who embezzled from Italian American Catholics in Boston with no particular background that should justify his being able to do this, while claiming that he put $10 million in international postal certificates when the total universe of international postal certificates was at the time $75,000. You would think somebody would say "I wonder if there's enough international postal certificates around to do what this guy's doing."
But the same problem applies to Madoff because if you look at the securities Madoff claims to have traded, they were never liquid enough to deal with the amount of money he had. We as humans tend to be very slow to learn.
End of Part 4 – Stay Tuned for Part 5
If you missed Part 1, you can check it out here.
If you missed Part 2, you can check it out here.
If you missed Part 3, you can check it out here.
By Fred Fuld at Stockerblog.com
Copyright 2009. All rights reserved. Reproduction of this interview prohibited with out permission. All opinions are those of Ken Fisher, and do not represent the opinions of Stockerblog.com or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview.
No comments:
Post a Comment