Educated and affluent = potential investing fraud victim

October 17, 2011

If you’re well-educated and affluent does that make you invulnerable to fraud? Hardly. If you’re willing to make high-risk investments to get high-return, there’s not only a target on your back, but experts say your personality types makes you susceptible to be taken.

“Most of us think of ourselves as invulnerable,” says Shoshana Lucich, of the recently opened Stanford University-based Research Center on the Prevention of Financial Fraud.

A really good con artist has the ability to get buy-in even from people who believe they know better.

“If it sounds too good to be true, you’re probably dealing with an amateur,” Lucich says, quoting Pat Huddleston of The Investor’s Watchdog.

The Bernie Madoff case is an extreme example, but an example nonetheless, of how even well-heeled people can shift their focus to the dollar signs and away from due diligence. Another is  the case of Raffaello Follieri, actress Anne Hathaway’s former boyfriend, who was convicted of ripping off a collection of wealthy victims, including investor Ron Burkle.

The institute, sponsored by the Stanford Center on Longevity and the Financial Industry Regulatory Authority’s Investor Education Foundation, is collecting information and encouraging the study of a variety of frauds, including investor fraud. An estimated $1.7 billion was lost to fraud in the U.S. in 2010. The institute is hosting a fraud summit in Washington, D.C. next month.

Lucich says fraud is a difficult area to get a handle on since a many victims deny being taken. That is widely attributed to their shame and disbelief.

Doug Shadel, state director of AARP in Washington state and a fraud profiling expert associated with the center, has spent years interviewing both those who’ve been ripped off and those who’ve committed the crimes. He says people are victimized when their emotions overwhelm their ability or interest to dig deeper.

“There are so many smart people who fall for this,” Shadel says. “Intelligence alone is not enough.”

He tells the story of a tenured college professor who was taken for about $900,000 in a scam that led him to believe he was investing in new Hollywood movies. Shadel says when he asked the professor why he fell for the con, he explained that throughout his career he had dealt with trustworthy people and he didn’t see a reason to doubt what was presented to him.

A good con man can get a victim so wrapped up in the idea he’s selling that warning signs will be ignored.

Shadel offers these insights into people most likely to be taken. They are:

  • more likely to be male and college educated, when it comes to investment fraud
  • more open to meeting people.
  • more likely to accept a free lunch or dinner.
  • more likely to claim a free gift or enter a contest.
  • more likely to take risks to get rewards.

People also become more vulnerable as they get older, he says.

The stakes are higher now, Shadel says, because most of us are now responsible (through 401(k)s and the like) for investing our own money to provide for retirement.

“Everyone is an investor, which  means everyone is exposed to this now,” Shadel says. “It’s open season. They don’t know how many sharks are out there.”

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