With A Smile Not A Gun

At her sentencing hearing in Manhattan, Annette Bongiorno, Bernard Madoff’s former secretary, stood weeping before Federal Judge Laura Taylor Swain. “I never figured out the truth,” she said. “I did what I was told. I didn’t know what was going on.” Handing down a prison term with demand to forfeit all property and money gained through her work at Madoff Securities, estimated at $16.4m, Judge Swain said Ms Bongiorno had “wilfully blinded herself” to illegal acts.

In finding Ms Bongiorno culpable as an accomplice to her boss’ massive Ponzi scheme, Judge Swain invalidated contrived ignorance as an avoidance of guilt, and delivered a speck of justice to victims, though negligible economic restitution. Sadly, the world is filled with Annette Bongiornos and Bernie Madoffs. Wilful blindness is ubiquitous. It is a basic, vexing element of the human condition wherein we both wittingly and unthinkingly, ignore, deny, negate, misperceive, overlook and otherwise ‘un-know’ substantial aspects of the world and our lives in it.

This is the sine qua non of fraud. As mordantly put by Sam Antar, former Crazy Eddie CFO, de-licensed certified public accountant, and convicted felon, “white collar crime is a crime of persuasion. It is a crime committed with a smile rather than a gun. Many white collar criminals are likable and charming people. They use their likable personality as a tool to gain the confidence of their victims. That is why white collar criminals are called ‘con men’.”

Only some people become criminals, but everybody lies, deceives and evades. And as Joseph Wells, founder and chairman of the Association of Certified Fraud Examiners, sagely reminds forensic accountants the world over, “fraud is committed by people, not numbers.” But as legions of nobly-intentioned CFOs, risk, compliance, and anti-fraud professionals sharpen their digital pencils and debug their algorithms trying to prevent the next big fraud, wilful blindness about fraud’s central element – people – hunkers in plain sight.

Our fixation on simplistic accountings of fraudster pathology and holy motivational trinities – rationalisation, opportunity, pressure – borders on fetish, and eclipses both the actual psychological complexities of deception, persuasion and fraudulence, and the intricate psychosocial ecosystems which incubate and engender successful frauds. Two-dimensional conceptualisations of the underpinning mechanics of criminal fraudulence provide scant practical value, either after-the-fact or as a predictive tool. These typify the historically entrenched focus on fraudsters wholly in terms of psychopathology, viewing fraud as an asymmetrical bipolar event between the fraudster as dominant figure, and victims in the subordinate position. Crucially absent is conceiving the intertwining matrix of relationships involved in fraud, whether between individuals or within an institution. Stakeholders and participants exist together in a dynamic network. Fraudster and victims are entwined in a relationship of mutual, albeit deeply imbalanced, interdependency; each requires and uses the other, though obviously with vastly different intentionality and outcomes.

How can these soft elements be identified, much less usefully leveraged, solely on the basis of fact patterns, banking and accounting records, or other hard documentation? The tendencies and activities specific to each dishonest actor – important data in its own category for pre-empting, derailing or responding to a malfeasant episode – vary according to where and from whom he learned his trade, the particulars of situation and circumstance and, most pertinently, to the character, constitution and psychological reflexes of all involved parties.

Human psychology – the doings of mental function and their behavioural manifestations – is profoundly more complex and inscrutable than appears. Tidy and ostensibly rational explanations for the drivers of asocial deceit and malfeasant persuasion – contemptuousness, arrogant self-belief, greed, sociopathy, bald opportunism – are, on closer inspection, themselves merely a conceptual mirage, providing little more than a reassuring pseudo-sensicalness to inexplicable and dangerous dispositions and actions.

Nowhere do these issues converge more relevantly than in fraud risk forecasting. As distinguished from other facets of risk management, such as economic exposure, AML, investment performance, market fluctuations, strategic positioning, forecasting the probability of white-collar malfeasance bears closer resemblance to profiling and predicting violent criminality. Indeed, in testimony given in 2009 before the New Jersey State Assembly Republican Policy Committee as an expert witness on political corruption and white-collar crime, Mr Antar, the convicted Crazy Eddie CFO, stated that: “white collar crime is more brutal than violent crime. The actions of one or a few corrupt public officials and corrupt businessmen affect the livelihoods of thousands of people. Treat them with the same disdain with which we treat serial killers because white collar criminals are economic predators. We are serial economic predators.”

Wielding guns disguised as smiles, economic predators steal value and cause serious harm. If fraud risk protocols concerning nefarious actions aspire to ascertain and harness predictive knowledge of future events, particularly those pivoting on people’s hidden impulses and interests, how can we minimise variables and more accurately narrow the margins of unpredictability? What and how we can know about the private, internal intentions and machinations of malfeasant actors before they strike?

In ‘The Minority Report’, Philip Dick’s iconic 1956 science fiction short story, all crime is summarily prevented by precogs, mutants with super-cognitive abilities enabling them to see into the future. Computers analyse and translate the precogs’ raw data into reports issued to PreCrime, the enforcement unit which then tracks and apprehends identified suspects for the crime they would have committed had it not been pre-detected. The notion of an authority licensed to trespass into people’s thoughts and pre-emptively foreclose their future actions is anathema to human free agency. In the civilised world, the thought police are only the stuff of dystopic sci-fi.

Yet the surface appeal is clear, an apparent solution to the common problem of 20/20 hindsight and near blind foresight. Of course, it is a chimera, and fraught with challenges for anti-fraud professionals. One is defining the legal and ethical boundary separating unwholesome fantasy – say, discovering indicators of someone’s desire to defraud – and imminent lawless action. On a practical level, most conventional risk management and fraud detection programs draw on lessons learned in the past-is-prologue school, where assumptions about tomorrow are based on yesterday’s trends. Pattern recognition analysis can certainly have value, as do conventional compliance, audit, and integrity checks or other safe-guarding measures. But by and large, predictive insight extrapolated from historical patterns project knowably likely, not confoundingly unexpected, trajectories, which immediately leaves actual human tendencies behind a large delta. And hard statistical data can only usefully signal real-time deviations and anomalies from unambiguously pre-defined metrics. More importantly, these methodologies cannot account for or interpret mental architecture and illogical behavioural propensities. They are inadequate to the task of rendering sophisticated portraits of human interrelationships, apprehending deep-level susceptibilities, or forecasting undulating group dynamics.

Many corporations consider pre-emption a viable defence. Psychometric tests and Ekman-influenced ‘lie-spotting’ interview techniques designed to interpret non-verbal communication, like facial expressions and body language, are increasingly popular gate-keeping mechanisms. But accurately profiling white-collar criminals has historically proved challenging. According to the results of various studies conducted by the Association of Certified Fraud Examiners (ACFE) and noted in their 2010 Report to the Nations on Occupational Fraud and Abuse, approximately 95 percent of white-collar criminals have no previous criminal record. Furthermore, the higher the monetary value of the economic crime, the less likely it is that the perpetrator has a previous criminal record.

In addition, lying and poise are deeply interconnected. In our experience, pre-hiring fraudster screening is the functional equivalent of TSA-mandated shoe removal as an anti-terrorism measure. Front door filters generally misconstrue outward expressions of internal processes, and underestimate capacities to effectively deceive.

Many corporate leaders and risk managers remain sceptical of the role and value of human factor analysis. AML and anti-fraud compliance is deemed a mandatory cost-centre, though these should be institutional centrepieces. Adjusting that should be the first priority. More sophisticated recognition of the human elements in detecting and addressing fraud, as an aligned enhancement to conventional Know Your Customer and due diligence protocols, are absolutely required. Significant education and training are needed in signal and context interpretation and soft data analysis, coupled with organisational systems prepared to capture, translate and respond to critical predictive intelligence.

Anything less is wilful blindness.

Asset Recovery Teams Wage ‘Warfare of the Mind’

A message from Matthew R. Lindsay, executive director of ICC FraudNet, about The FraudNet Report:

This newsletter about fraud & global asset recovery is published by ICC FraudNet, a highly select network of independent, world-class asset recovery attorneys in 54 countries around the world.

In recognition of fraud’s increasing sophistication, speed and global dimensions, in 2004 the International Chamber of Commerce (ICC), the world business organization headquartered in Paris with offices in 70 countries, founded the FraudNet network under the auspices of its London-based Commercial Crimes Services unit.

FraudNet is a 24/7 international rapid deployment force that pries open the vault of bank secrecy and helps victims chase down and recover their stolen assets with the same cyber-powered speed, stealth, reach and proficiency as the most sophisticated global fraud network.

Using sophisticated technical investigations and forensics, as well as cutting-edge civil procedure, members of ICC FraudNet have recovered billions of dollars for victims of some of the world’s largest and most sophisticated global frauds involving insurance, commodities, banking, grand corruption and bankruptcy/insolvency. We have expert, on-the-ground representation in all of the world’s top financial centers and offshore bank secrecy havens and work closely with law enforcement when MLAT requests and criminal asset forfeiture are required.

This newsletter will provide members of FraudNet, organizations representing institutional and individual victims of fraud, and other interested parties with regular updates on the progress of key asset recovery cases and new developments in procedural tradecraft. Our Report will also present interviews with FraudNet lawyers and news from FraudNet conferences.

It seems obvious that multi-disciplinary fraud recovery teams require forensic accountants to uncover the facts of the fraud, along with specialized attorneys to develop and implement an appropriate legal response. However, in recent years FraudNet has expanded its world-class asset recovery team concept to include a new discipline: psychological warfare. The goal is to open a new front against complex financial frauds and to recover more stolen assets, more quickly.

How is victim recovery enhanced by specialists who conduct so-called warfare of the mind, mapping out the “psychodynamics” of fraudsters, their accomplices, associates, family members–even victims?

To answer this question, individual representatives of the accounting, legal and psychology disciplines with a strong track record of working together on FraudNet teams presented an interactive (but fictive) investigative scenario at the Third Annual Sao Paulo Conference on Fraud, Asset Recovery & Cross-Border Insolvency Cooperation.

“It was a clear demonstration of how psychodynamic techniques help fill in missing pieces of fraud’s complex puzzle, decoding and forecasting perpetrators’ operations and revealing ‘pressure points’ and fractures that can be exploited in depositions, interviews and litigation,” said FraudNet member and presenter, Bernd H. Klose, founding shareholder of kkforensic of Friedrichsdorf and Hamburg, Germany.

Klose added: “Such comprehensive mapping of relationships and motive, over and above the ‘hard’ transactional facts of forensic accounting or business activities of record, often can yield disgruntled employees, contractors or family members who provide ammunition against primary targets or even open up entirely new avenues for recovery.”

According to presenter D.C. Page, senior vice president of the Consulting and Investigations Division at Andrews International, Miami, “What became very clear during our presentation was that the work results of each profession are highly influenced by and build upon each other.” He added, “However surprising this may sound, we saw demonstrated in our interactive scenario how analysis of one apparently tangential fact–that our subject was a cross-dresser– directed our investigation at several specifics that led straight to the core of the fraud.”

Klose added, “We also demonstrated that deep-impact psychological knowledge is likely to answer questions important to the legal strategy for recovery. For example, we saw that insight into a perpetrator’s psychology can forecast whether he will be likelier to surrender or fight back once secrecy is dropped and he finds himself under legal attack. We also saw how such insights throw direct light on the problem of asset-hiding.”

According to the third presenter, psychoanalyst Alexander Stein, Ph.D., founder and managing principal of Dolus Counter-Fraud Advisors LLC, New York, “At its core, fraud is warfare of the mind. The whole undertaking manifests and serves psychological forces within the fraudster that stand independent of any pure pursuit of financial gain.” He added: “Fraudsters are not only internally driven by these forces, but they also externally deploy a whole arsenal of psycho-social devices that are more refined and sophisticated than in other crimes. At best, these are only partially addressed by standard asset recovery instruments and techniques.”

For that reason, Stein said, victim recovery can directly profit from psychologically sophisticated insight into fraud and astute analysis of all intelligence gathered by the multi-disciplinary team–even what otherwise might be discarded as “garbage.” In fact, he pointed out, “One of my favorite moments on any multi-disciplinary FraudNet team comes when I can take an undervalued piece of soft intelligence about a subject’s character or personal life and use it to shift the forensic or legal paradigm. A single overlooked fact or actor can create key leverage against the entire criminal enterprise.”

Such “garbage” sometimes turns up when Stein conducts secondary sweeps of the results of the investigative team’s hard-data “expedition” into accounting and business facts of record: the so-called trail of deeds and funds.

Stein’s proprietary methodology, called Psychodynamic Intelligence Analysis (PIA), is a set of techniques for identifying, understanding, and utilizing so-called soft or human data. PIA can assist forensic accountants and litigators in advancing case conceptualization, management, and prosecution every step of the way by opening a third dimension on formerly two-dimensional intelligence gathering and data analysis.

“These techniques can reveal what may not be readily discernible in discovery, or through other hard-data intelligence gathering, but which is of critical utility to anti-fraud recovery teams: the psychodynamic turmoil that besets the fraudulent enterprise, just like every organization, and the unique pressures and challenges of being its leader,” Stein pointed out.

“In many key respects,” he added, “the fraudster is a masterful corporate strategist and leader. He is the CEO of a complex, organized business entity which is, in most instances, staffed with a senior management team of superior quality and capability.” Nevertheless, Stein pointed out, “stress points,” flaws, and fractures exist in the fraudster’s complex organization. Once identified, “these can be pressed to breaking or pried further apart.”

Not surprisingly, his methodology is not applied only to perpetrators, but also to victims, who are the fraud equivalent of a crime scene. “Psychological ‘fingerprints’ gathered from victims can provide valuable clues both to the fraud’s methodology and why it succeeded,” Stein explained.

Beyond the benefits of these psychodynamics to any specific asset recovery effort, Stein believes lessons from his proprietary system can enhance counter-fraud regulatory, compliance, and watchdog oversight with sophisticated preemptive profiling and forecasting systems and improved protocols.



Interviews with Entrepreneurs: Alexander Stein

Please share with us what prompted you to launch Dolus Counter-Fraud Advisors, LLC?
My establishment of Dolus has been a professional evolution more than the product of a discrete decision. How I came to develop this business is best understood by tracing a sequence of pivotal inflection points (each of which is in reality far more complex than I can concisely describe here).

I hold masters and doctoral degrees in psychoanalysis, and completed my clinical training and licensing at The National Psychological Association for Psychoanalysis in New York. I pursued excellence and success with intense dedication, worked to grow my private practice and help my patients, and established my reputation as a respected clinician/scholar/teacher/lecturer. I wrote and published many articles in prestigious peer-reviewed journals, and presented at international conferences. All of it was compelling and gratifying.

But I was also frustrated by a cluster of issues. One is the traditional private practice business model: a referral system. I felt stymied by having to wait for the phone to ring with a potential new patient, irrespective of all the other business development actions I took.

More fundamentally vexing: psychoanalysis, as a part of the larger mental health industry, was continually being mischaracterized, maligned, and marginalized, in the general press, by rival therapeutic modalities (e.g., cognitive behavioral therapy, psychiatry, psychopharmacology), and in the market-place of popular culture, where mental health issues and treatment suffer from persistent social stigma. I was perturbed by what I considered an insufficient engagement by the profession—the body of practitioners and administrators of training institutions—to staunchly respond to and redress these brand assaults. I mounted my own campaign, primarily through writing letters to the editor in the New York Times designed to correct and clarify misperceptions about the contemporary relevance and value of psychoanalysis. Quite a few were published over time. But there was, not surprisingly, no measurable impact on the larger problems. I had, just the same, honed the useful skill of articulating complex ideas in lean, accessible language.

Then: September 11, 2001. My wife and I lived across the street from the World Trade Center towers. She was pregnant with our first child and at home (http://beyondsuccessonline.com/) that morning. Thankfully, she survived unscathed. But our apartment was ruined; we were homeless and did not relocate until December of that year. Our baby was born that April. In the scheme of horrific events, we were of course among the extremely fortunate. We had only lost material things, all replaceable.

Still, nothing was the same. What had before seemed confounding but tolerable professional frustrations now had a different, more urgent cast. Being the parent of an infant in the post-9/11 world, having been directly impacted by the event itself, and both witnessing and experiencing how American society was reacting, catalyzed another shift for me.

The thought coalesced that I could not remain working solely as a clinical practitioner, treating individual patients struggling with their life’s challenges. However important and satisfying that work is, I now identified myself in different terms: as a social entrepreneur.

I positioned myself to make a broader impact through focusing my specialized expertise on the psychological underpinnings of leadership, corporate culture, and organizational governance. And consequently launched a process of rebranding and redirecting my preferred practice area to advising CEOs, entrepreneurs, corporate boards, and senior business leaders whose decisionmaking inside their organizations has significant influence on commerce and society. At this time, I was also invited into the Boswell Group, a consulting firm focusing on the psychology of business. To further expand the scope of my influence as a thought leader, I navigated to becoming a monthly columnist—writing on the psychology of leadership and entrepreneurship —in Fortune Small Business and on CNN/Money.com. Contributing to top-tier business publications is now a regular part of my professional activities. In early 2010, I got an email from an old friend I hadn’t seen in many years who is one of the world’s foremost fraud and asset recovery lawyers. He’d read my work in FSB and suggested that I would be uniquely positioned to add value to his field. Fraud is fundamentally predicated on the manipulation of human psychology: fraudsters induce victims to become unwittingly deprived of dominion over substantial sums of their own money or other valuable assets through deceit, artifice, sharp practice, or breach of confidence. Traditional fraud recovery professionals (certified fraud examiners, forensic analysts, investigators, and litigators) routinely confront these complex psychological issues in their work. It had become apparent that it is suboptimal—and, at core, a strategic disadvantage—for these professionals to rely on general human experience, as lay people, in navigating such inscrutable terrain. In the challenge presented to me—what could I offer to fraud-fighting professionals?—I immediately saw peerless opportunity. This sparked the development and formation of Dolus Advisors. I responded with the beta architecture of cutting-edge perspectives and innovative, strategic methodologies regarding the psychological dimensions of fraud and fraudsters, coupled with actionable deliverables which measurably assist in virtually all facets of a fraud case. I continually refine and expand my technology in the crucible of in-the-field case work, and through writing and speaking internationally to fraud, asset recovery, corporate corruption, and AML professionals.

Following the initial launch of Dolus, I also recognized additional market potential, and expanded services into corporate fraud deterrence/avoidance, institutional risk management, and fraud-related organizational triage.

There is no typical day in the life of an entrepreneur. Please share with us a sample of your
day, start to finish.
I’m up at 5:15 and in my office by 6:30, except for one morning a week which is reserved for making breakfast for my kids and walking them to school. There are always emails to respond to, or early meetings and phone calls. Many of the fraud matters I’m engaged with involve multinational teams, so it’s common to accommodate colleagues’ schedules in far-flung time zones. I’m frequently shuttling to and from my NY-based consulting clients’ offices on Wall St and Midtown, as well as meetings in my office. I always have several conference presentations to prepare for, as well as current and on-deck writing projects; time spent thinking about or drafting text is a daily activity. Physical fitness is of paramount importance to me. And I aim to be home for dinner with my family most nights.

What are your ‘can’t live without’ Smartphone or desktop applications?
My work centers on interacting with people so I primarily use my phone for talking, emailing, and texting. Other than Docs-to-Go (the iOS Word/Adobe platform for writing and reading documents), the apps I rely on the most are Pocket Informant for scheduling and taskmanagement and DropBox for document sharing.

What are your tricks for time management?
I’m extremely focused and disciplined (a classical musician in my earlier career, I developed rigorous practice habits from an early age). That helps. But managing time well is a skill, not a trick. One piece includes effectively navigating a constantly fluctuating calculus of competing forces: task and duration, time and resources, requests and commitments, expectation and reality, all in context. Another less obvious element is psychological: understanding your relationship to the activity or its outcome. Ambivalence, conflict, or unacknowledged disinclination is frequently an invisible source of friction lurking behind the apparent reasons for being disorganized. Conversely, unencumbered passion is a terrific motivator.

What was the best advice you received when you started your career?
Not to restrain myself out of concern about other people being disrupted by what I can do: be all of myself.

Given the current economic climate, what has been your strategy for building awareness of Dolus Counter-Fraud Advisors, LLC? (what you do for short term and
long term growth)?
Fraud is a growth industry. And the human element is inescapably crucial to visionary leadership—in corporate governance, policy-making, commercial stewardship, or in the aftermath of wrong-doing (such as fraud).

My core competencies involve clarifying, decoding, and accessibly articulating the complex underpinnings of motivation and behavior, rendering sophisticated analyses of the ecosystems of human inter-relationships in organizations and in fraud matters, enhancing thoughtful highlevel leadership performance, and providing specialized knowledge of the mind and its propensities.

None of that is directly linked to undulations in the economy. In my assessment, then, marketing, building brand awareness, and general business development pivot primarily on my own skills and performance as a thought leader and specialist practitioner, more than external factors.

What is your proudest achievement as an accomplished entrepreneur?
My sense of pride regarding my professional life always has at least two sides. One is focused on what I’m able to accomplish for my clients. The other is personal: my own evaluation of what I’ve done and how well. There is no one accomplishment I would single out.

How do you achieve balance in your life?
Through lots of hard work of various kinds. The payoff is that I’m in a privileged spot: I’ve created businesses using my talents and interests which are rewarding to me in every way, provide services of importance and value to others, and which also, I hope, contribute something positive and beneficial to the world. I have an incredible family, outstanding health, and good friends. The thing with balance is that it’s never static and the “achievement” of it can only be transitory. Learning how to respond reasonably well to all the fluctuations—staying more or less balanced when some things are out of balance—is a natural part of a good life.

Your top 3 book recommendations?
For fiction: anything by Thomas Hardy or Charles Dickens. I’m generally not a fan of business books, which tend in the main to compress and over-simplify complexity in order to appeal to more readers. There are no lists of recipes or how-to’s for success except perhaps writing a bestseller based on lists of recipes and how-to’s. More applicable are obituaries; these are an unparalleled resource for learning about resilience, high-level decision-making, and long-range responses to early life experiences characteristic of notable world figures.

What are your most rewarding charitable involvements?
A primary tenet of my business is to be of help. In keeping with this core value, I always reserve time to work, either pro bono or on deeply discounted retainers, with the leaders of NGO’s and NFP’s whose missions focus on social good.

For readers interested in learning more about charitable giving through acts of service rather than deep-pocketed philanthropy, see my FastCompany article on the psychology of generosity: http://www.fastcoexist.com/1681561/the-5-most-generous-on-wall-street#5.

Who has influenced your career the most?
My wife is at the top of a substantial list of generous, talented people I’ve been privileged to know.

What is your advice for someone interested in entrepreneurship?
The most useful advice is always tailored to the specific circumstances of the person (or organization) asking for it. So I typically don’t randomly dispense it. That being said, my advice to both aspiring entrepreneurs as well as already established leaders, is to always be deeply thoughtful about any advice you receive. And also to bear in mind that the best advice won’t always actually come from somebody else; having someone who serves as a confidential sounding board can assist you in clarifying good counsel for yourself.

About Alexander Stein —
I am an internationally established thought leader and specialist practitioner in the psychology of fraud, and a business psychoanalyst whose preferred practice area involves advising CEOs, established entrepreneurs, and senior business leaders on the psychological underpinnings of leadership, corporate culture, and organizational governance.

As Founder and Managing Principal of Dolus Counter-Fraud Advisors, I partner with asset recovery litigators and investigators on behalf of the victims of fraud. My conceptual and methodological innovations include strategic psychodynamic intelligence interpretation and analysis, multi-dimensional perspectives on legal, investigative, and asset tracing and recovery tactics, organizational procedures and operations, human performance matters, and case management.

In addition, Dolus provides cutting-edge resources to corporate leaders and boards in situations involving institutional fraud and corruption, including: Fraud/Corruption/Integrity Risk Assessments, Human Performance Audits, Psychodynamically-oriented Intelligence Investigation and Analysis, Profiling, Forecasting, Model-Building, Motivation/Behavioral Analysis, and Tactical Response Plans.

I am also is a Principal in the Boswell Group, a consulting firm focusing on the psychology of business. My approach is designed help senior executives and their organizations with, for instance, leadership and senior team dynamics, succession, partnership, conflict resolution, and innovative development initiatives.

I am a former monthly columnist for Fortune Small Business, CNN/Money.com, and BNET/CBS Business News. My work has been featured in many blue-chip publications, and I keynote regularly at international fraud & asset recovery and trans-border bankruptcy cooperation conferences. My chapter “Warfare of the Mind: The Psychology of Fraud” is forthcoming in the FraudNet World Compendium of Asset Tracing and Recovery, 2nd Edition.


Evil Twin: Entrepreneurs and con men handle challenges differently

Mr. Smith (not his real name) seemed like a respected, successful entrepreneur. In reality, he ran a network of sham companies whose sole purpose was to obscure the parent organization, a family business that he used to siphon more than a billion dollars from financial institutions. (I can’t share more details because the investigation is ongoing.)

I’m a specialist in the psychology of fraud who also advises legitimate business leaders on the complex drivers of human motivation and performance. Although I have no trouble distinguishing the fraudsters I investigate from the executives I advise, I can’t help noticing a few similarities.

I helped build a psychological profile of Mr. Smith to assist the fraud investigators working to recover the money that he stole. I quickly learned that he was intelligent, creative, and fiercely competitive. But then, so were Allen Stanford, the jailed ex-CEO of Stanford International Bank, and Russell Wasendorf Sr., the deposed head of Peregrine Financial Group. Both were smart, driven men who cultivated reputations as pillars of their communities.

Beneath Mr. Smith’s polished surface, darker forces were at work. Top con artists tend to share critical disturbances in formative relationships, morbid dread of humiliation, and deep feelings of insecurity and inferiority. They try to negate these internal realities by achieving power and wealth. Yet they draw on old reflexes to lie, avoid, and hide.

Some of today’s top entrepreneurs have dealt with psychological challenges. Think of Richard Branson’s dyslexia or Oprah Winfrey’s abuse as a child. Of course, Branson and Winfrey channeled emotional turmoil into productive ventures. By contrast, con artists like Mr. Smith trade in malice and betrayal.

Yet even fraudsters have businesses to run and a familiar palette of management problems to deal with. As my colleagues and I pored over the case documents, we learned about Mr. Smith’s informal management style, his bouts of irrational optimism, his tendency to reward mistakes with second chances, and his love of senseless risk taking. As we traced the org chart of his conglomerate, we found rivalry between Mr. Smith’s chief operating officer, the only nonrelative on his senior executive team, and the senior vice president, Mr. Smith’s firstborn and heir apparent.

It was a familiar family business dynamic: The COO was a seasoned executive who resented having to report to the SVP, a callow youth who owed his job mainly to his place on the Smith family tree. Had this been a legitimate company, a consultant like me might have used these data points to design an effective chain of command and a viable succession plan. In Mr. Smith’s case, they helped us bring his crimes to light.

Mr. Smith’s son and heir was ultimately decapitated in a suspicious helicopter accident. Another child took over the business but proved incompetent. Mr. Smith had been thoroughly disgraced and vilified by the time cancer carried him off. In the end, the fears that drove him proved all too real.


The 5 Most Generous On Wall Street

As part of our series on generosity in business, we’re looking at some of the financial wizards who are using their skills and assets to give back to society in the most impressive and inspiring ways.

Generosity is an emerging market. Social-good philanthropy is forging into territories once the domain of conventional charities and donor-grantee philanthropy. This month, the Co.Exist / Catchafire Generosity Series singles out an elite group who’ve pivoted from exceptional success in the financial sector to launching world-changing social giving initiatives.

But, even for these wealthy donors, being generous is more complicated than you might think.

Rather than being inspirational, giving of this magnitude can generate rip tides of envy. Could the astronomical wealth and mammoth institutional resources behind these ventures overshadow their missions? Avoiding that is the first challenge. Remember, positive impact matters more than who’s giving and how much.

As Warren Buffet puts it, “the most precious asset a person can give is time.” To Buffet, gifts of time and talents to help others “often prove far more valuable than money.” A struggling child, he suggests, “befriended and nurtured by a caring mentor, receives a gift whose value far exceeds what can be bestowed by a check.”

How can this serve as a model for emulation? To be optimally leveraged, we need to better understand generosity. Generosity is commonly defined as “liberality in spirit or act, especially in giving” and a “willingness to share with others.” Its etymology is linked with nobility, nearly every world religion vaunts its moral virtue and, as any child can tell you, it’s better to give than to receive.

But generous behavior isn’t itself an accurate indicator of true generosity. People donate time, service, knowledge, and money for lots of reasons–exhibitionism, social pressure, to be influential, in control, or feel powerful, guilt, conformity, moral posturing, selfgratification, tax advantages, even disguised hostility. While, to varying degrees, these are legitimate catalysts to giving, they have little to do with actual generosity or altruism.

Social scientists explain generosity as “prosocial behavior”–actions that benefit others learned through role models in the home or school. But the underlying psychology–how our capacity for giving develops and functions–is more complex. Why is this important to know? Because true generosity isn’t just about generous acts. It means being generous knowledgeably and thoughtfully–understanding generosity inside and out.

Taking generosity from blueprint to delivery can get deformed or derailed by any number of under-the-radar obstructions. Hard to see, looking at the members of this list (see below). They epitomize mission-aligned giving. They also present an opportunity to study, by contrast, some problematic giving types, whose generosity is mitigated by ulterior motives.

Knowing the signs of the wrong kind of generosity can help you spot them, in others or even in yourself, in advance. Important? Very. The social good sector–and generosity in particular–pivots on the human element. In a successful giving venture, psychology is a critical factor equal to any. Punt it aside, and you’re handicapped.

Here’s the short list:

  • 5-Alarm: Generosity catalyzed by catastrophe. Natural disasters, 9/11, and other social trauma generate outpourings of mass-empathy. Active interest can exceed the news cycle but eventually subsides once a semblance of ‘normalcy’ has returned.
  • Mother Teresa: These givers’ generosity is boundless. Their need to help others seems insatiable.
  • Guilty: Its familiar face leaves the recipient feeling guilty for accepting the giver’s munificence. A sense of ingratitude is baked-in; no amount of thankfulness can fully acknowledge the sacrifice made in having given so much. The underbelly is the guilt driving the giver: his generosity is an imperative of tithing or expiation, an attempt at compensating for something forever owed. This substructure is often invisible, as many appear to give quietly, anonymously, or selflessly.
  • Investment: Generosity (actually pseudo-generosity) delivered with an unspoken expectation for a return. It’s not tangible ROI like admiration or bragging rights; the giver’s generosity is an esoteric hedge. Potential returns could be an internal “get-out-jail-free card,” to feel deserving of respect or love, enhanced self worth, or delivering a model of how he hopes to be treated.
  • Little Big Man: The giver dreads being “too much.” The ramifications of too muchness are presumed dire. The solution? Divestiture and redistribution. The quotient deemed dangerously over the line is reducible to safe levels with a noble bonus: giving to others.
  • Pollination: Scattering small seeds of generosity to multiple recipients. Each parcel is too insignificant for sustainable positive impact but sufficient in the aggregate to create the appearance of great magnanimity (distinct from potentially useful micro-giving, a variation of strategically thoughtful micro-lending).
  • Tyrant: Generosity delivered with militaristic precision and vice-grip control. All effective philanthropy requires structure and regulation. But this is stiflingly hyper-codified. The consequent, inappropriate focus is on giver, contract and performance. The recipients’ needs are eclipsed.
  • Atlas: Generosity borne of a sense of over-responsibility. Usually derivative of a childhood devoted to emotionally subsidizing a weak, sick, or immature parent. A deep reservoir of resentment flows under the generosity.
  • Bling: The charitable gesture is really camouflaged boastfulness. Generous acts are a contrivance for trumpeting and memorializing the giver’s resources and generosity. Strip Mall: Unrelenting and over-abundant generosity. The giver can never give enough (and may never stop) irrespective of how much the recipients need.
  • Trojan Horse: Largesse with a hidden time-deferred agenda. The recipient doesn’t learn of the contingent expectations bundled into the ostensible gift until after the fact. Tony Soprano: As in, “it would be a cryin’ shame if you didn’t accept this gift.”
  • Jackass: Wasteful, mind-bogglingly ludicrous pseudo-charitability (as one of many Technicolor examples, see Leona Helmsley’s bequeathing her multimillion dollar fortune to her dog).
  • Carrot on a Stick: Keeps the recipient hopeful but perpetually suspended in need. The promised generosity comes tantalizingly close to fulfillment, or is sparingly apportioned over time. But is always attached to a string. (Similarly: “YoYo”: generosity serially offered and retracted).
  • Madoff: Fraudulent generosity. Can involve the giving of stolen or misappropriated assets. Can also be a deceptive practice: generosity as red-herring, straw entity, or disguise for intentional malice or, purely psychologically, as a veil for hatred, envy, or rage. Hostility and sadism are parts of the human condition. Social imperatives to conceal them are embedded in language: the German word “gift” means ‘poison’ in English.

I’ve given these psychological categories cheeky names to help explain them. But the issues are serious. In each, beneath the generous act, the giver’s internal conflicts and self interests dominate. Concern for the other is subordinate and functional. That’s a fundamental perversion of accepted generosity best practices. Is there a fix? Can these archetypes be avoided?

Yes. Harnessing generosity’s full potential as an enterprise tool requires understanding both its negatives and positives. That these mental systems exist and can intrude in our daily affairs isn’t a dismal forecast for future giving. People are dazzlingly resilient and adaptable. These psychological mechanisms, and others too, start as ingenious coping responses–giving instead of receiving in a formative zero-sum environment where giving and receiving wasn’t feasible.

Generosity isn’t limited to giving. It also involves being accepting, emotionally charitable toward ourselves and others.

The capacity for empathy–a leap of imagination to understanding the experience of another based on one’s self–is a cornerstone of generosity, and a remarkable trait of our humanity. It’s present in varying degrees in nearly everyone. Being truly generous is to be humane.

The Most Generous on Wall Street is different from the other groups we have featured in the Generosity Series thus far. They are very modest about sharing their experiences with philanthropy, so much so that many prominent figures have declined their nominations to avoid the public attention this series would bring for the reason that philanthropy is a very personal matter. But here are a few who are comfortable sharing how they’re using their success in the financial markets to give back.

Come back every Monday for the next five weeks to read about a new honoree who uses their success off of Wall Street, influence in the world of finance, or post career life to make the world a better place. We’ve gathered in depth profiles that get to the heart of who these people are, their philosophies on giving, why they are generous and how they are using their time and talents (not just their bank accounts) for good.

CEO and co-founder of Abacus Portfolios.
Abacus is a B-Corp that invests in socially responsible and sustainable investment portfolios, it’s also the largest investment advisor to invest in microfinance equity funds. An active Acumen Partner, Kessel’s generosity stretches over the global and is linked to his ability to bridge the worlds of finance and spirituality.

Former CEO and Chairman of UBS AG Global Asset Management
Alexander is the first woman to head a major research department, first woman to oversee a trading floor and the first to head a large asset management company. Alexander is the former CEO and Chairman of UBS AG Global Asset Management and a dedicated leader with the Acumen Fund. She served as the Fund’s Board Chair for nine years and remains actively involved in their social impact investing efforts.

Former chairman of CCMP
Walker is the former chairman of CCMP (the successor of JPMorgan Partners) and a dedicated philanthropist whose philosophy on giving is very much tied to his practical spirituality. Known for integrating business strategies with the nonprofit world, his influence has reached renowned charitable initiatives.

Pershing Square Capital Management
Ackman is the entrepreneur behind the activist hedge fund Pershing Square Capital Management. In 2006, he amplified his philanthropic efforts by starting the Pershing Square Foundation to support innovation in economic development, education, human rights, healthcare, and arts and urban development.

Former Vice Chairman, Goldman Sach
Kaplan, the former Vice Chairman of Goldman Sachs, is now a professor of Management Practice at Harvard Business School, and a co-chair at the early stage global venture philanthropy firm, Draper Richards Kaplan Foundation.

Fraud is a Mental War

All people have the capacity to commit fraud. Deceit, trickery, and abuse of trust are a fraudster’s basic tools, and also characteristics inherent to all human beings. This is an insight offered by Alexander Stein, an American business psychoanalyst, and a specialist advisor in the psychology of fraud. Dr. Stein visited São Paulo last month with a group of fraud litigators to speak at the Inaugural Congress on International Fraud and Asset Recovery and Trans-Border Insolvency Cooperation at the Ministério Público de São Paulo. How does the mind of a fraudster operate? What leads a senior executive to commit financial fraud? How do sophisticated psychological expertise and strategies enhance conventional asset recovery operations?

How does fraud psychology work?

Fraud is theft carried out through deceit, sharp dealing, and breaches of confidence. The psychological DNA of fraudsters is incredibly complex. One of the main points to be considered is that betrayal and deception are the fraudster’s tools. He could not employ them so masterfully without knowing them intimately. The fraudster is governed by the main belief that everything presented, conceived or promised towards achieving his personal desires – such as certainty and security – was always based on a lie. The fraudster is psychologically driven by unpredictability, contingency and falsehood. He lives in a state of chronic disappointment, resentment, helplessness and humiliation. One developmental consequence of this is an exceptional and refined radar focused on others. As he grew up, making an effort to understand what was happening in his surroundings in order to survive, he developed certain skills that are now useful in his criminal career. In particular, the fraudster is an astonishing virtuoso in being able to perceive what people seem to need or want. Now, he is a creative, even brilliant – but unscrupulous – CEO.

Are people born with a tendency to commit fraud?

Yes. Everyone is sort of a fraudster! But, of course, not everyone becomes an evil criminal. What I mean is that the characteristics of fraud – falsehood, dishonesty, concealment – are all characteristic  inherent to human beings. These are important elements for survival, defence mechanisms to escape or defeat adversity. They are adaptive devices. From the mundane, such as replying to the common social greeting “how are you?” and replying “very good” even when you are not. Or hiding key aspects about your-self ‒ thoughts, feelings,wants and wishes. This is all with the purpose of avoiding scrutiny, judgment or humiliation. The essential point is to understand how our natural defence mechanisms turn into predatory weapons serving criminal action.

What leads a successful person, such as a bank director, to become a fraudster?

Psychologically speaking, the line dividing legitimate entrepreneurship from criminal behaviour is subtle. A creative businessman and a fraudster can overlap in many aspects. Success and personal accomplishment are not antidotes to criminal behaviour, chiefly because financial gain is rarely the main (or even the only) driver for committing substantial fraud. Opportunity and greed may play a role, but overall, high level professionals who take advantage of confidential information and power were already fraudsters before they came to their roles. They didn’t become fraudsters because of their jobs.

How do we identify a fraudster or a potential fraudster?

This is a challenging question. The best fraudsters are highly skilled in their ability to deceive and to avoid detection. But we should remember that in order for a fraudster to exercise his nefarious and anarchical power, he ultimately depends on his victims. What makes a person become a victim? Some people are more prone than others to become victims

The Hunter of Billions

Offshore Monies When Banks and Authorities search for the proceeds of crime in offshore havens then they often call Martin Kenney.

Martin Kenney appears fresh out of the shower in the Admiral’s Lounge at New York’s JFK Airport. The frequent flyer has just arrived from a conference in Dubai and in an hour and a half will fly on via San Juan to the British Virgin Islands (BVI). He quickly packs away a Caesar salad with grilled chicken. The lawyer comes across as small and brawny, and not just somewhat.

The 51 year old Canadian with Irish roots is renowned as one of the best specialists worldwide when it comes to tracking down millions that have been misappropriated by fraudsters. Whether leafing through batches of bank statements, having the rubbish of a criminal combed though over a period of months, or hiring an informer to befriend the criminal, Kenney doesn’t give up until he has managed to secure the return of most of the money to its rightful owner. Even when the search last years and costs millions.

He tracked down millions misappropriated by the super fraudster, Bernie Madoff, on behalf of a Swiss bank. However, he doesn’t talk about that: confidential. The British Financial Times calls Kenney the Top Money Hunter. Canadian specialist magazine, The Canadian Lawyer, describes him as one of the most driven and trustworthy lawyers out there, owing to his modern day Robin Hood reputation and his pitbull-style methods.

Time and again Kenney’s path leads to Switzerland. Most recently he secured artworks in Zurich that had been purchased as a vehicle to launder money by the banker Edemar Cid Ferreira. The Brazilian defrauded his bank, Banco Santos, out of $800 million. The financial institution was declared bankrupt in 2005. The man is serving a 21-year sentence for the fraud. Indeed until recently there was no trace of the money. A high-gloss magazine about Ferreira’s art collection set Kenney in hot pursuit; amongst the pile of artwork, 1000 pieces of his illegitimate collection were from the masters such as Jackson Pollock. One trail lead to a gallery in Manhattan where Ferreira was a regular customer. There Kenney discovered documents that lead to a series of storage facilities in European cities where works were stored – amongst them Switzerland.

The last place in the world
For the renovation of his villa alone the Brazilian spent $65 million. When Kenney put in action the seizure of the property, he discovered Brazilian papers that lead to a Swiss bank account that was managed by a Bahamian company in trust for Ferreira. That was two and a half months ago. Since then nine further accounts have been discovered.

“If I were a criminal, Switzerland would be the last place in the world I would hide my money,” says Kenney. “The authorities there are unbelievably professional when it comes to identifying and stopping money laundering. They are amongst the best in the world.” Indeed in the last 20 years Switzerland has witnessed a sea change in the culture of financial centres. “They realised the negative publicity and effect of the bank secrecy laws,” says Kenney. “Now they have found a better balance between the laws of privacy and justice.”

The rogues of this world still love Switzerland, however. “The air of bank secrecy pervades Switzerland and Lichtenstein now as it did then – that magically draws them in.” However the main reason why malefactors hide their money in such bank accounts is the stable legal and contract system: “A fraudster fears nothing more than another fraudster.” That’s why accounts in Turkmenistan and the Ukraine don’t have the same attraction for big time fraudsters.

Professionals can manage to set up 20 different and independent routes for their misappropriated money, all designed to place the greatest distance between the fraud and the proceeds in every possible way and method. Next to Switzerland, favoured hiding places include Lichtenstein, Singapore, Belize, Panama, the British Virgin Islands, Guernsey, Nevis, the Cook Islands, and Canada. “Often one lead will lead to another – but some monies will remain forever hidden,” advised Kenney.

When Kenney is engaged on a new case, he first travels to the scene of the crime: “Initially you enter a pitch black room. There you must orient yourself and indentify Mr. Big.” Economic crime seems to be a male dominated field – only once in his career has Kenney had to deal with a female fraudster.

After that Kenney takes care of every manner of paper, documents, bank statements, everything that the victim can provide. Then Kenney tries to find out whatever he can about the Fraudster, his life style, his telephone numbers, his domicile, and his travel routes. Kenney loves private jets in particular – they are registered with a number which enables one to trace where in the world the owner has spent time.

Kenney’s goal is not just to track down the lost money. More important for the restitution to the victims is the chain of evidence that can lead to the criminal. That is easier said than done. Often economic criminals manage to place 20 to 40 different layers between them and the proceeds of fraud. Kenney follows the money from its source, through account after account across the whole world.

In one case Kenney discovered buildings in Canada that were held by various numbered companies, for example 8769542 Alberta, Inc. The capital in question came from a series of offshore companies that in turn belonged to a Netherlands Antilles domiciled company. Behind that company was a trust and behind that in turn the real criminal who had misappropriated $250 million though a mass marketing scam.

Kenney keeps a team of 25 experts in the BVI busy. There are forensic accountants, as well as experts who previously worked for Scotland Yard. Two lawyers in New York and Dublin are also included. In addition, he has a software programme that organises all discovered leads into a diagram that can also be viewed quickly according to years. Often his clients are banks – first line employees defraud the banks of money regularly.

Whoever engages Kenney needs a thick wallet. A successful trace can cost $10 million, if not more. As some victims are left bankrupt as a result of the fraud, Kenney also organises investment pools that finance the recovery in return for a share in the recovered proceeds. In extreme cases, Kenney – who normally charges by the hour – offers to take the work on for a success fee: usually around 30 % of the recovery.

“My job is fun,” says Kenney. His empathy is what drives him. Often his clients are at their
wits’ end – they contemplate suicide or suffer from a heart attack. “I want justice for my
clients. Whoever thinks that slogging one’s way through thousands of files is boring is
kidding himself. In our office there is no shortage of energy. We are emergency lawyers, for
us it’s straight to the point.”

Kenney played ice hockey in college and nearly took up a professional career with the NHL. These days he channels the aggression of the sport into the hunt for monies. Even today he feels the same adrenaline that he once experienced as a young New York lawyer who returned $720 million to its rightful owner for the first time. “I worked all day long without sleeping.” Towards the end he brought in a colleague who befriended the fraudster. He recorded their conversations with a hidden recording device. For six long months he followed the malefactor’s every move until he gave in and confessed. “He offered to pay everything back if I would just get off his case.” Kenney’s intensity is genetic: His Brother, Jason, is the Minister of Immigration in Canada.

“Fraud is psychological warfare”, Kenney quotes the New York psychologist, Alexander Stein, an expert in the field. Sure it’s his personal ambition to keep the upper hand. Time and time again Kenney has had to deal with personal death threats. “Once I sat at the bargaining table with a fraudster and he roared at me that he would like to rip my head off,” Kenney shudders at the thought.

He could tell tales of robbers for hours on end, but the fast yet extremely mindfully spoken lawyer holds himself back. It’s more important for him to talk about his campaign against kleptocratic dictators. “Corruption is just as much a crime against humanity as genocide. It can lead to famine and poverty.” Together with lawyers form Nigeria, France, and Dubai he wants to procure the prosecution of corruption as an international crime before the ICC in The

Kenney personally followed the monies of the Nigerian dictator Abacha. These days he is busy trying to track down the monies of the overthrown Tunisian tyrant, Zine Ben Ali. He stops mid sentence and looks at his watch: “I have to catch my plane.”


Written by Nele Husmann

Keeping the Con Artist at Bay

The woman’s boyfriend came to her with a scary story – gangsters were after him! He needed several thousands of dollars to pay them off. She wrote a check. But it happened again. And again. Eventually, the wealthy young woman’s family intervened. “He was asking someone who had a lot of money and who would give it to him,” says Karen Altfest, principal of Altfest Personal Wealth Management in New York City, who said it was just one of the many examples she has seen of how wealthy people can become targets.

“She needed a lot of support, and treatment for years,” says Altfest, author of Keeping Clients for Life, and co-author with her husband, Lew, of Lew Altfest Answers Almost All Your Questions About Money. Altfest often speaks about investing to women’s groups and at seminars.

Since the Bernie Madoff Ponzi scheme scandal erupted in the media, more people have become aware of investment fraud and other financial crimes, which can range from simple street schemes to ‘sell’ fake winning lottery tickets, to grand illusions realistically portraying phoney companies, complete with brochures, fake employees and bogus testimonials. Economic crime is the tropical rainforest of thievery, with a proliferation of constantly growing and adapting scams.

Scores came to light between late 2007 and 2009, when the economic squeeze had investors rushing to cash out of what they thought were solid investments. “We saw many collapse during the financial meltdown – when the tide goes out you see who is not wearing a bathing suit,” says David Nanz, FBI supervisory special agent, whose team helped bring down Scott Rothstein, the Fort Lauderdale attorney convicted of running a Ponzi scheme – in which the money of new investors is used to pay off the old investors, and usually fund the Ponzi-schemer’s lavish lifestyle.

According to the FBI’s 2009 Financial Crimes Report (the latest figures available), securities and commodities fraud investigations rose by 33 percent over five years, going from 1,139 in 2005 to 1,510 in 2009, representing billions of dollars in losses.

What’s more, the increased participation of Americans in securities and commodities markets – nearly half of the population owns stocks or bonds in some fashion – and the advice to diversify investments are also giving fraudsters a new playing field, the report continued.

Trust but Verify
Few of the schemes would surprise Altfest, who has been advising investors for more than 25 years, and has become an advocate for widows, retirees, and others who suddenly come into a large amount of money and may be naïve about investing.

“I like to tell people about how to form a portfolio,” and how financial decisions can be tailored to a person’s life, she says.

And it seems that in life, just like in school, doing one’s homework is crucial.

“We tend to trust our gut a lot, and instincts are good,” she says, “but you want to have transparency. You don’t want the kind of adviser who says ‘I’ll take care of it, I’ll handle it.’ ” Altfest says prudence dictates not having the adviser be the same person who also handles the money. “If you have Charles Schwab sending you a monthly statement, you are getting conformation that the money is really there,” she says, adding that funds should remain in the investor’s name and giving thumbs down on co-mingled accounts.

“That should give you a comfort level,” she says. “All these things protect the investor.”

In the wake of the Bernie Madoff scandal, new clients often come in and say, “You seem like nice people – but how do I know you are not Madoff?”

“People now feel they should ask that,” Altfest says, noting that, paradoxically, part of Madoff’s genius in attracting investors was his coolness. “It certainly didn’t sound like he pressured people.”

And those high pressure sales tactics are something Altfest says people should guard against – even if they come from legitimate companies. She tells of one elderly client who came to her after salespeople from a major investment firm showed up at the woman’s house, sat in her living room and would not leave until she signed up with them.

Why didn’t she kick them out? “She didn’t want to upset them,” Altfest says.

She suggests that everyone bring a trusted relative or longtime friend to such meetings, “who can say no for you.” And remember, she says, making quick decisions is to be avoided.

“If it sounds good to you on Monday, it is going to sound just as good to you on Friday,” she says.

A suddenly profitable business, or sale proceeds realized by Internet entrepreneurs, can lead to similar pitfalls, says Dr. Kerry Sulkowicz, psychiatrist, psychoanalyst and founder of the Boswell Group, a New York-headquartered consulting firm focusing on the psychology of business.

“Part of what makes them vulnerable is the lack of knowledge of what to do with it,” he says. “You need all kinds of advice and help. The most basic thing these people are told is that they have to diversify – therein lies the opportunity for schemers and scammers,” he says, echoing the FBI report.

The challenge of weeding out good offers and advice from bad can be overwhelming, he says. And overwhelmed people may tend to become passive, he adds. Some may also have anxiety about having so much money – as well as guilt, which, Sulkowicz says, are also risk factors for becoming a victim.

The Con in the Confidence Scheme
There is a reason they call it a confidence scheme. Unlike breaking and entering, grand theft auto, or a jewelry heist, the perpetrator plays on the natural emotions of those they target.

Victims can be left feeling foolish, embarrassed, and guilty for perceiving that they in some way contributed to their own fleecing. This is just what scam artists count on.

What makes a fraudster good, is identifying the emotional soft spot in the potential victim that they can hook into, says psychoanalyst Dr. Alexander Stein, also of the Boswell Group. Stein, an internationally regarded expert in the psychology of fraud, says part of the problem is that society, including the legal system, often shift at least some culpability to the victim (“he was greedy”).

“One of the things that makes criminal fraud unique from any other kind of crime, is some form of participation,” he says. “Fraud is about manipulation and trickery. At some level, that has given rise to such a characterization.”

But part of the fraudster’s skills, he says, is being able to suss out what the victim wants and position himself or his product to provide it, building on normal human desires, emotions and relationships. “This is something the best of them understand in how they manipulate their victims,” he says. And gaining trust is at the heart of the process. “This is someone who has learned to hide himself in artful ways.”

Trust, first built then betrayed, is the window into the minds of such criminals, Stein says. “They leave a psychological fingerprint that is telling about their own experiences,” he says.

Typically, he says, such a person was unable to come to terms with an early dislocation or trauma that someone with more resilience could overcome. “Fraudsters are crippled in regard to this and they are unable to come through these experiences in a workable way, and instead, harbor acidic reservoirs of rage that get unleashed on others.”

These people, adds Stein’s colleague, Sulkowicz, often first come across as seductive, and tend to make all kinds of promises.

The key though, is how they act when they don’t get their way. “They are very accommodating until lose interest in you.”

Investors must do background checks, references checks and consider, at least at the beginning, staying with a well-known name or institution, Sulkowicz says.

“What we are talking about is trust. And trust is relationship based. It’s not something you can sell, it’s something earned over time.”

By Karen-Janine Cohen

Are Your Ambitions Helping or Hurting Your Business?

Can you imagine starting a company without ambition? Impossible. Whatever your vehicle, ambition is the fuel; it’s what you dream about and what gets you up before the alarm every morning. Ambition takes you places.

Except when it doesn’t.

Conventional management theory construes ambition as goal-oriented: You’re aiming for objective X  excellence, recognition, profits, power, changing the world. The common assumption is that satisfying ambition is directly tied to reaching your goal. All you really need to focus on is how  the metrics and strategies to smart, bold, effective business-building.

But goal-attainment is only one piece of the puzzle.

Ambitions are generated by lots of other psychological factors  not just the fire to aim and go. What they’re actually made of strongly determines the route you’ll ultimately take and how you feel on the way.

From the outside, it might appear that all ambitious people are moving forward in pursuit of their respective brass rings, be it an expansion or acquisition, fulfillment and contentment, or making meaningful contributions to marketplaces and society (making a good living doesn’t hurt either).

Under the surface, however, not everybody’s traveling in the same direction. In fact, some people are going backwards.

Some ambitions are propelled by guilt, fear, hate, an intense need to seem impressive or not to be a failure. What else? To redress wrongs, overcome deprivations, or disprove, destroy, or defend. That’s a short list. For those in this group, chances are, no matter how many candles are burned at both ends, even if they reach some version of success, real, sustainable satisfaction is gonna be tough.

Why? One reason is that the objective goal isn’t the actual goal. The engine of ambition is powered by those underpinning imperatives and obstacles, which remain untouched and unsatisfied by the actual achievements.

Consider Joel M., 40, founder, owner, and chief visionary of an East Coast multimedia production company (I’ve changed a few details to disguise his identity). After years of dreaming, sweating, and struggling, Joel is now standing with both feet planted in paradise. Armed with talent, charisma, a stellar track record, and a fluorescent business plan, he landed ample VC funding with nominal startup or operating restrictions. Joel shot out of the gate with economic, creative, and administrative freedom. He’s working out of a dream shop with state-of-the-art equipment, a gonzo sweet budget for marketing, development, and Slurpee-sized Lattes. Be careful what you wish for; you might get it. He’s miserable. And it’s making him f@*# up. Not cool.

What’s going on? Joel started dreaming this dream long ago. Its superstructure developed over the years and got polished to further his professional pursuits. But it’s a gleaming Santiago Calatrava tower with a decrepit old barn for a lobby. His early life involved parents who were fundamentally uninvolved and disinterested in him. He grew up longing for a magical switcheroo: his real life for one where people truly cared and he got what he asked for.

It looks like his wish was granted, sort of, but it’s definitely not the solution he hoped it’d be. Sitting in his Hermann Miller chair in his super-duper studio, he’s still holding the same bag of rocks.

What to do? One of the first steps when I’m engaged as an advisor to any entrepreneur, executive, or business owner in this situation, is to start parsing the operational factors from the psychological ones. Each impacts the other. Are you unhappy because the ingredients for happiness are objectively absent or deficient, i.e. you’re disenchanted with the business you’ve built or the people you work with? Are there are organizational problems, such as staffing, marketing, production issues, cash flow difficulties, or other mechanical hiccups? Or is it that there’s something inside you causing an obstruction to feeling fulfilled?

For Joel, this means helping him understand where his dissatisfaction is actually coming from so he can start to value what he has, not what he doesn’t. The lament for his unfortunate childhood may ache into old age. But it’d be tragedy compounded to wreck his new business on account of it.

You’re not going to find a global formula for success, and emulating the 7 habits of successful people will probably only guarantee that you can succeed in emulating seven of their habits.

What you can do is identify and unhook your personal psychological Bungee cords that may be thwarting your ambitions.