I was recently speaking with a colleague in the advisory business. The conversation turned to greed. We both share a fascination with the CNBC program American Greed. The program chronicles investment scams, with touching portrayals of victims.
The scams have a common thread: the promise of huge returns with little risk. Often the returns are "guaranteed" by the promoter. Typically, no investments at all are made (just like Bernie Madoff). The investments are used to fund the lavish lifestyle of the promoter.
The schemes are remarkably unsophisticated. The "investment" is often premised on the ability to arbitrage foreign currency because of "special relationships" with foreign banks or on making short-term, "risk-free" loans at obscenely high interest rates.
Even a modest amount of due diligence would uncover the fraud. Yet, thousands of hardworking, intelligent Americans fall for these pitches every year. Many lose everything.
I imagine it's easier to engage in illegal conduct when you don't know the victim. When hedge fund managers engage in insider trading, they don't know who is on the other side of the trade. I assume they believe it's a victimless crime. They are mistaken.
I would have thought it would be different when the victims were friends, family, elderly and sick. This isn't the case. I recall one story in which a man with Lou Gehrig's disease, confined to a wheelchair and barely able to speak, was scammed out of his life savings. He looked at the camera and said: "Why did he have to take everything? Why?"
On March 13, 2014, the Securities and Exchange Commission announced enforcement actions against two brokers, an investment advisory firm and others. They were allegedly involved in a variable annuities scheme to profit from the imminent deaths of terminally ill patients in nursing homes and under hospice care. According to Julie Riewe, co-chief of the SEC Enforcement Division's Asset Management Unit, "This was a calculated fraud exploiting terminally ill patients."
You have to wonder about the psychology of those whose pursuit of personal gain drives them to engage in unconscionable conduct. According to psychologist Leon Seltzer, greed is an addiction, causing those afflicted with it to engage in the single-minded pursuit of wealth with "gross insensitivity to the needs and feelings of others."
Here's the anomaly. This crazed activity doesn't usually result in happiness, even when it's achieved. Researchers found that billionaires are not markedly happier than those with average incomes. In fact, they have higher rates of depression.
This fact, coupled with the high likelihood of getting caught, going to prison, and ruining the lives of your loved ones and your victims, really demonstrates the powerful addiction of greed.
While post-Madoff schemes continue at pre-Madoff rates, it's disarmingly easy to avoid becoming a victim. If your assets are held at one of the major custodians in the business of holding assets for their registered investment advisor clients, you can be confident your funds are really there. You can find a list of the largest custodians here. Deposits should be made by you or through a trusted representative from a firm that follows a fiduciary model, and the accounts should be opened in your name with one of those custodians. You should be able to check your accounts directly from the website of the custodian.
Dan Solin is the director of investor advocacy for the BAM ALLIANCE and a wealth advisor with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His latest book, The Smartest Sales Book You'll Ever Read, has just been published.
The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.