The Psychology of the Fraudster

If you find yourself wondering how so many people could have invested with Bernie Madoff or how others could so successfully gull apparently sensible individuals into believing their stories, read on.

 Towards an Understanding of the Manipulative Personality

“If you owe the bank £1,000, they can make your life a misery. If you owe the bank £10 million, then you own the bank.”

I was first taught this lesson in immoral philosophy, when I began my posting to the Fraud Squad at New Scotland Yard. My mentor, an elderly ‘mittel european’ refugee and ‘businessman’, who had spent his mature years, either selling insurance and other forms of investment opportunities, or borrowing money from a series of banks and individuals, cross-firing it through a wide variety of accounts, and then, mysteriously, forgetting to pay it back, tried, gently, to teach me the gospel of eternal greed.

He was, he would assert vigorously, not a crook!

Far from it! He was merely the conduit through which a large number of very greedy individuals (in which group he included bank officials), realised a false hope of enrichment. The fact that they would, and could, never achieve their ambitions, was immaterial. He was the provider of the avenue of golden opportunity, through which this constant parade of ‘schmucks’ could try and reach their own personal nirvana, a land of limitless opportunity, restricted only by the limitations on their own credulous expectancy!

He was a professional con-man, and over a period of months, he taught me that virtually all victims of fraudsters have only themselves to blame. At first, I was shocked. Did he not perhaps retain a certain degree of sympathy for the old, the infirm and the weak-minded?

The latter, the truly feeble-minded and those whom he considered to be incapable of formulating a true understanding of the offer being made to them, he exempted! They were not true ‘marks’ in any event, because their mental state meant that they could not be said to be able to enter into the proposed arrangement with the requisite degree of volition, which, he preached, was a very necessary state, if the ‘big con’ was to be successful.

This lack of the requisite mental state immediately predicated against their being considered as true ‘sucker’ material because he could not accurately predict their behaviour, and therefore this made them very dangerous from his point of view. I came, slowly, to realise that he was not exempting them from any sense of concern for their condition or for sympathy for their weakness, but because they posed an unacceptable threat to him, and it was the existence of the threat, whose implications he was powerless to control or influence, that made him eschew this particular group.

This was a man who always played the percentages, and he had worked out long ago that when dealing with the real nutters, and the feeble-minded, the odds were stacked against him!

As my career in the Fraud Squad, and later, as a financial regulator and legal practitioner developed, I came to realise the truth of the old man’s message. He was not unique. He was a member of a class of men and women with a particular mind-set, a group of individuals whose view on life had become distorted, in some cases mildly, and in some, to an exaggerated degree. They are all, without exception, victims themselves in some form or another, (he had spent years in a concentration camp) and conducting their affairs in a deceitful way provided them with a means of striking back at the perceived injustices of which they consider they have been made victim! 

Such people all conduct their affairs according to the creed which my first teacher explained to me. He divided them into three groups. In some cases, like him, they do it merely to make a great deal of money. These are the practitioners at the very apogee of their craft. They recognise their motivations, and they use them ruthlessly to acquire huge wealth. They have no interest in any other form of reward, and like as much as possible, to remain as anonymous as possible.

In many cases however, other individuals use their twisted talents first to acquire power, which they then use to acquire financial rewards. These are the most dangerous, because they are really in denial as to their own true state of mind, and are using their talents as much to deceive themselves as their victims. Nevertheless, they will use the same disciplined tactics as their more directly entrepreneurial colleagues.

Finally, there is a small, but nevertheless identifiable group who suffer from a clinically-identifiable illness. In polite company it is referred to as ‘Munchausen Syndrome’, but in more common parlance, the condition is known as being a pathological liar! Such people are sad individuals who are simply incapable of determining the difference between truth and lies, and cannot see that their deceits and distortions render them wholly unbelievable. They also fail to understand that others, with whom they have to conduct normal relationships, quickly learn to distrust them, and guard themselves against the impact that such dangerous individuals can impose.

All these groups operate on the recognition of a carefully orchestrated combination of conditions. As my old con-man taught me, the potential victim has to demonstrate three important features in order to be successfully gulled, and they have to be identified in the correct order.

The critical triumvirate are greed, ignorance and fear, and they have to be present at the right time in the process of the relationship, for the successful con to work.

Once they have been identified, it did not matter in which environment the con was being played, it would be achieved successfully. Thus it is that the true con-artist can operate with impunity in any market or climate where a financial motivation is an important criteria of the perceived success or achievement of the victim.

Greed, he opined, was the crucial emotion. Greed enabled the victim to overcome his natural state of caution, and encouraged him to exercise the important ‘willing suspension of disbelief’. This was vital, because it was the crucial predicator which rendered the victim capable of moving from the status of potential victim to that of qualified ‘mark’. The reason such a move was necessary was because once the greed emotion had been aroused, it was important for the ‘mark’ to want to move to the next stage, and that desire had to be a voluntary one.

This was where the second component came into play. Ignorance on the part of the ‘mark’ had to be maintained and encouraged. It was during this stage that the critical degree of greed-enhancement had to be supported, because it was during this period that the ‘mark’s’ psychological dependence on the need to continue to believe the fraudster, was enhanced and cemented. If he was offering an investment scheme, he would always insist that the potential victim invest far more than he could afford. If it was in his work environment, he would always commit to deliver a far higher degree of profitable sales than any other salesman.

‘The schmucks’ he would tell me, ‘are always on the look-out for something for nothing. If you only offer a punter an investment he can just afford, you aren’t playing to his greed motive, and he might consider backing out. Always get him to commit far more than you know he can afford. He will beg, borrow or steal the cash to get into the game. Once he’s hooked, you’ve got his money anyway, so what do you care? The more he’s committed, the less likely he is to want to expose you’. 

‘If he’s a sales manager, then your commitment to achieve a huge sales target plays to his greed factor just the same. He needs to make his targets to get his bonus, and he wants his bosses to think he’s a go-getter. So regard him like the ‘schlemiel’ he is and treat him like a mushroom. If he asks how you’re going to achieve it, just think of him like a punter, stay schtum, and give them any load of old patter, but never give them any facts’, that way you can  never be held accountable. When, later, you haven’t reached the targets you promised, he will be so frightened that his own bonuses won’t be paid that he will make any excuse he can for your shortfall. He will go into bat for you, he will even fiddle the figures to make it look like his team achieved their huge targets.’

Ignorance of the true facts therefore was a critical component, and it was at this stage that the greatest danger to the con-artist was present, because if the level of ignorance could not be maintained, then the greed factor might be undermined, and this could lead to an unravelling of the entire scheme, with potential problems for the scammer.

So, the necessary degree of ignorance was maintained by a number of tactics. The choice of victim was an important criterion. ‘Always con your friends, family or work-colleagues first’, the old man used to insist. ‘They are much more likely to believe you and far less inclined to shop you, when it goes wrong’. The ignorance factor could always be enhanced by making the victim believe that even if the opportunity sounded too good to be true, it could not possibly be unachievable because the con man was considered to be such a close friend or a trusted work colleague. ‘A good con-man, he once told me, ‘doesn’t have to go looking for his victim. In most cases, with the right story, they will come to him!’ The more socially elevated a group they are, if your story means they can achieve something which is important to their egos, they will lap it up like kittens and milk.

Ignorance could also be enhanced by providing a minimalist amount of information about the investment scheme, the business plan, or the market opportunity.  On the other hand, it could be achieved by the provision of a huge volume of detailed reportage, designed to create an overload of facts. On balance, this method was usually preferred, because it gave the impression of crucial knowledge and technical expertise, a state designed to alleviate potential disbelief.

As my old mentor explained, most potential victims were too scared to demonstrate their own state of pitiful ignorance, for fear of appearing to be less qualified than they might want to be considered. Quite often, a neat variation on the con-man’s methodology is to appear to defer to the potential victim, implying that the ‘mark’ is a person of considerable experience in the area within which the scam is to operate. ‘...Let the mark do the work for you. Let him think he understands the proposal, then his ego will lead him on...’ This is done, particularly within the workplace environment, where a senior manager is being bamboozled, in order to encourage him, as the potential ‘mark’, to believe that the proposal is one in which he is expected to display competence and core knowledge. This is where the fear factor, the third, and perhaps most vital component, comes into play.

‘Fear’ my immorality tutor explained, ‘is the most powerful influence in completing the big con. When you see the fear in their eyes, then you know you’re home and dry. You can laugh all the way to the bank, because they are never going to admit what has happened’.

At first, I did not believe him. ‘Surely’, I queried, ‘once a victim knows what has happened, he will want redress, he will seek revenge and retribution’.

‘Very, very rarely’, came the experienced reply. ‘Look at it like this. Virtually all victims of the big con are stupid, gullible, and at heart, fundamentally dishonest themselves. That is why a scheme that has all the hallmarks of overt dishonesty or even mild criminality is far more likely to succeed, than plain vanilla offerings. When they find out they’ve been conned, what man or woman in their right mind is going to later admit publicly that they were willing to part with their money in a scam which they were told was probably dishonest, and certainly immoral’?

‘What business manager is going to admit to over-promoting a man who has successfully shot him a line about his ability to deliver profitable returns? If he makes this admission, his own bosses will start to doubt his management judgements, and query his decision to promote the man in the first place, and if the bosses’ own financial rewards are threatened by his failure, then they will line up to support him as well. The best situation for the scammer is if he has the slightest chance of taking those above him down with him if he falls, because then he will be wholly protected. All concerned will close ranks to protect the con-man, sooner than expose him and then put themselves in the firing line for their own incompetence. In reality, they will almost certainly promote him, in the hope that he will become someone else’s problem’!

Fear was crucially important, he explained, because its existence was the vitally necessary degree of protection that meant that the scam merchant could guarantee he would not be exposed. Most victims ultimately came to realise that the scheme they had adopted was utterly risible, totally ridiculous and utterly laughable and that they had been conned, but then were incapable of doing anything about it. Indeed, the quicker they came to the unmistakable conclusion that they had been fooled, the better, because then the con-man could move on to the next ‘mark’, knowing he was safe from investigation.

The true expert, he said, was the con man who having successfully gulled a victim the first time, could go back and gull him again. While not an every-day occurrence, he had achieved it many times himself, using a variation on the greed and fear link, by playing on the victim’s willingness to accept that the second time around, things might get better, and that the business opportunity might just pay off. Like the inveterate gambler, the victim becomes the cause of his own downfall, and continues to try to beat the odds, sooner than admit he has been completely fooled.

This method, in his opinion, worked best in the working environment, when management could be more easily encouraged to believe that apparent failures to deliver on commitments could be explained by external circumstances such as a change in management in a client company, a purchasing policy shift, or the removal of a key business facilitator.

Most importantly of all in the work environment, if the con artist had the ability to promote others in his own immediate team to more senior positions, or to arrange for their internal reward, then this state of affairs could be allowed to continue almost indefinitely. Someone with real ability who would not fall in with the ethic of the group and who pointed out that internal policies were wrong or damaging, had to be got rid of as quickly as possible and ridiculed or smeared to make them seem foolish or worse, disaffected. Perception of others’ ability is always more important than real proof of competence. ‘People who can’, generally do, and are usually always overlooked or. People who talk about doing, generally get more attention. As long as the con-man can keep persuading others that he and his team are hugely effective, regardless of the truth, then more and more non-connected individuals would, when observing the almost inexorable rise of his direct reports, assume that they must be doing something special, if only to justify the realisation of their promotion or recognition...

Eventually, I had to give up on him. No-one wanted to give evidence against him, in fact, there were very rarely any complainants, despite the large number of people I suspected he had scammed. He died a very rich man.

When I heard he was ill and in hospital, I went to see him. I have to admit that I had become very fond of the old rogue, as his refreshing openness about himself and his incorrigible ways was almost addictive. Sitting by his bed, I asked him;

‘Is there anyone you couldn’t con’?

He smiled, and patting my arm he said;

‘Of course there is, you can’t con an honest man!’

But then he smiled even wider and said;

‘Of course, there aren’t too many of them around!’