The Trickery of Trust – Believing in Liars (Part 1)

Trusting a Liar

One of the many tragedies that surrounds fraud occurs when a fraud victim feels ashamed of trusting liar.

Intelligent, sophisticated people frequently fall victim to the lies of fraudsters. In fact, it’s perfectly natural. Human beings are social animals. We form relationships based on trust and fraudsters excel at faking trustworthiness.

Trusting Bernard Madoff

Bernard L. Madoff defrauded $20 billion from investors. One broker taken in by Madoff said, “There was something about this person, pedigree, and reputation that inspired trust.” (Rethinking TrustVia Harvard Business Review).

Madoff was a Wall Street icon, prestigious and trustworthy. On December 11, 2008 when he was arrested for the largest stock fraud in history, investors were stunned. Bette Greenfield’s account of her response was typical of other investors’ responses. “I was like in shock—like, non-believing shock. And I thought he couldn’t—he couldn’t possibly have—This isn’t true. It’s impossible to be true.” (Watch Full Episode of FRONTLINE on PBS | The Madoff Affair)

Trusting Earl Jones

 

Fraudsters recruit their victims from people who have already learned to trust them. When financial adviser Earl Jones was sentenced to 11 years for defrauding investors of $50 million, The Globe and Mail reported,

Judge Morin described how the university dropout began his deceit, which lasted 27 years before collapsing last summer. He started out recruiting victims while giving advice to a group called Women in Finance, where [Jones] noted that ’90 per cent of women did not know about finance, let alone will planning.’ (Earl Jones sentenced to 11 years – The Globe and Mail)

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In marketing terms, Earl Jones was training his clients to be qualified buyers. Jones’ brother Bevan, also one of his victims, told CBC’s Hana Gartner, investigative reporter for the documentary, Earl Jones: In Trust..

“People loved Earl. He was always giving them advice or helping them…” Earl Jones: In Trust – the fifth estate – CBC News

The problem of how we trust

Disgraced Montreal financial advisor Earl Jones awaits sentencing for orchestrating a Ponzi scheme that defrauded his investors of $50 million for more than two decades. The fifth estate investigates Jones’ life, how he created his scheme and how he was able to get away with fraud for so long, in Earl Jones: In Trust. When Jones started out in business, looking for investors, he would not forget his childhood friends. Earl Jones: In Trust – the fifth estate – CBC News

Without trust, it would be impossible for humans to function in society. Yet this most basic and essential element of human social relationships—trust—is the tool fraudsters use to commit their antisocial acts.

When people discover they’ve been defrauded by an employee, a friend, a family member or other trusted person, they often find it difficult to believe. Victims often learn the hard way that trust is not a control against fraud.

Perhaps we do need to rethink trust

Even intelligent, sophisticated people aren’t immune to a fraudster’s lies. So many sophisticated investors fell victim to Madoff’s fraud that social psychologist Roderick Kramer posed the following question in his Harvard Business Review article, “Rethinking Trust”(2009).

In Kramer’s words…

On the surface, Madoff possessed all the bona fides—the record, the résumé, the expertise, and the social connections. But the fact that so many people, including some sophisticated financial experts and business leaders, were lulled into a false sense of security when dealing with Madoff should give us pause. Why are we so prone to trusting?

Madoff is hardly the first to pull the wool over so many eyes. What about Enron, WorldCom, Tyco … Is there perhaps a problem with how we trust?(read more at hbr.org)

Humans are Hardwired to Trust

Social Psychologist Roderick M. Kramer has been grappling with, researching, and writing about the problem of trust for almost 30 years.

Human beings are naturally predisposed to trust—it’s in our genes and our childhood learning—and by and large it’s a survival mechanism that has served our species well. (Read more…)

Human beings, contends Kramer, are social animals with brains hardwired to form relationships based on trust. Humans enter the world physically premature, with large brains wired to make social connections – it’s a survival mechanism, because we can’t survive alone. Trust is about being engaged and engaging others, and we’re wired for engagement.

Detecting Dishonesty

UCLA’s Professor Shelley Taylor’s research into the human ability to detect dishonesty has led her to conclude that human social ties of engagement are essential for our success as a species. (Read more…)

Without trust, the human species might not have survived. But ironically, fraud is made possible through the exploitation of trust.

View the video of this blog on the Fraud Chronicles YouTube channel…

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And join me in my next article, where I explore how a fraudster labelled William “520%” Miller earned his victims trust in 1899, using the same tricks that Bernard Madoff and Earl Jones used over a century later.

The Trickery of Trust – Trusting William (520%) Miller (Part 2)

William "520%" MillerNew York investors of 1889 discovered the hottest financial opportunity in the United States thanks to William Miller, a twenty-one year old man struggling to support his sick wife and baby. Follow the story of the 21-year-old man who defrauded 13,000 people of a total exceeding $1 million dollars in 1899. The full story behind this classic Ponzi scheme might never have been known if it weren’t for the persuasive skills of a single district attorney who visited William Miller’s jail cell and managed to penetrate his wall of silence. (William 520% Miller ~ Fraud Chronicles Ponzi Files)

 

Author: V. G. Oltmann

V. G. Oltmann, MBA, CPA, CGA, CFI - Professor, Vancouver Island University 2002 - 2013 - Board Member, Association of Certified Forensic Investigators of Canada (ACFI): 2010-2013 - LinkedIn Profile: http://ca.linkedin.com/in/vgoltmann/

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