The short version of the first story is that Mr. Luis Nobre (left, below), a snappy dresser with truly fabulous hair, convinced the professionals (all of them PWSHKB*) at a large company to invest with him, promising significantly-better-than-market returns on their money. They took the bait, and ended up briefly losing €100 million.
In our second story, Stuart Howatson (on the right) scammed three English hotels out of £2,800.
Mr. Nobre’s gang employed a great deal of effort to swindle Allseas, and briefly gained control of 32,500 times as much as Mr. Howatson gained swindling the hotels. But both were able to manipulate their targets into overcoming their misgivings. The secret, as any fraud artist will tell you, is to get your mark to want to hand it over. In the Nigerian Prince scam, for example, the prospect of pocketing 10% of $24.7 million is dangled as a way to help you get over your skepticism.
Mr. Nobre’s gang got his targets to believe he could offer outsized returns because, they claimed, their enterprise was connected in some way to both the Vatican and the US Federal Reserve. And when it comes to whispered rumors of “special” investments, nothing says “special” like two of the most opaque institutions on the planet. Mr. Nobre didn’t promise Allseas hedge fund-level returns, because Allseas could have easily gone to Westport or New Canaan and bumped into 50 hedge fund managers on the street without involving a middleman. He had to go bigger and promise something unique, something reserved for the “in” crowd. The hook, of course, is directed at the emotional side of us – not at the logical, analytical side.
Bernie Madoff’s feeders did the same thing. They presented Madoff Investment Securities as so exclusive that, for some rich people, their money really might not be good enough. After the fraud unraveled, part of the sting for investors was the memory of how they’d clamored to get involved with Mr. Madoff in the first place.
In our second story, that of Mr. Howatson, he pretended to be an important executive in order to obtain services from hotels. But, of course not just any executive.
You know, even without a business card or a corporate American Express card I could probably convince the front desk clerk in any hotel that I was a VP or higher at General Mills or ADM or Goodyear. But so what? Would they care? Fortune 500 vice presidents are a dime a dozen at every Airport Hilton in the country. And face it, those companies are so, well, ordinary. To them I might as well be Shelley Levene or Willy Loman. Do you think that would get me any favors at the front desk?
No, Stuart Howatson didn’t pretend to be an important manager at just any company. He said he was the Chief Operations Officer of the Mercedes Formula 1 racing team. Now, the head of international tax compliance at ADM probably makes more than the Operations Chief at Mercedes-AMG Petronas F1 (actually I have no clue how much either one makes), but saying you’re a really good tax lawyer doesn’t get you relaxed credit guidelines at the Westin. Claiming a connection with the glamour of Hollywood or pro sports, however, may hold a stranger’s interest and draw that stranger into wanting a connection with the glamour – through you.
Mr. Howartson had previously caught a 20-month sentence for claiming to be and playing the part of a Metropolitan Police officer, even to his wife. But even then, he didn’t claim to be just any policeman. He added the details that he was qualified as an armed officer (not all English policemen carry firearms), that he was a dog handler (another engaging detail) and, of course, his backstory would not be complete if he had not claimed to have occasionally protected Her Majesty the Queen herself.
In general, people don’t fall for investment schemes and online frauds for logical reasons. They fall for emotional reasons. Sometimes they just don’t want to sound stupid to the telemarketer who calls at dinner time with a script crafted to make people think they’re stupid. Sometimes they want “in” on an exclusive deal that other people can’t get, maybe a method that famous people might have used. Think of the endless radio commercials for the Bank On Yourself method. They suggest that James Cash Penney and Walt Disney used that very method to become wealthy. True or not (and it’s absurd to think it is), the emotional response is to get involved with the scheme because a household name is connected with it.
Fraud is about overcoming red flags, and it’s easier to overcome a red flag with an appeal to emotion than an appeal to logic. The piker in England may have only scammed a few thousand pounds from the hotels compared to the criminal gang that scammed Allseas out of €100 million, but the method behind the crime was exactly the same.
* PWSHKB, People Who Should Have Known Better