Need and greed are a fraudster’s paradise

Manipulation and fraud are now reaching epidemic proportions. Here’s how they work

By Andonis Vassiliades

In George Bernard Shaw’s play ‘Man and Superman’, Act III, Mendoza meets Tanner:

Mendoza: ‘Allow me to introduce myself…I am a brigand: I live by robbing the rich’.

Tanner:  ‘I am a gentleman. I live by robbing the poor. Shake hands’.

The short exchange, other than cleverly encapsulating social divisions in society, brings together the symbiotic existence of need and greed.

Need is both absolute and relative. It is a combination of basic biological necessities (e.g. food, shelter) and social expectations (e.g. improvements in life-chances, power, status, relations). In both cases, quantity, quality and standards are relative to circumstances, choice, desire, culture and wealth.

Greed is motivational. It is an insatiable appetite for gain particularly of material possessions but it extends to all relationships. In Erich Fromm’s understanding, greed is a ‘bottomless pit’ which sees no end to people’s desire to fulfill their inordinate quest for money, vanity, personal gratification and self-promotion.

In contemporary terms, greed is presented as a bare necessity. It oils the wheels of business, corporate finance and success. The words of the fictional character of Gordon Gekko in Oliver Stone’s film ‘Wall Street’ capture its essence: ‘Greed…is good. Greed is right, greed works’.

A combination of need and greed makes a dangerous cocktail. In the hands of fraudsters this cocktail becomes a magic potion which is skillfully administered to beguile unsuspecting individuals with more material possessions. Once individuals are mesmerised enough with visions of wealth they can fall victim to scammers who are more than happy to fleece the former of their worldly goods without a hint of guilt.

Manipulation and fraud are now reaching epidemic proportions. Worldwide more than €16 billion was lost to various types of money fraud particularly forex (foreign exchange) market transactions in 2016. The UK Financial Conduct Authority (FCA) reports that in 2018, out of nearly 6,000 investment scams, 5,000 (83 per cent) related to share, bond, forex and cryptocurrencies fraud. This is easy to understand. Daily forex transactions account for billions even trillions in combined currencies. There are, therefore, rich pickings to be had by fraudulent activities.

Fraudsters in these schemes are a garden variety: from existing or retired rogue bankers to ordinary individuals who have learned to manipulate others throughout their life. They are masters of their craft. They use charm and trickery with existing contacts and through pyramid techniques they build a base of ‘clients’ who in turn promote the rogue schemes to others.

They are experts in techniques of persuasion. They never push. Rather, they use subtle and refined indirect methods to make ‘clients’ believe the story that they are about to make lots of money – if only they act quickly to invest.

Scammers promise high returns together with other incentives. For example, that profits are tax free and that the original amount of money invested is a guaranteed sum to be returned in the unlikely event of losses. ‘Clients’ are given a false sense of security and are made to believe that their money is safe.

They feed their victims with claims of success and gain which they drip in short but regular intervals. Scammers expect that greed will blind prospective ‘clients’ to the true nature of things and their victims will be overtaken with euphoria.

The euphoria is about making money. Money, though, cannot be made without investment. So ‘clients’ become increasingly edgy and impatient in case they miss the gravy train. Time is of the essence. As this psychological state is reached, scammers add credence to the fantasy by providing ‘evidence’ of their successful investments which led to huge gains for their investors. These come in the form of bank statements, charts, statistics and transactions. Although the would-be ‘investors’ may not make sense of the material or its relevance, it acts as a positive reinforcement to them that there is money to be gained if only they could act.

As the would-be ‘investors’ begin to exhibit signs of submission, scammers get closer, friendlier and more confident. Conversations rotate around everyday experiences as though the two parties have been ‘buddies’ and have known each other for a long time. Trust creation is the key to this relationship.

When scammers gain the trust of ‘clients’ much of the groundwork necessary to defraud them has already been laid. The next step is to get ‘clients’ to make a money transfer in the designated bank account. More sweeteners are provided for the purpose by reinforcing the credibility of the schemes and their high returns. Names of successful investors or traders and examples of friends and associates who make big gains from their investments are promoted to downgrade risk.

Risk-taking for profit has to be seen to be universal. Scammers candidly confine to ‘clients’ how they themselves risk their own money on trading. The returns are so good though that they even take out short term loans to play it big for more returns. As profits mount they repay those loans within days and are thus left with huge material benefits.

Under this carefully orchestrated manipulation, ‘clients’ take the bait and triumphantly make their money transfer. But for scammers this is just the start. As the would-be ‘clients’ are now de facto ‘clients’, fraudsters want more of their money. By this stage ‘clients’ are dazzled enough and in a state of trance to be susceptible to more suggestion. Shortly after receiving the funds in their account, scammers inform ‘clients’ that their investment is already yielding serious profits. They advise ‘clients’ that had the original amount invested been higher, the returns would have been higher. ‘Clients’’ insatiable appetite for more is now re-energised. As they dream of more profits, they authorise more money transfers and by the time the deal is done, their money in thousands is now in rogue traders’ accounts.

An effective tactic of fraudsters throughout is to inject into the situation a sense of urgency: that there is limited time available for big profits to be made. Unless ‘clients’ act fast, the opportunity will slip away and will miss out of their share of the apple pie. ‘Clients’, once sensitised, experience stress as they want to raise more money but need more time to meet deadlines. Scammers are skillfully flexible and accommodating. They carefully downgrade the urgency by informing ‘clients’ that short extensions have been granted through their influential contacts and they have a chance to get more bids in. As the new revised schedule approaches, ‘clients’ rush to raise more money and within minutes of the assumed revised event, they transfer even higher sums into scammers’ accounts.

Once scammers have defrauded enough individuals and before suspicion sets in, they buy time by tricking ‘clients’ with peppercorn dividends. They use some money from ‘client’ A to pay ‘client’ B, strip C of his money to make a payment to D, from D to A and so on.

As ‘clients’ believe that they are now receiving the first profit returns on their investment, they are hooked on the prospect that soon enough they will be basking in money only to wake up to the harsh reality that they have been conned.

Andonis Vassiliades is an emeritus professor