International Law

Madoff Exploited the Jews. Really, how odd?

Image via Wikipedia

As I predicted earlier, one of the features of the Madoff fraud would be the affinity fraud angle. The WSJ reports about the Madoff ponzi that

"Steven Spielberg. Elie Wiesel. Mort Zuckerman. Frank Lautenberg. Yeshiva University.

As I read the list of people and enterprises reportedly bilked to the tune of $50 billion by Bernard Madoff, I recalled a childhood in which my father received bad news by asking first, "Was it a Jew?"

My father coupled sensitivity to anti-Semitism with special sympathy for other Jews.

In contrast, Mr. Madoff, it seems, targeted other Jews, drawing them in at least in some measure because of a shared faith.

The Madoff tale is striking in part because it is like stealing from family. Yet frauds that prey on people who share bonds of religion or ethnicity, who travel in the same circles, are quite common.

Two years ago the Securities and Exchange Commission issued a warning about "affinity fraud."

The SEC ticked off a series of examples of schemes that were directed at members of a community: Armenian-Americans, Baptist Church members, Jehovah's Witnesses, African-American church groups, Korean-Americans.

In each case, the perpetrator relied on the fact that being from the same community provided a reason to trust the sales pitch, to believe it was plausible that someone from the same background would give you a deal that, if offered by someone without such ties, would sound too good to be true."

Why are Temples and Churches at special risk? 

There are three factors, or principles of decision making, which make it easy to concoct an affinity fraud and get away with it.

First, although the congregation has to be large to maximize the chances of finding the rich suckers, there are only a few individuals who typically have to be conned -those individuals who provide the leadership to the congregation.

Although the leaders provide spiritual leadership, they are unlikely also to have the necessary practical skepticism needed for the investment industry.

Enough people in congregation will defer their decision making to what the "most spiritual" leader is recommending that they do. This is known as the principle of social choice - most people will assume, incorrectly, that someone, anyone, has checked "Bernie" out.

A painful reminder of this group myopia can be gleaned from reading the various books on Alan Eagleson's involvement with the NHL Hockey Player's association. Eagleson only had to obtain the friendship of several of the top NHL players in order to control the entire group. Mean spirited and vicious, Eagleson would challenge any attack on his authority by demanding to know what the "f**k you ever did in the league"?

The second problem, both churches and temples face, is that after the scheme unravels, there will be a large number of the congregation who will remain in a state of denial -they simply cannot appreciate the possibility of intra species predators. The blind trying to describe the elephant.

Finally, this group of individuals rarely gets tappropriate counsel, nor are they encouraged to discuss their experiences with members from other churches or temples after the fraud has occurred.  They are unable to pass on their collective wisdom.

What is the solution to this problem, the problem of affinity fraud? Again, as with any attack of a predator the goal must be to minimize losses --you will never eliminate the loss because psychopath predators are superior at using people solely as means to an end.

Churches and temples remain at risk because after the predator strikes, they have no early warning system to alert other similarly placed churches or temples. Without such a system, churches and temples remain at risk.

Full post as published by Misleading Advertising Law on December 19, 2008 (boomark / email).