Make Yourself Scam-Proof

by Martin Fone
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“The origin of the diddle is referable to the infancy of the Human Race. Perhaps the first diddler was Adam.” – Edgar Allan Poe – Diddling: Considered as One of the Exact Sciences (1843).

I have long been fascinated by scams, how they are constructed, rolled out, the psychology they deploy and the final outcome, so much so that I wrote a book about them, Fifty Scams and Hoaxes. Perhaps my interest is grounded in something deeper. Maybe it’s the fact that most scams rely on the interplay between three of the less desirable human traits: avarice, credulity and gullibility.

Many people believe that credulity and gullibility are the same thing, but there are distinct differences, albeit of degree. Those who are credulous are willing to believe something, even in the absence of reasonable evidence, but, generally do not act on that information; whereas someone who is gullible is the easier to dupe because they are prepared to act upon such information.

To illustrate the point, if I believe a man can squeeze himself into a wine bottle, I am credulous. But if I rush out and buy a ticket, convinced that I will see a man squeeze himself into a bottle, I am gullible. As Stephen Greenspan noted in Annals of gullibility: why we get duped and how to avoid it (2009), what differentiates gullibility from credulity is the coupling of action with belief. “Gullible outcomes”, he writes, “typically come about through the exploitation of a victim’s credulity.”

This may all be a bit too sophistic for some, but what is clear is that when credulity and gullibility clash with avarice, the fall-out can be quite spectacular.

Those who perpetrate frauds typically prey on one of our two major insecurities: our health and our wealth. We like to live in good health, and we want to feel that we have enough money to live comfortably. When we suffer ill-health, we like to get our hands on some drug, tincture or potion, which is going to alleviate our symptoms and restore us to rude health. We are also on the look-out for ways in which we can extend our financial assets, preferably in a way that involves as little effort on our part as possible. Unfortunately, there are some people who see these natural desires as something to exploit.

Advances in medical science are such that we tend to forget that, in the 19th century and earlier, a visit to the doctor was not only expensive but downright dangerous. Those, who had a medical problem, would often resort to old wives’ medicinal cures or those peddled by quacks, a term abbreviated from the Dutch noun Kwakzalver, meaning the hawker of salves, to find solutions. There was no shortage of strange potions, which claimed to be a panacea for all ills. In was not until the Pure Food and Drug Safety Act of 1906 that ‘doctors’, working in America, were forced to act in a responsible manner.

The First Epistle to Timothy (Chapter 6, Verse 10) contains the sage warning, “for the love of money is the root of all kinds of evil.” In my book I provide a number of examples of the grief, mayhem and despair that greed and love of money can bring with it. I eschewed the obvious examples of financial malpractice, choosing to highlight lesser known and, perhaps, more colourful tales of financial malpractice, mainly from the 18th and 19th centuries. This was not just to show off the depth of my research but to illustrate a more fundamental point, that many of the scams that are practised today have their roots in scams perpetrated long ago.

A case in point is what is known as advanced fee fraud. Typically, you receive an unsolicited e-mail, usually from an African unknown to you, telling you that they have access to untold wealth. If you would only send them a small sum of money and yor bank account details, then they will transfer the money to you, you can take your slice and everything in the garden will be rosy. If you respond, you will soon find that all has happened is that your bank account has become depleted.

These emails follow a long, if ignoble, tradition, dating back to at least the 18th century and revolutionary France. The memoirs of Eugene Francois Vidocq recount a scheme perpetrated by prisoners and guards at the Bicetre prison in Paris. They sent out letters, known as a letter of Jerusalem, to those with monarchist and anti-revolutionary sentiments. The wording of the letter is remarkably similar to the e-mails that are used today and Vidocq claimed they were phenomenally successful eliciting a response rate of 20{44c8773cfc5435cd81ad20e0c4d9124b8149e87e023df21bb722cbe5a8d7cc51} and raising between 12,000 and 15,000 francs a letter, a prodigious amount.

I also describe an early example of insurance fraud practised in the fourth century BC, a Ponzi scheme that predates the activities of the notorious Charles Ponzi and was perpetrated by a woman, Sarah Howe, exclusively on women, and a pyramid scheme which ensnared two-thirds of a nation’s population and resulted in a civil war.

Confidence tricksters were known as diddlers in Edgar Allan Poe’s day after James Kenney’s character, Jeremy Diddler, who appeared in the farce, Raising The Wind, published in 1805. In his analysis of diddlers and diddling Poe identified the following attributes; audacity, focus on smaller crimes, self-interest, ingenuity, perseverance, impertinence, originality, and a grin.

Some or all of these characteristics are to be found in the examples I highlight. Other common features include; incredible claims, extensive and creative use of advertising, which play on people’s fears and aspirations, unscrupulous business practices and, when it all goes wrong as it often does, a propensity to flee the scene and leave others to pick up the pieces.

An enterprising financial journalist in the 19th century could do no worse than travel back and forth on the cross-channel ferry. It was packed with fleeing fraudsters!

Of course, some will argue that learning from history is all very well but surely increased financial regulatory oversight, enhanced pharmaceutical testing requirements and more robust advertising standards have made the modus operandi of many of the scammers from time long past redundant.

That is a fair point but, remember, regulators can only ever play catch up, leaving ample opportunities for the clever or determined scammer to exploit. And regulation tends to be national, whilst the worldwide web provides the opportunity to operate on a global basis. This, in turn, requires supranational cooperation to curtail their activities, always tricky to achieve at the best of times. No longer are their scams and hoaxes proscribed by the circulation reach of the journals they choose to deploy.

And then there is human nature.

Although we have access to more information at the click of a mouse than we ever had in the history of mankind, our knowledge base is built on foundations of sand. We take too much at face value, rarely questioning the provenance of or the reliability of the so-called facts that are presented to us.

That, I believe, is the salient lesson to be learned from looking at the methodology of scammers. The adage, “if it looks too good to be true, it probably is”, is one that is usually best remembered when deciding on an investment strategy for your personal finances. That is not to say that you should reject a proposition out-of-hand but you should take time out to consider it, try to validate the claims, look for supporting or contrary data, obtain testimonials in order to make an informed judgment. After all, you may just have found the investment scheme that will make your fortune.

Martin Fone
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