You Can't Cheat an Honest Man - James Walsh [56]
They’re courteous, sound concerned about your well-being, listen to your complaints, flatter, try to be the surrogate son or friend you seldom see, tout their financial successes, offer some financial advice, tell you they can get a better return on your money. [Then] they take every penny.
Another West Coast law enforcement specialist makes a more mediasavvy observation:
The perfect Ponzi investor is a person who buys a lot of stuff from QVC. [QVC] isn’t a con, but it requires an abstract level of trust that most people didn’t have twenty years ago. That person is conditioned to invest money in [a] scheme with a person he doesn’t know. He’ll put bars on his windows and lock all the doors in his house, but he’ll let [a Ponzi perp] waltz right in, over the phone.
The same lack of perspective applies even more dramatically to distinguishing among people that we actually meet. Ponzi perps thrive on the inability of some investors to tell the difference between a friend and an acquaintance. This is particularly true in business circles, where the networking mentality of the late 1980s and early 1990s often confuses business cards in a Rolodex with time-tested relationships.
Strivers of all sorts—not just Ponzi perps—are attracted to real estate and insurance. In most states, you don’t need much education to apply for a realtor’s or insurance agent’s license; and getting one puts you on an even professional footing with some of the smartest people in business. This is part of the reason that so many Ponzi perps use broker or agent licenses as fulcrums for their frauds. A license often suggests more legitimacy that it actually means.
How Misdirected Trust Works
In the classic nineteenth century crime novel Lombard Street, Walter Bagehot summed up the role that misplaced trust plays in many thieving schemes. The novelist described it this way:
...people are most credulous when they are most happy. And when much money has just been made...when some people are really making it, when most people think they are making it...there is a happy opportunity for ingenious mendacity.
Michael Rosen knew something about ingenious mendacity. He got started in business in the late 1970s as a real estate agent in the San Francisco Bay area. He didn’t have much formal education, but few people who met him would have guessed that. Rosen could talk with authority—and a certain level of self-educated accuracy—on a wide range of topics.
In a relatively short period of time, Rosen was able to schmooze his way into the Bay Area’s local business and political scenes. He was particularly good at collecting contributions for Republican candidates and politicians. “The guy had radar,” said one acquaintance who said he’d always been intrigued by Rosen—but never trusted him. “He’d sense who’s the most important person in the room and he’d be over working the guy.”
Rosen lived and worked in Rohnert Park, a relatively conservative enclave of San Francisco County. He eventually was named to the Rohnert Park Chamber of Commerce—which gave him access to politicians like Governor Pete Wilson and various state legislators.
Rosen’s problem was simple. While he seemed to be doing well financially, he was usually spending more time chatting up rich people and politicos than actually selling real estate. So, sometime in the mid1980s, he started building an elaborate Ponzi scheme.
His first step was selling bogus second mortgages. (As we’ve already seen, this is a disturbingly easy thing to do.) Rosen would approach one acquaintance and explain that a mutual friend—usually someone with a higher public profile—was having money problems and needed a quick, discrete loan. The loan would take the form of a second mortgage. Rosen would say that, in order to make things go smoothly and quietly, the borrower would be willing to pay a bonus and a high interest rate.
If the first acquaintance was willing to make the loan, Rosen would draw up paperwork. He would