You Can't Cheat an Honest Man - James Walsh [58]
Building Confidence...and then Exploiting It
A question—which may be impossible to answer—shows how trust shapes criminal schemes. Does the Ponzi perp create trust in order to exploit it...or does the perp pervert genuine trust to disingenuous ends? This isn’t just a philosophical abstraction. Courts consider the same issues. One federal appeals court dealing with the fallout of a collapsed Ponzi scheme noted:
Often there is a component of misplaced trust inherent in the concept of fraud. One must hold a position of trust before it can be abused, however. Fraudulently inducing trust in an investor is not the same as abusing a bona fide relationship of trust with that investor.
The most effective Ponzi perps—the ones who can keep their schemes going for the longest time—are usually people who have built a track record of trust with the people from whom they’re stealing. This level of trust also gives the Ponzi perp the option of skimming a little money at a time from the scheme, rather than stealing a big piece right away.
Saul Foos was a Chicago-based talent agent who specialized in working with radio disk jockeys and local TV newscasters. Like most agents, he had to deal with fragile egos, temper tantrums and complicated personal lives. He also dealt with his share of dirty laundry and hardnosed negotiating. For almost 30 years, he maintained the appearance of calm resolve. Sitting by the swimming pool at his weekend home in Michigan, Foos would tell friends that his strength came from the fact that he had no debts. “I can sleep like a baby because I don’t owe anything to anybody.”
He was conspicuously generous. “You could never pick up a bill within a 100-yard radius of him,” one longtime friend said.
Foos had come from a humble background in New York. He’d moved to Chicago in the early 1960s to go to law school at De Paul University. As a young lawyer, he’d done some high-profile personal injury work; but, by the early 1970s, he’d moved into the entertainment market. The move suited Foos well. “People sometimes forget that [he] spent years building a career as an agent,” says one former client. “He was good at it. And his reputation was that he was fiercely loyal. He wouldn’t screw you like many people in the business will.” Or so it seemed.
Beginning in the mid 1980s, Foos began to take a more active role in investing his clients’ money. Rather than simply placing it with professional money managers, he told his clients he was arranging commodities investments, purchases of radio stations, renovation projects and purchases of tax-delinquent real estate.
Some investors said Foos told them he owned a seat on the Chicago Mercantile Exchange. (He didn’t.) These investors received periodic letters on Foos’ stationery stating the amounts of capital invested and profits earned. Some claimed that he “guaranteed” them against any loses.
He told other investors that their partner in a series of radio station deals was former Texas Governor Mark White, whose political connections allowed them to buy stations that had received regulatory approval to move their broadcast towers closer to major cities and resell the stations for a quick profit. (White later said that he and Foos had “talked of doing deals” but never made investments together.)
All of the scenarios—the commodities and the radio stations—were bogus. Foos simply paid older clients with newer clients’ money. “He was able to entice these investors because of who they were,” namely clients, said one of the federal lawyers who’d later prosecute Foos. “Because they trusted him, they were a little slow to ask questions.”
While there was some question of exactly when Foos began his Ponzi scheme, there was little doubt that it was in full form by 1987. He grew the operation slowly, skimming off just enough to supplement his legitimate income. Because he was cautious, Foos kept his scheme going for at least six years—by any standard, a long time for a Ponzi scheme.
The trouble started in the fall