Jason Hartman is extremely excited about the upcoming Meet the Masters event and hopes you’ll be able to join him this year. In his Creating Wealth intro, he talks about Houston, oil prices, the negatives of investing in North Dakota, and looking out for the crooks that just want to steal your money.
Our Creating Wealth guest today is Mitchell Zuckoff. He is the author of 7 books and a professor at the Boston University. He was also a reporter for 20 years and is originally a New York native. He talks to Jason about the Ponzi scheme, how to spot a bad deal, Bernie Madoff, and more in today’s episode.
Key Takeaways:
3:10 – There’s a lot of scams out there, don’t invest in someone who’s a crook, an idiot, or untrustworthy.
6:25 – Jason learned that a diamond can slow down the speed of light.
10:25 – Jason is excited for the Meet the Masters conference. This upcoming one would be the 16th Meet the Masters event.
12:10 – Oil prices are down and experts will be talking about that at the Meet the Masters conference.
16:00 – Jason feels that North Dakota is not a stable economy for real estate investing just yet.
18:10 – Mitchell talks about the book he wrote about Charles Ponzi.
25:10 – How did Charles Ponzi start the Ponzi scheme? Mitchell explains.
29:20 – Based on Charles Ponzi’s actions, he didn’t consider himself a con man.
32:10 – Ponzi’s business, or scheme, grew from word of mouth.
35:50 – If a deal sounds too good to be true, be sure to do a background check before you invest any money.
39:10 – Do people really fall for those Nigerian email scams? Mitchell says yes.
42:15 – The schemers are always trying to stay one step ahead.
Tweetables:
“If it’s too good to be true, it probably is.”
“Ponzi was sure it was not going to be the kind of thing where he took the money and ran.”
Mentioned In This Episode:
http://www.mitchellzuckoff.com
Transcript
Jason Hartman:
Hey, welcome to the Creating Wealth show. This is episode number 457 and this is your host Jason Hartman. Thank you so much for joining me today as we examine with our guest, Mitchell Zuckoff, we examine Charles Ponzi, a famous guy. You’ve heard of his name, yes, the Ponzi scheme. So, this should be an interesting episode as we examine that with him. Hopefully you get some ideas to how you may avoid such a similar fate. Remember, good old Bernie Madoff, the crook that he is, says he modeled his Ponzi scheme after the social security system. He got the idea from that. So, it’s interesting as we examine this kind of stuff.
This is one of the things you gotta be careful of course when you relinquish control of your investments. When you’re not a direct investor, when you invest in someone body else’s deal, when you invest in a fund, a lot of these later people learn that they are Ponzi schemes and what happens is even if the early investors who get paid back or paid some returns back, they go back when they bust Ponzi schemes up, just like they did in the Madoff case, and they have to pay that money back, so that they can even it out. It’s a very difficult mathematical feat to be able to do that when the authorities bust these Ponzi schemes up and make the early investors pay back to the later investors, because that’s how the Ponzi scheme works. You probably all know that, so I don’t need to explain that in too much detail.
Again, follow commandment number 3. For your regular listeners, you’re probably so sick of hearing me talk about this, you can’t even tolerant it anymore, so I apologize, but commandment number 3, what is it? Thou shalt maintain control. Don’t leave yourself susceptible to the three major problems you encounter when you don’t retain control. Number 1, you might be investing with a crook, a Ponzi scheme possibly or some other kinds of crookery, doesn’t have to be a Ponzi scheme. There’s lots of ways people take advantage of people and deceive them and steal from them when they invest in a fund. It doesn’t have to be a Ponzi scheme, there are lots of other ways to do that.
So, Charles Ponzi, just was a guy who made one way famous, one way people get cheated, so you might be investing with a crook. Number 2, you might be investing with an idiot, and number 3, assuming they’re honest and competent, they take a huge management fee off the top for managing the deal. Either way, any of these ways you lose money and that is not good, so we wanna be a direct investor. We wanna be in control of our investments and that’s the great thing about our system, you decide what to buy, when to buy, where to buy, how to fiance it, how to re-fiance it, how much to rent it for, who to rent it to. You know, you can control over all of this stuff. When to raise the rent and you don’t have someone taking a bunch of expenses off the top. A bunch of so called business expenses.
What happens when that fund that you might have invested in in the past, you know, what happens when they need to raise more money for it or talk with a vendor? Do they go out to an expensive dinner, does the fund pay for that? Do they travel someone to go to a conference? Of course, first class all the way and does the fund pay for that? Well, that’s your money folks financing all of that and it just becomes abusive. Being a direct investor is really the ultimate way to do it. Stay away from that wall street stuff, stay away from these other deals that cause you and force you relinquish control.
I am talking to you today from beautiful, beautiful, and I haven’t been here in years, beautiful Sedona, Arizona. Mom came in on Christmas eve, I picked her up at the airport and then we went to candle light services at a church in Phoenix and it was just a beautiful time. It was interesting, the sermon talked about light. It was very interesting how he mixed the concept of theology and science in this sermon and talked about the speed of light, which you probably know. It’s about 186,000 miles per second, so that means light can travel around the earth over 7 times in less than a second. Isn’t that amazing how fast that is?
But, there is one thing on earth that slows light down dramatically and I did not know this and what it does is it basically cuts the speed of light in less than half to where it’s only going a mere 77,000 miles per second and what is that substance? Well, it is a diamond. Because of the complex carbon makeup of a diamond, it really has the affect of slowing down the speed of light and I thought this was really interesting, because that’s what makes a diamond sparkle so much. I just thought I’d share that with you.
Anyway, a little bit more of what we did here. That was Christmas eve, beautiful candle light service, that was really, really awesome. Christmas day we drove Sedona, Arizona and this place, I just haven’t been here in years and I just forgot how strikingly beautiful it is. You know they say there’s all these energy vortexes here and we’re going to go visit one in just a little bit. This morning we got up and took a helicopter tour.
By the way, got that for free. Would have paid for it, but got it offed for free. So, guess what we have to do next to earn that free helicopter ride? Well, mom and I, you probably are going to guess what I’m going to say here, mom and I have to go to a time share presentation. Yes, I know. A time share presentation. That’s interesting, you know, a time share is probably the worst investment in real estate. You know, assuming you’re not investing in a fund or anyone else’s deal, a time share is commonly thought of as the worst real estate investment going.
So, we’ll see what this is, but I always learn a lot. I’ve been to one of these many years ago I went to one of these time share presentations and, you know, they’ve got their incredibly good sales techniques. I hope I can resist. You’ll know if I tell you I bought a time share on the next episode. I wasn’t able to resist, I was persuaded into it, so anyway, I’ll let you know how that goes. Then, we’re off to the Grand Canyon. Mom hasn’t been to either of these places in several years and I wanted to have her see them again. So, I hope you had a very Merry Christmas and I wish you a fantastic New Year as you’re probably planning for the New Year now. Maybe you’re setting some goals, maybe you wanna acquire more properties, maybe you wanna get into the paper side of the real estate business.
At the upcoming Meet the Masters event, we’re going to talk a lot about the paper side of the real estate business. What do I mean about the paper side? Well, the paper is the financing of deals. It’s the hard money lending. The private lending where you can earn fantastic returns on your money in the lending side of the business. It’s buying discounted notes and land contracts, so that’s the paper side of the business, too. You know, the returns aren’t just high with the paper and the paper doesn’t have tax advantages like the actual property does.
I have to say I like the property best, owning the actual physical asset is my favorite, because you can participate in appreciation and tax benefits, leverage, and all sorts of cool things like that. However, my second favorite is the paper side of the business and if you’re an invest who doesn’t want to deal with management and you just want to basically keep track of your loans and keep track of your financing deals you’ve done and returns on your paper investments, you can do pretty well. It’s pretty awesome. We’re going to be presenting on that at the upcoming Meet the Masters event and talk about that, talk about land contracts, talk about a bunch of creative things.
This is going to be the most creative and innovative Meet the Masters event we’ve ever had and this is going to be the 16th one. I’m pretty sure I’m counting right. We used to do it twice a year and now we only do it once a year, because it’s a pretty hard event to put on. You know, getting all these speakers to fly in from all over the country, different areas of expertise assembling them, so we wanted to reduce our workload a little bit and do it once a year. I think this the 16th time I’ve done the Meet the Masters event. It’s going to be the best of all of them. Sweet 16 we’ll call it, how does that sound?
Anyway, let’s get to our guest today. Make sure you go to JasonHartman.com, check out some of the awesome properties we’ve got there and of course, we’re going to be presenting some new markets at Meet the Masters as well. We’ve sort of been really focusing on the 7 markets that are in the properties section at JasonHartman.com for awhile and they’ve been great. They’re still good. I mean, they’re still good markets.
One thing I do want to say is one of my long term favorite markets that I’ve really liked is Houston and I just wanna issue a bit of a caution. It’s not a huge one, but it’s a yellow light, if you will, to be careful if you own in Houston, because oil prices have obviously plummeted and that’s a deflationary factor. We’ll kind of see what that means to the overall economy and that’s something we’ll be examining at Meet the Masters, but oil prices are down. Just yesterday on our way to Sedona got gas and it was only $2.10 a gallon. I mean, that’s pretty cheap.
Now, remember, pardon me if I don’t get these numbers exactly right, but I’m pretty sure I’ve got this down. When Obama was elected, gas was a $1.89 a gallon, so we’re almost back to that price, which is pretty amazing. It’s interesting that airfare hasn’t really gotten much cheaper. I’ve noticed that and I thought that was kind of ridiculous. Yeah, we’ll be talking about oil prices, obviously, monetary policy, inflation/deflation, stagnation, and the best game plan for all three of those scenarios. What I’m calling to sort of borrow from my Ray Dalio, I’m calling the all-weather portfolio for all seasons.
We’ll talk about all that at Meet the Masters, but yeah, check out the properties at JasonHartman.com. Our main 7 markets are up there. If you have property in Houston, don’t be too aggressive on rent increases right now if you’ve got something coming up for at least try and keep your tenant there. Maybe you want to do very minor rent increase of just 2%, 3% at the most, maybe. Maybe you don’t want to be as aggressive.
Now, of course that depends where your rent is now, so if you have a below market rent now, then you can be more aggressive. If you have a high rent and you might even be above market, you want to be cautious and really try and renew leases and not be aggressive. This is one of the things we’re always monitoring for you in these different markets as to what the game plan should be based on things. The oil prices are something to be aware of. Houston has a diversified economy, has a lot of medical there, and that industry has been pretty stable in terms of employment and so forth, but the oil industry is a big part of the Houston economy, so be a little careful.
By the way, I should mentioned something on that before we get to our guest today. You know me, I get off on this tangents, but this is important too. We have been pitched extensively on North Dakota and the oil sands areas there and these, what we call, man camps, where the oil workers are, you know, just in those places. Now, I’m pretty cautious about things. Many people have called me very risk adverse and that’s just a sign of maturity and age. I just don’t like losing money anymore. I know it’s hard to earn it back, so I’m pretty cautious about things.
I was pretty cautious about the North Dakota thing, because that economy is not diversified at all and we didn’t do it. We didn’t start recommending that. We’ve been pitched extensively by a couple different property vendors there and I’m thinking we made the right decision by not doing that, at least, not yet. So we’ll see where that goes. Some of our competitors just went in there with wild abandon and I have a feeling their clients are going to get hurt.
So, sometimes just not doing something is the best decision. Usually there’s wisdom and action and you’ve heard me talk about that extensively in prior episodes, but sometimes the best action is to take no action and that’s exactly what we did in North Dakota and that’s exactly what we’ve done internationally and I think we made the right decisions on those. I’m giving myself a little pat on the back here as I’m looking at these beautiful rock formations in Sedona. I’m next to a waterfall. So, I’m going to go ahead and sign out. Let’s get to our guest, let’s talk about Charles Ponzi and we’ll do that and be back to talk to you again on the next episode as well. So, here’s our guest and let’s talk about the Ponzi scheme and how it all works.
It’s my pleasure to welcome Mitchell Zuckoff to the show. He is a professor of journalism at Boston university. He’s the author of the number book 13 Hours: The Inside Account of What Really Happened in Benghazi and he’s the author of several other books. We had one of his collaborators for the 13 hours, the Benghazi book, on the show before, so I really want to focus on one of his works, because we’ve never done a show on the man who originated the Ponzi scheme and that was Charles Ponzi. So, that book is entitled Ponzi’s Scheme: The True Story of a Financial Legend. Mitchell, welcome, how are you?
Mitchell Zuckoff:
I’m well, Jason, thanks for having me on,
Jason:
Good, good. It’s good to have you. A lot of people refer to Charles Ponzi, but they don’t..you know, and Ponzi schemes, but they don’t talk about his own life and is own biography, if you will. Tell us about the book.
Mitchell:
Sure, you know, it’s funny. I like the way you opened. That’s exactly how I was before I got involved in that book. I heard of Ponzi schemes, I was actually financial reporter for the Boston Globe and I just thought it was maybe an Italian word for swindle, I didn’t realize it was actually Charles Ponzi, it was a guy. So, I just started researching and found out, of all things, he actually operated..the scheme was based in Boston where I am.
The book really tells the story of a remarkably charismatic, self-deluding guy. He was as much a victim as he was the swindler and it tells how the scheme that we ultimately know from Bernie Madoff and from others originated here in Boston in 1919 and 1920 with this bantam-weight Italian immigrate who had a smile as wide as the street and how he came to personify this swindle.
Jason:
That’s interesting. I want to ask about why you say he was a victim, because that’s a fascinating take on it, but also just a comment on con artists in general. They’re always the nicest people, aren’t they? They’re always charismatic, because that’s their stock and trade. I remember when a former friend of mine conned me several years ago, you know, he was the nicest guy. Everybody loved this guy and just very charismatic and I think it boils down to and, Stephen Covey really put it well, I think it was in his 7 Habits of Highly Effective People book where he talked about the personality ethic and the character ethic and how we both have these two ethics inside of us.
You know, the personality ethic opens doors, but the character ethic keeps the door open. Covey didn’t say it that way, I’m saying it that way, but yeah, Ponzi, I’m sure he was a very charismatic, very likeable guy. Bernie Madoff was probably that way too and, heck, the social security system, that’s where Madoff said he got his idea. It’s interesting.
Mitchell:
I like the associated. There can often be a conflict between a person’s personality and his true character. The personality can be inviting and appealing and yet the character can be rotten underneath. I think, you know, we’ve seen that with a lot of people and I think that is the core of a lot of great swindles and even not so great swindles, like your friend. You know, the swindler has to get over our fear that this is too good to be true. That’s the key to every swindle. There’s something in all of our minds.
It’s wait a second, he has to or she, if it’s a female swindler, has to convince you somehow by behavior, by attitude, whatever it is, that this is too good to miss. So, too good to miss has to triumph too good to be true. Usually, there’s, what we call, an affinity, you have a personal affinity for this person or you maybe you go to the same church or you’re the same ethnic group or the same racial, you have some reason that convinces you to trust this person that ultimately does, as you said, Jason, comes down to their nature, their outer personality that they’re showing.
Jason:
So, tell us about Charles Ponzi. I mean, how did he…even though maybe he just got credit and the whole idea is named after him, but what years was Ponzi alive?
Mitchell:
He was born in 1883 and lived to 1949.
Jason:
Okay, certainly then, and the reason I ask you that before you go own, there were Ponzi schemes before him.
Mitchell:
Exactly.
Jason:
He’s the one who gave it the name, but certainly there was the idea of gold exchanges where you come in and deposit your gold and then they’ll give you a receipt for that goal, basically how the US dollar kind of works or used to work. They don’t even pretend it’s backed by gold, it’s pure fiat money, and that was a Ponzi scheme. It turned into a Ponzi scheme. How did it become named after Charles Ponzi?
Mitchell:
As you said, this used to be often categorized as robbing Peter to pay Paul where an early investor would be swindled out of his money. His money would be used to pay later investors or a later investor would be used to pay an early investors as long as the money keeps coming in that’s the nature of a Ponzi scheme. When the ball stops rolling is when it all collapses. So, these go back centuries and centuries, but what made Ponzi special is that he did it on a scale that no one had quite seen and with a certain panache that no one had seen before at a particular moment in time.
He was an immigrant from Italy. His parents were sort of rich in name, but not in anything else and he was a bit of a gat at the university of Rome and kind of ran through his money. His father died, so his mother and his uncles put him on a boat to America promising, as so many immigrants thought, the streets would be paved with gold and of course when he arrived there wasn’t anything of the sort. He arrived actually here in Boston in 1903 and the streets were paved with mud as you would imagined.
So, he went on a journey, he went up and down the east coast trying to make a fortune, trying to make his way in the world and he got into trouble in Montreal and actually spent a few years in prison not really because of his own fault. He was actually working for a guy who was a swindler. I may be too empathetic and too sympathetic. He created a lot of his own problems along the way, but eventually he washes up back in Boston in 1916 and he falls in love with a beautifully young Italian American named Rose Gnecco and Rose inspires him. Rose, all she wants is a family. A nice home to raise a few kids, but he convinces himself that he has to drape her in pearls and wraps her in furs.
So, he starts whatever he can to grow rich. You have to remember the time here. The great war is just about to be over, the stock market is heating up. It’s a time when immigrants believed, okay, finally, we’re going to get our share of the pie. So, he feeds into all of this and all of this is feeding into him as well and one of his ideas is to start basically an import and export advertising newspaper and he’s going to launch it. It’s going to be called the traders guide to reach out to people in Europe who were doing business in American. It was a great idea. It’s precursor to a lot of great publications that imagined that market, but he really doesn’t have any capital to get it off the ground. He goes to the local banks and they pretty much throw him out because he has nothing to offer.
So, what he does, he rents an office and he’s trying to figure out the next idea when he opens a letter from someone he was corresponding with in Italy about this idea of a traders guide and out flutters a postal reply coupon. It’s a very archaic form of international currency. What it was it was a postal union, it was basically an agreement among many countries to respect other stamps so mail could move between other countries, so if you had one of these coupons, you could buy a first class stamp in any country in the world and Ponzi realized that they were sold at a fix rate and if you bought this at the same fixed rate based in Europe where after the war the currencies were depressed, you could, at least theoretically, sell it for many, many times that amount in dollars. If you could somehow create this arbitrage idea. You could turn this into cash worth 100 times its paid for value in Albania or Italy.
He realizes if he can accumulate enough of these then turn them into stamps or turn them into cash in America, he could double, triple, quadruple, or go on from there his money in no time. Again, he still doesn’t have any capital to go out and buy these things. So, he starts raising money on a promissory offer. He offers people double your money in 90 days or..
Jason:
What year is this?
Mitchell:
This is 1919.
Jason:
Okay, 1919. It’s four years after the federal reserve was created. It’s after World War 1. It’s before the roaring 20s. Just for some context there, it’s kind of interesting. How much does he raise? Do you know the numbers on this?
Mitchell:
I do. The first month he raises about $1,000.
Jason:
Which, adjusted for inflation, that’s like, I don’t know $90,000 today, but I’ll do the math for you while you’re talking. Go ahead.
Mitchell:
That’s correct. It’s almost 100 to 1, exactly. From there it snowballs. In a matter of months, by June, he’s raising a million dollars a week. This is unimaginable amounts of money for most people, obviously. If you’re not a Rockefeller, you know, in 1919 and 1920. For the longest time, for the first few months, he still is convinced, I’m sure of it, because of a lot of behaviors that otherwise would be much different if he thought it was a swindle to begin with.
He convinced himself, he was self-deluding. He was sure it was not going to be the kind of thing where he took the money and ran. The one piece of evidence is, in the midst of this, he brings his mother, his elderly mother, over to the United States from Italy and installs her in a house that he buys himself and for Rose in Lexington, Massachusetts.
Now, if you’re running a take the money and run scheme and you literally and I’m not making this up, he would have a million dollar check in his pocket, a cashiers check in his pocket, almost as a form of advertising, you don’t install your 70 something year old mother to slow you down. He was sure he could make this work, but it was logistically impossible. I calculated the number of these stamps Ponzi would have needed to turn even a faction of this money into a double or triple your money operation would have filled, you know, I forget the number, some number of the holds of 10 or 12 ships and there simply weren’t that many in circulation.
Jason:
Wow, amazing. By the way, I calculated the inflation now. Unfortunately, the only inflation calculator I have handy calculates based on the consumer priced index, which of course is understated or at least it certainly has been for the past few decades pretty dramatically. So, $1,000 in 1919 has the same buying power as $13,724.45 in 2014, okay. So, that’s kind of interesting. When you said it’s kind of like, that basically the dollar has lost 96% most people say since the federal reserve was created in 1915. So, you know, it depends which way you do the math to how you think of it, but that’s interesting.
What did Ponzi, okay so, you seem to have real compassion or empathy for the guy, which most people would hate him, but it looks pretty clear to you by bringing his mom over and so forth that he wasn’t really or at least he didn’t think he was a con man, right?
Mitchell:
That’s right. I don’t for a second excuse his behavior and certainly his investors suffered and people were hurt and people lost their livelihoods, but I think he categorically different than Bernie Madoff, who by all my reading and by all my understanding, Bernie Madoff was more sociopathic in the idea that he did not care what he was doing. He didn’t care who he hurt or whose lives he destroyed and Ponzi was certainly guilty of taking money under false pretenses and he hurt a lot of people, but he didn’t set out to do so. So, maybe I have a modicum of sympathy for him as a result.
Jason:
Alright. That’s an honest answer and I see that. So, how much money did he ultimately raise and how did he raise it? Was it simply networking, speeches, you know, that was before the securities act of 1933. I can’t believe how slow the law changes. It took until 2013 for that to actually change with crowd funding, which is mind boggling, frankly. What was his technique?
Mitchell:
It was mostly word of mouth, Jason. Everybody wanted to get in on this as soon as they heard he was actually paying out the money he promised. It went 6 months before there was a story in the newspaper about him, but once that hit in the Boston Post in June of 1919, it exploded into…I don’t have the final count, it’s impossible, was it 10 million, was it 12, was it 14 million, some where in that range, you know, extraordinary sums considering it was just people coming up and throwing cash through a window in a office building in Boston and then he started opening branches.
It just was a classic case of almost like a tulip mania in Boston at the time. This is why his name gets associated with it, because it became everyone was talking. His name was on everyone’s lips.
Jason:
Amazing. Was it pretty localized to the Boston area?
Mitchell:
It started spreading. The New York Times started writing about him and people started opening branches for him up and down the east coast. When things came to a crashing halt, he was about to open a Texas branch, he was about to take over the world.
Jason:
Yeah, fascinating. Okay, so, did you have the number on how much he ultimately raised?
Mitchell:
I think I may have mentioned it’s hard to give you an exact number and I like to be precise, but it was well north of 10 million.
Jason:
Wow, in 1919 or probably into the 20s. How long did his scheme last?
Mitchell:
Only 7 months.
Jason:
Woah! It was that quick?
Mitchell:
It burned out fast, but it was fun while it lasted for him at least.
Jason:
Yeah, it sure was. Boy, that’s mind blogging. So, one of the things I’d like to ask you, Mitchell, is there anything our listeners can learn about how to spot a Ponzi scheme today from Charles Ponzi or more the contemporary people like Bernie Madoff, the US government, or the social security system. Do you like how I throw that in all the time?
Mitchell:
I do. I’m not going to go with you on that, but another show we can talk.
Jason:
Well, that’s where Madoff got the idea, so I’m just quoting him.
Mitchell:
Fair enough. I think there are a number of ways. The federal trade commission, I urge people to go to their anti-fraud site where they have a lot of cautionary recommendations about Ponzi schemes. Some of it is simply your gut, if it’s sounds too good to be true, it almost certainly is.
Jason:
But, wouldn’t the promoter be smart enough to temper the returns and make them intentionally lower or temper the pitch, so it’s kind of, better than anything else out there, but not incredible so it doesn’t sound too good to be true, you know?
Mitchell:
You’ve really put your finger on it, Jason. That’s exactly what Madoff did. It wasn’t that his returns promised to his investors were exorbitant, they were metronomic. They were like a metronome, they were steady. You didn’t have to worry if this SNP index went up and down, Bernie Madoff would still return 10% or 12% to you every year. So, it wasn’t double your money kind of craziness, because his investors were too sophisticated, but if Bernie Madoff or anybody else is promising you no matter what happens, I can give you 10% or 12%, you know, you really need to investigate how is this possible. Why don’t the laws of financial gravity apply to this guy?
Jason:
I mean, it’s just amazing to me the number of people that still get conned, and I wanna ask you about Nigerian letters in a moment, but, you know, nothing is kept a secret very well in today’s very, very interconnected world in lighting speed communications globally. I mean, if one guy can do something like Madoff, why can’t everybody do that, you know? Why can’t every institutional fund return what Madoff could return? I mean, you know, it’s not that he had some great secret and JP Morgan didn’t know about it or Fidelity or, you know, Vanguard funds didn’t know what Madoff knew, I mean, that seems silly to me.
Mitchell:
Every special sauce is really just mayonnaise mixed with relish, you know? There really isn’t something that is so special. You make a great point. There isn’t something that, right, that Bernie Madoff in his back room is figuring out that JP Morgan couldn’t possibly match.
Jason:
It’s amazing. Well, okay, adjusted for inflation, once again, the 10 million dollars in 1919 that in 7 months Charles Ponzi ran his scheme would be worth $137,244,508.67 today according to the offical inflation stats. So, that was quite a bit of money in 1919. So, what happened to Charles Ponzi? Did he get arrested?
Mitchell:
I love for readers to find it themselves, but I will say these stories don’t end well. He certainly was ultimately arrested. He was trialed, he got out for a while and ran a…things turned for him and he absolutely did run a land swindle down in Florida where if you like really, really moist land he had something to sell you, but ultimately he ends up in prison and finally he’s deported back to Italy and ends up dying a popper in Buenos Aires.
Jason:
Wow, that’s very interesting. So, before you go, I just like to ask you about the scheme that I can not believe people actually fall for. It is that email, we’ve all seen it, we’ve probably gotten it several times, that someone wants to take a bunch of money out of Nigeria that maybe they inherited or, you know, some banker is leaving the country, I don’t know what the scheme is anymore, but I need $10,000 to move the money out of the country and I’ll split the whole thing with you. I mean, seriously, people believe this?
Mitchell:
On a regular basis they believe this. It only takes one or two. If they send out in these little computer shops in Lagos, Nigeria where many of them originate, if they send out 5,000 or 10,000 or a 100,000 of these and one or two people agree to send them just enough money to get them started or to, you know, good faith money and this is how they suck them in, it seems to be worth their while because they seem to keep doing it. I mean, if it wasn’t working they’d stop doing it or they’d do things differently.
So, I ended up writing a story through an outgrowth of my Ponzi work, I wrote a story about a psycho therapist here in Massachusetts who had himself developed a tool that was suppose to determine people’s motivates. How ironic is that? Who was swept up in one of these schemes and ultimately was prosecuted by the federal government for having, basically, become a tool of the Nigerians, the schemes, and defrauding two local banks.
Jason:
Oh, so, what did he do? Burrow money from the banks or get the banks to invest in the deal?
Mitchell:
He deposited checks that were clearly forged checks on behalf of these Nigerian schemers.
Jason:
But, they would have to know his intent was bad, right?
Mitchell:
Well, they didn’t focus that much on his intent…
Jason:
Because I would look at him as a victim.
Mitchell:
I certainly did up to a point where, there was a point where I started to wonder, did he think the only way to only get his money back, even if he had some suspicions, I think he was trying to get his own money back and when they offed these checks to deposit, I think he saw that as a way out and in his desperation he took these actions that ultimately were check fraud, were bank fraud.
Jason:
Yeah, very interesting. Very interesting stuff. So, what can we do to avoid schemes like that? I mean, it seems so obvious, but apparently a lot of people fall for it, right?
Mitchell:
Well, if you get any email offering that you won a lottery that you didn’t enter or you won a prize or someone unknown to you offers you any kind of endorsement, specifically money, please hit delete. If you feel like you really missed your big chance, get in touch with me and I will tell you why you didn’t. Why you missed your chance to get swindled is the only thing you missed.
Jason:
Yeah, speaking of online schemes, there are many of them, but just a couple to mention that aren’t as egregious as the Nigerian scheme or I should say as far fetch, but certainly people will want to buy something from you on Craigslist, they’ll send you a fake cashier’s check and say, you know, the check is made out for $1,000, but the item is only for $800, so will you send me $200 back? So, you know, then you deposit the check and learn it’s fake and that doesn’t work. There’s lots of interesting stuff like this out there, it’s pretty scary that people fall for these things.
Mitchell:
I agree and the problem is the schemers are always trying to stay one step ahead, but again, your mothers taught you this. You can’t get something for nothing and if it sounds too good to be true and all those things, really, they’re cliches because they happen to be true.
Jason:
Right. It seems like the people who would fall for the Nigerian scheme are elderly. I would think elderly people would really be get the brunt of these schemes. They don’t really always know how the internet works or understand people are fake on the internet.
Mitchell:
I agree with you. I think you really touched on something there, Jason. If they have my email address, they must know who I am.
Jason:
Right.
Mitchell:
Is sadly, you know, people who are not digital natives like somebody born before 1960 who is on the internet, oh, they have my address! They’re especially vulnerable. There have been a number of cases where it’s really tragic how much these people have lost.
Jason:
It certainly is. Well, Mitchell, give out your website or your Twitter handle, whatever you like, and let people know where they can find out about your work.
Mitchell:
Sure, thanks. It’s http://www.mitchellzuckoff.com and I am on Twitter @MitchellZuckoff.
Jason:
Mitchell, thank you so much for joining us today.
Mitchell:
Thanks, this was a lot of fun, Jason.
