Why do scams like the Ponzi schemes perpetrated by Bernard Madoff and Celso De Los Angeles’ Legacy Group happen with sickening regularity, particularly in the Philippines ? There are undoubtedly bad guys out there, pathological crooks who get their cash and kicks from ruining people’s lives by defrauding them. They are the financial equivalent of serial criminals, according to the New York Times in an article on Madoff, heartless killers who will cut your still-beating heart out and have it for breakfast:
â€œSome of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,â€ says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioral profiles.
Mr. McCrary xxx says Mr. Madoff appears to share many of the destructive traits typically seen in a psychopath. That is why, he says, so many who came into contact with Mr. Madoff have been left reeling and in confusion about his motives.
â€œPeople like him become sort of like chameleons. They are very good at impression management,â€ Mr. McCrary says.
But other factors are at play. Like all predators, they actively seek their prey. The sad thing is that their victims oftentimes come to them, like bugs to a Venus fly trap.
There are a number of innocents who may have been truly duped by the false facade presented by Ponzi con artists. But generally people are greedy and will not readily pass up a chance for easy money. Even if there’s something fishy about the deal. Like being offered rates of return which are way above that prevailing in the market.
And these are not limited to investors commonly believed to be financially unsophisticated, like the government employees, OFWs and small entrepreneurs which were victimized by Legacy. Business executives and high government officials, including a fair number of our honorable congresspersons, were sucked in too. And the most savvy capitalists and bankers in the world financial markets were also caught up in Madoff’s web of lies.
Remember the Multitel pyramid swindle ? And just a little over a year ago, the Performance Investment Products Corporation (PIPC) scam, a Ponzi set-up masquerading as a foreign exchange firm which victimized members of Manila’s so-called high society ? All variations on the same old theme, based on a “rob Peter to pay Paul” model that continues until the tout can’t raise enough money from new investors anymore to pay the earlier investors. Everyone then starts screaming for their money and the whole house of cards collapses.
Greed has a short memory, further diminished by our get-rich-quick mentality. This dumb-ass mindset was beautifully captured in a comment sent to Inquirer’s Money Smarts section:
Whatâ€™s wrong with Ponzi and HYIP schemes? They can make Filipinos richer and give us better returns than the paltry interest the banks are giving. Earnings from them can send our children to school and build our houses. If we know that they are risky and still want to plunk in our money, then we have the right to invest. After all, itâ€™s our money.
HYIP stands stands for “High-Yield Investments Programs”, another euphemism for Ponzi.
A major element in this sorry state of affairs is weak or indifferent government regulation, abetted by corruption. Our alleged watchdogs, the officials of the Bangko Sentral and the SEC, were caught with their pants down and their dicks in their hands. Again. Despite red flags popping up all over for years. And this is the charitable view. The other way of looking at it is that they were in cahoots with the scammers from the beginning.
But in this regard we are at least not alone. The Frequent Critic, writing of the Madoff mess, laments:
What I donâ€™t get is how, in this day in age with all kinds of supposed financial controls, that no one caught this sooner. Publicly held companies have to be audited regularly to make sure that everything is kept on the up and up, and that there is no fraud. I am not sure if Madoffâ€™s company was considered public or private, but regardless, isnâ€™t anyone watching these kinds of businesses or investments? Is our financial world so filled with MBAs that are so out of touch with the real world that they canâ€™t spot fraud and deception? I just donâ€™t get how Madoff â€œmade offâ€ with so much money with no one even blinking and eye. Had the stock market not taken a massive nosedive, precipitating some of those investors asking for their money, the scheme may have gone on a lot longer.
Think that after all the pain, anguish and shattered dreams wrought by these a-holes that this will never happen again ? Think again. The next Ponzi scheme is just around the corner.
Update: Today’s Inquirer (03 February 2009) carries the headline: “Legacy Head Hit for Fraud”
Sen. Manuel â€œMarâ€ Roxas II, chair of the Senate trade committee which conducted a hearing to look into the matter, concluded: â€œMr. Angeles is engaged in a fraudulent scheme to defraud all of these investors.â€ At the end of the daylong joint hearing, the Senate committees on trade and commerce, and banks, financial institutions and currencies said that they uncovered a â€œconspiracyâ€ between De los Angeles and government regulators in defrauding pre-need plan holders.