Affinity fraud
February 16, 2016 5:27 PM   Subscribe

Why were most of Bernie Madoff's victims Jewish? For instance, he "wiped out Elie Wiesel’s life savings, and stole $15 million from Wiesel’s foundation." Answer: Affinity fraud. "My own incidental exposure would be comical if the stakes weren’t so serious. I happen to live in a majority African American neighborhood in south Chicagoland. . . ."
posted by John Cohen (50 comments total) 10 users marked this as a favorite
 
I feel like this article had a good premise but lacked substance. There was a lot of tell, but not a lot of show. I didn't click on all the links, and I had no desire to watch an Oprah clip, but this could have been more.
posted by Ruki at 5:47 PM on February 16, 2016 [4 favorites]


The key here is to be such a weird cultural and ethnic mix that the potential pool of marks in your demographic is vanishingly small. If someone managed to correctly target me for an affinity scam I'd be so impressed.
posted by town of cats at 6:15 PM on February 16, 2016 [1 favorite]


See also MORMONS, MLM
posted by Doleful Creature at 6:17 PM on February 16, 2016 [13 favorites]


Ah, should have RTFA fully. Mormons are briefly mentioned. Affinity fraud is a an interesting problem. It's really distressingly easy to be fooled by it, it seems.
posted by Doleful Creature at 6:22 PM on February 16, 2016


Why were most of Bernie Madoff's victims Jewish?

Is it because we're famously hopeless with money?
posted by escabeche at 6:25 PM on February 16, 2016 [45 favorites]


I think there's kind of a point here like--if you extend that kind of trust and it gets violated, it's a small thing. Those of us who're a part of more socially connected communities have to learn to distinguish between the little things like putting $10 into a basket for Kathy at church who might or might not have cancer, or that person on Tumblr who might or might not be getting kicked out for being trans, and the big stuff like mortgages and MLMs and major investments. We can afford to trust people at the risk of maybe losing $10 here and there. We can't afford to trust people with our life savings without a bit more skepticism. Somewhere in there, there's a line that needs drawing.
posted by Sequence at 6:26 PM on February 16, 2016 [6 favorites]


I like some of the lines:

It becomes a mark of collective identity to spurn conflicting information and advice. Of course the lame-stream liberal media looks down on us... It’s ironic: The most cynical and distrustful among us are often the easiest marks.
posted by Michele in California at 6:32 PM on February 16, 2016 [4 favorites]


I have very mixed emotions about this. On the one hand, yes, Madoff is a criminal. On the other hand, all his clients were greedy -- they ignored all the established financial wisdom because they thought they were special snowflakes and could get a higher return than everyone else. Part of Madoff's genius was that his promises were modest: good but not ridiculous returns, year after year. It would be more clear-cut if he were promising 1000% returns or something. But still, his promises were unrealistic to anyone with passing familiarity with the stock market.
posted by miyabo at 7:38 PM on February 16, 2016 [5 favorites]


One of the things that makes affinity fraud so easy is that there are so many overlapping ties between family and friends in such a community that it is impossible to think that someone would dare to defraud you. (a recent example: last time I hired a real estate lawyer, I asked my real estate-investor aunt about him, who reported that she knew is family and that they were trustworthy)

These affinity connections serve as protection against being defrauded (because then everyone will know about it, and you'll embarrass the people who vouched for you), but then they can be taken advantage of to great effect by the truly sociopathic simply because they do not care about the potential consequences. The last part is important: Madoff is a sociopath and would have defrauded lots of people regardless of which community was available. He just ended up defrauding the closest targets.
posted by deanc at 7:48 PM on February 16, 2016 [12 favorites]


It's the couture goth vampires that I feel the worst for.
posted by TheWhiteSkull at 8:03 PM on February 16, 2016 [4 favorites]


The Madoff Victims Fund and the SIPA trustee have done some pretty great work in recovering lost principal. Estimates of total recoveries are now at around 75 to 80 percent of invested principal. Still sucks but not like what everyone initially thought. Just sayin.
posted by janey47 at 8:05 PM on February 16, 2016 [11 favorites]


Metafilter's ow(e)n affinity fraud.
posted by dersins at 8:11 PM on February 16, 2016 [12 favorites]


It would be more clear-cut if he were promising 1000% returns or something. But still, his promises were unrealistic to anyone with passing familiarity with the stock market.

Many people have no familiarity with the stock market, let alone a passing one. They have to trust “expert” others to do the right thing. How would someone who was fully ignorant of the market realities be able to discern that Madoff’s offering was an obvious scam? Especially if they were particularly naïve or poor judges of character?

Some were greedy. Some were duplicitous. Some were duped. Good to hear they’re looking at only a 20% loss. That’s not bad, given the losses that can typically be had by the junior DIY set of investors.
posted by davidpriest.ca at 8:25 PM on February 16, 2016 [8 favorites]


See also MORMONS, MLM by Doleful Creature, above.

MLM stands for multi-level marketing (cf. Amway etc.), but also, in the LDS community: Mormons Losing Money. They take such good care of each other--and this is one of the things you have to like about the Mormons--that they fall for these schemes all the time.
posted by kozad at 8:27 PM on February 16, 2016 [11 favorites]


all his clients were greedy -- they ignored all the established financial wisdom because they thought they were special snowflakes and could get a higher return than everyone else

As a blanket statement that seems unfair. If anything, these were people looking for good returns but not chasing something gaudy like the latest IPO offering. All they needed to believe was that Madoff was a somewhat better fund manager than average, though not nearly as good as the latest hot-new-guy. There was an academic school of thought at the time that higher returns were only possible with higher risk, but tough to blame a victim based on that since it's not quite true and in any event was a bit at odds with what a lot of apparent experts believed.

I admit there were individuals who were greedy and unsympathetic--I heard an interview at the time with one retirement aged guy who instead of clearing off his mortgage was plowing money into Madoff's fund, and after the crash felt it was other people's fault for not stopping him.
posted by mark k at 8:32 PM on February 16, 2016 [4 favorites]


Metafilter's ow(e)n affinity fraud.

Somehow I didn't realize what a misogynistic clusterfuck Mefi was a decade ago. Or maybe I did, and that's why I barely glanced at it in the latter 2000s.. /derail
posted by tapir-whorf at 10:03 PM on February 16, 2016 [13 favorites]


wild, insane guess to op question: in-groups side with in-groups, which applies to ethnicity whether we like to admit it or not. this is honestly embarrassing.
posted by p3on at 10:14 PM on February 16, 2016


There's a longstanding rumour in Brussels that another victim was the European Parliament's pension fund, which has left a little discussed but massive black hole in the accounts, about to appear in a few years time
posted by quarsan at 11:12 PM on February 16, 2016


Metafilter's ow(e)n affinity fraud.

This thread makes me realize how much i miss the img tag
posted by emptythought at 12:32 AM on February 17, 2016 [2 favorites]


Somehow I didn't realize what a misogynistic clusterfuck Mefi was a decade ago

I'm a relative newcomer but "misogynistic clusterfuck" is literally the last thing I'd think about this place. ♥
posted by iffthen at 12:49 AM on February 17, 2016 [2 favorites]


>>Metafilter's ow(e)n affinity fraud
Trying to join the gaps here about owen, did outing her as a stripper collapse her money seeking scam ?
posted by Narrative_Historian at 1:28 AM on February 17, 2016


Oh wow, U.N. Owen - I wasn't *here* for that but she's actually an infamous persona (under variations of the same basic username concept no less) at more than one web forum.
posted by atoxyl at 1:47 AM on February 17, 2016


Some were greedy. Some were duplicitous. Some were duped. Good to hear they’re looking at only a 20% loss. That’s not bad, given the losses that can typically be had by the junior DIY set of investors.

Remember, the value of investments can go down as well as up. A lot of legit investors have lost a lot more than 20% without any fraud being involved.
posted by Dysk at 1:54 AM on February 17, 2016 [1 favorite]


Cults use all the same techniques. They're pretty much just an extreme form of affinity fraud.
posted by panama joe at 1:54 AM on February 17, 2016 [2 favorites]


My uncle spent years doing this, he and his gang would target overtly Christian businessmen who wanted to invest their money in good christian charities... and get a little something back. Building schools and churches in deepest darkest heathen Africa AND get a 30% return on investment? What could be better! Its what Jesus himself would have wanted.
They took one guy for $10 million if I recall correctly.
posted by litereally at 2:21 AM on February 17, 2016 [4 favorites]


did u n owen ever flame out or admit a pretense? the thread liked upthread seems to be just speculation and i can't find anything in the wiki.
posted by andrewcooke at 3:01 AM on February 17, 2016


Atoxyl, any links I could read about that?
posted by Omnomnom at 4:19 AM on February 17, 2016


But still, his promises were unrealistic to anyone with passing familiarity with the stock market.

But the thing was, a lot of people didn't have this passing familiarity, and they did what people with money are advised to do: find a well-respected person to manage your money because you aren't competent to do it.
posted by jeather at 4:44 AM on February 17, 2016 [2 favorites]




miyabo: But still, his promises were unrealistic to anyone with passing familiarity with the stock market.

As Harry Markopoulos wrote in No One Would Listen, Madoff claimed to be locking in his returns with a split/strike strategy. In laymans terms, he would purchase a contract to sell stock at a certain price as a hedging strategy. Trouble is, there are not enough contracts to buy to cover the amount of stock that he claimed to be holding. It was mathematically impossible for him to make money with the strategy he was claiming to use. That whistle was blown but nobody cared.

That is exactly what makes a Ponzi scheme so difficult to prosecute. A scheme in full motion has no victims as long as the new money keeps pouring in to pay out the old marks and lure in new ones. It's only when the money dries up and the wheels fall off that the scam becomes apparent.
posted by dr_dank at 5:09 AM on February 17, 2016 [1 favorite]


I know someone in RL (not Jewish, but American) who lost money to Madoff, a very small amount relatively thankfully, and it was basically a family friend who was in much bigger who said "hey, I have this fund, it's doing really well, I'll introduce you to the guy", and he trusted his friend's advice because his friend was smart and doing well. And it seemed to be doing well for the first few years.

Not a dumb guy at all, but with a financially successful friend who he trusted and where he was willing to put a small stake into a risky fund that looked promising. His friend apparently got very badly hit.

The article is kinda broad in its painting of affinity as a bad thing. Affinity marketing isn't fraudulent in itself - I rely on the considered opinions of friends and trusted experts/advisors within my own overlapping value circles (ethnic, economic, cultural, religious etc), to review and recommend resources for me. And in turn, I do the same for them. That gatekeeping has a valuable function, and of course it can be a trojan for fraud, but it's not in itself a bad thing.

I agree for plain vanilla investing if you don't have the resources to do the due diligence to assess those decisions, but the classic Old Boys Network is literally affinity financial networking, and there are - I can think of people in my own life who spent time out of goodwill/social affiliation helping others in the network make better financial decisions, not fraud. Far more examples for benefit, helping people set up investment accounts, get sensible insurance arranged, put together a will, recommend real estate agents, discuss property areas, suggest budget help, pitch in with short-term loans - than people who've screwed others over.
posted by dorothyisunderwood at 5:14 AM on February 17, 2016 [5 favorites]


I have very mixed emotions about this. On the one hand, yes, Madoff is a criminal. On the other hand, all his clients were greedy -- they ignored all the established financial wisdom because they thought they were special snowflakes and could get a higher return than everyone else.

Maybe when we're discussing how Jewish people lost their savings because they were defrauded by a crook and how that was largely due to trust within the Jewish community, we could not jump to the worst anti-Semitic stereotypes and call the victims of this crook "greedy"?
posted by hydropsyche at 5:57 AM on February 17, 2016 [7 favorites]


Bear in mind that ten year treasuries were getting up to 14.59 in 1982 (and hovering around 10% for most of the rest of that decade), never mind what stocks were doing in those decades. He was offering a steady ten to twelve percent. A truly greedy person would have opted out because it was too little.
posted by BWA at 6:02 AM on February 17, 2016 [1 favorite]


hydropsyche: "Maybe when we're discussing how Jewish people lost their savings because they were defrauded by a crook and how that was largely due to trust within the Jewish community, we could not jump to the worst anti-Semitic stereotypes and call the victims of this crook "greedy"?"

Maybe we could, and maybe we couldn't. It all depends on whether or not they were greedy, not on whether or not that matches or contradicts the stereotype. My impression is that for the most part Madoff's victims were not greedy, they just didn't understand the stock market super well. I conclude that because Madoff wasn't offering crazy returns, he was offering good returns. My conclusion doesn't rest on whether or not they were Jewish, because just like being Jewish doesn't make you greedy, being Jewish doesn't make you not greedy.
posted by Bugbread at 6:56 AM on February 17, 2016 [2 favorites]


Another aspect that makes some people suckers for affinity fraud is that they themselves exhibit a degree of dishonesty but believe they are in on the scam. For example, some of the people investing in Madoff conceded that Madaff was probably cheating in some way, but they thought he was cheating for their benefit using illegal insider trading tips.
posted by JackFlash at 8:17 AM on February 17, 2016 [9 favorites]


JackFlash for the win.
posted by Chitownfats at 8:56 AM on February 17, 2016 [1 favorite]


some of the people investing in Madoff conceded that Madaff was probably cheating in some way, but they thought he was cheating for their benefit using illegal insider trading tips.

They thought he was front-running for their benefit as part of his market-making business.

If the group involved is insular or persecuted enough, some of its members may think it's acceptable to cheat outsiders (who are viewed, often with substantial historical justification, as their oppressors). I've definitely seen cases where [members of historically isolated subgroup X] felt there was nothing wrong with ripping off members of the general public, as long as they left [subgroup] alone. So that provides another tool for the affinity-fraudster to leverage: wink and imply that whatever funny business being run is being run against others.
posted by praemunire at 9:16 AM on February 17, 2016 [1 favorite]


What I never got about the Madoff victims who lost their life savings, and I'm talking mostly here about the people who lost millions not the small investors, was if you have that much money you should be financially literate, so why were you not more diversified? That seems to be the best hedge against losing everything to fraud. Of course if your life savings is only like $100K then its pretty hard to split that up but when its millions? Why would you invest ALL of your millions with one person?
posted by LizBoBiz at 9:20 AM on February 17, 2016 [1 favorite]


Years ago a lady running a ponzi scheme came to town. Of course it was an awesome investment program! She was providing an opportunity! Get your friends and family! My aunt got all excited and her friends got all excited and she tried to get me all excited. I ended up going to an information meeting which was hosted at a well known member of the communities house. It was a big party.

It did sound cool. I don't remember the details but I was intrigued. I did contemplate it but there was something about it that seemed 'off' and when thinking through the explanation it just didn't add up. I wasn't familiar with ponzi schemes at the time but ended up thinking through to what would eventually happen if people stopped 'investing'. It was interesting when talking to my Aunt and her friends how they either couldn't see the end failure and how the hand waving of the person running it 'oh it's supported by investing the money in some sort of mysterious investment funds' was good enough. It really was about the trust that they all had in each other. Well so and so is doing it and they're smart so it must be okay.

I said no thanks and after being told I was missing out didn't think much more about it. I'm not positive whether my Aunt bought in. I think she did though because months later I did bring it up and there was some mumbled explanation about the company going under and hey we'll just change the subject. I heard bits and pieces after that but it was in a real hush hush sort of way. If I was to characterize it is was an experience of collective shame and embarassment that they all had been taken in.

Thankfully there wasn't huge amounts of money involved. I think the buy in was 2500 - 5000 dollars.
posted by Jalliah at 9:37 AM on February 17, 2016 [6 favorites]


If you have that much money you should be financially literate.

That is most definitely not the case. Most rich people earn their wealth in some business other than the financial markets and are not particularly financially literate at all. Business savvy is quite different than financial savvy. And worse, because of their business success they consider themselves to be financially literate when they are not. This explains the popularity of hedge funds among the wealthy even though the record of hedge funds is atrocious. The attraction of hedge funds is their exclusivity, not their performance.
posted by JackFlash at 10:01 AM on February 17, 2016 [10 favorites]


Many years ago, my very conservative, evangelical relatives were targetted by a scammer trying to get people to invest in his water-powered engine technology. He had a very slick set of documentation about it, full of impressive-looking (but completely fake) diagrams and charts explaining how the invention worked. And religious phrasing and appeals was heavily interspersed throughout. "He seems like such a nice guy, and he's a Christian so he surely wouldn't lie" was a compelling enough argument to get a big swath of relatives interested. My relatives aren't dumb, but they knew nothing about the physics involved in the invention, were maybe a little embarrassed to admit that, and were easily swayed by the religion-based appeal. The scammer had really done his homework on the type of language and phrasing that would work.

Fortunately, my father (an engineer and physics nerd) caught wind of this and requested a copy of this guy's 50+ page documentation/presentation, then took up the red editing pen and went through it page by page, noting every false or misleading statement. I think we still have a copy of that around someplace. Lots and lots of margin notes saying things like "This is not possible, given everything that we know about the physical laws of the universe."

So yeah, my relatives aren't stupid people, but if you know the right code words you can trip up a target that would, in other circumstances, never fall for your scam.
posted by Byzantine at 10:44 AM on February 17, 2016 [8 favorites]


And worse, because of their business success they consider themselves to be financially literate when they are not.

If you could wave a hand and rectify this problem, half the investment industry would collapse. It's not just hedge funds; over the past six years, not one single actively-managed mutual fund has consistently beaten the market net of fees and expenses. In 2014 alone, 86% of active fund managers failed to beat their own benchmark. And yet the money still flows in, albeit less than before.
posted by praemunire at 11:12 AM on February 17, 2016 [5 favorites]


I actively distrust people who, say, put an icthys or a bible citation (or other affinity markers, but those are the big common ones) on their business cards. Not so much because I'm non-Christian and they're outside my tribe, but because anyone leaning on affinity at the risk of alienating those outside their affinity group is presumably not good enough at whatever they do to succeed in business without it.

Either that or they're a zealot, in which case I don't much want to work with them no matter how good they are.
posted by jackbishop at 11:23 AM on February 17, 2016 [4 favorites]


it is was an experience of collective shame and embarassment that they all had been taken in.

In-group recommendations are a bad idea for exactly this reason. You would expect that the fear of exposure to the group would cause better behavior, but that doesn't take into account the shame most people feel for being a victim and looking dumb themselves. Usually when somebody finally does speak out against a "trusted" in-group member, ten other people come forward as victims (e.g. Bill Cosby, Jian Ghomeshi, every sexual predator ever).
posted by benzenedream at 11:57 AM on February 17, 2016 [3 favorites]


Well the site where I recognized u.n. owen from is gone and I wouldn't link it even if it wasn't. So I'm hazy on some of the stories now but I know it's the same person (I won't say *exactly* how I know either).

- honestly all I remember about why she was disliked during her *first* run at that site was that she talked a lot about how smart she was and flirted with certain (also unpopular) male members of the board, posting underwear pictures of [definitely not actually her as it turns out]

- this lead up to someone crashing one of these later threads with a link to one of those "roommate from hell" stories you always used to see on the Internet - starring her!

- this story contained all kinds of squalid details and also a mean-spirited allegation about her eating habits which may have actually lead to the "butter eater" meme here - I'm not sure how the chronology lines up

- she later came back with a different user name. I don't recall if she ever actually tried to scam anybody over there but she told a number of stories about petty crime - the one that sticks with me was about stealing animals from a pet store - and small potatoes scams on other people.

So it's fairly similar to over here. She came across as a fairly unpleasant individual (pathological liar kinda vibe) but in retrospect the way people hammered on her weight and appearance etc. is regrettable. I thought there might have been a third forum where similar events played out but I think I might have just been thinking about the first time I made the connection to MeFi and the personal web page of her former roommate.
posted by atoxyl at 12:40 PM on February 17, 2016 [4 favorites]


Another aspect that makes some people suckers for affinity fraud is that they themselves exhibit a degree of dishonesty but believe they are in on the scam. For example, some of the people investing in Madoff conceded that Madaff was probably cheating in some way, but they thought he was cheating for their benefit using illegal insider trading tips.

Almost every successful scam i've seen go down in meatspace involved people thinking they were getting one over on the normal workaday person. Not just getting something on super duper sale or for sooo cheap like white van speakers, but actually depriving someone else of something. Even if it was just buying implied stolen goods or something.

I feel like there's actually some "it's enough to succeed, others must fail" ethos embedded deep within our society.
posted by emptythought at 9:32 PM on February 17, 2016 [1 favorite]


I think you meant "it's not enough to succeed ..."

That's possible, but there's a reason why every scam needs a story. There's a rule for every transaction: if the rewards are unnaturally high, or the price is unnaturally low, someone has to be losing money. Sometimes the story may even be true, but it's not being supplied so you can feel superior to the victim: it's there because otherwise you'd ask why the seller isn't keeping the benefit themselves.

So the guys selling speakers from a truck tell you that they're leftovers from another job which they can't return. The people selling (apparently) brand-name perfume at the market have a story about buying stock from bankrupt parfumeriers. And the fund manager lets it be known - discreetly! - that he's front-loading orders. It's a way to justify the special deal you think you're getting.
posted by Joe in Australia at 10:00 PM on February 17, 2016 [1 favorite]


Almost every successful scam i've seen go down in meatspace involved people thinking they were getting one over on the normal workaday person. Not just getting something on super duper sale or for sooo cheap like white van speakers, but actually depriving someone else of something.

The Big Con is one of my favorite non-fiction books, in part because the titular "big con" is literally the plot of the move The Sting down to Robert Redford getting shot.

But one of the strong theme among the con men interviewed is that to run a big con you tell the mark up front that it's illegal. There's an element of strategy in this choice, in that it makes the victim less likely to seek input from friends and family who will tell them it's crazy. But it goes beyond that--con men would routinely fall for cons run by "colleagues" that honest men would just walk away from.
posted by mark k at 10:04 PM on February 17, 2016 [2 favorites]


I don't recognise any of those usernames save 1-2. I'm guessing they are all gone...

Like tears in rain
posted by asok at 3:05 AM on February 18, 2016


hal_c_on: "Holy hell, people were gullible on here. I don't recognise any of those usernames save 1-2. I'm guessing they are all gone..."

Aw, you're making a lot of people very sad. There were 62 people commenting in that thread. Of them, 12 of them (almost 20%) are still active as of this year: Ryvar, stavrosthewonderchicken, exlotuseater, yhbc, Jimbob, mlis, vacapinta, mediareport, drezdn, FlamingBore, Space Kitty, and odinsdream.
posted by Bugbread at 3:57 AM on February 18, 2016 [1 favorite]


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