S02E58 – Robert Persichitte – How to identify scams like FTX

[00:00:04.090] – Intro

Hey, this is Sean Tepper, the host of Payback Time, an approachable and transparent podcast on business investing in finance. I’d like to bring our guests to hear authentic stories while giving you actionable takeaways you can use today. Let’s go. We all want to make sure we don’t lose money with investing, especially with scams. The question is, how do you identify scams early so you can run in the other direction? My next guest is a fraud specialist who’s been on the show before, and in this episode, we dive into FTX and understand what really happened. Please note the recording of this episode was on December 14, while Sam Bankman Freed of FTX was in court. My guest was careful not to classify this scam as a fraud on the episode for legal reasons. But as of December 15, it was confirmed that Bankman Freed was charged with multiple crimes, including conspiracy, fraud, money laundering, and campaign finance violations. This is a very fascinating episode, and I hope you enjoy it. Please welcome Robert Persichitte. Robert, welcome back to the show.

[00:01:10.230] – Robert

I’m happy to be back.

[00:01:11.700] – Sean

Good to have you here.

[00:01:12.890] – Robert

Yeah, thank you.

[00:01:13.930] – Sean

I am really excited about this episode because we’re going to be diving into scams just for context. I love watching or reading books on because there are great lessons learned, like the FARA situation or the WeWork situation, the books and the documentaries. And we’re probably going to see something like that on this in the next few years on Netflix or Hulu. But we’re going to be talking about the FTX scam. And you’re an expert in the area, of course, financial planning and tax and tax fraud and everything really in between. So I’d really love to hear your perspective on this situation. Take it away.

[00:01:50.600] – Robert

Yeah, absolutely. So I am a fraud examiner, and we fall under the umbrella of the association of Certified Fraud Examiners. And we as an organization are very cautious because we work with law enforcement all the time, and we work with judges and juries all the time. And something that is a little bit tricky that I love to really explain, flesh out, make sure everybody understands, is what is fraud? And I think it gets thrown around a lot by the media. It gets thrown around a lot by people who are out there and fraud. It would be unethical for me to call FTX fraud, yet only a judge or a jury can call something fraud. Fraud is only something once it has been proven beyond a reasonable doubt that a crime has been committed. That’s a determination for the courts. So I want to be very precise. FTX has a lot of the characteristics of fraud. There’s a lot of evidence to support that fraud has occurred, and there’s been an indictment, there’s been an arrest. We’re going to have a trial, and we’re going to have probably a jury trial to tell us definitively, was that fraud or was there something else going on.

[00:03:19.140] – Robert

Now when we really look at and when we really break it down, there’s different levels of what happened here. There’s all the way potentially up to fraud. And at least the prosecutors think, yeah, fraud was likely there. There’s evidence of it, but there’s also some pieces of it that are just a really bad deal. They’re a rip off. And there’s some pieces of it that are just maybe bad investments, mistakes or some bad assumptions that went through there. And when we lose money, I think the gut reaction for anybody who loses money is that was fraud. Fraud happens to me. That’s the only way that I could lose money. But there’s a lot of ways to lose money. This is a big and beautiful world with lots of different issues that happen. And so I really want to talk to you today about some of them.

[00:04:12.560] – Sean

Great.

[00:04:12.980] – Robert

FTX is a wonderful case study because I think we have evidence of all three. We have evidence of everything going on there. So kind of start on the low end, right? Just a bad investment, some bad assumptions. People invested in the FTX coin as an underlying investment in the company. Basically, I’m giving Sam Bankman Freed SDF, I’m giving him and this company, FTX, my money so that they can invest it and they’re going to be a bigger, more profitable company in the future and I’m going to get it back. Right. Basic finance theory, the basics of how finance works. Now, they made some assumptions there. They made some very big assumptions. One, they assumed that when they gave him money, he was going to use that money to improve the business, right? Looks like that probably wasn’t true. That probably wasn’t what he was doing with it. Number two, they assumed that that company was going to get bigger and more profitable in the future. As we can see, that turned out not to be true. Now that by itself, if you just went in with those assumptions, those guesses about the future, that was just a bad investment.

[00:05:27.870] – Robert

You as an investor may not have done your due diligence if nobody lied to you, nobody told you something was going to happen when it really didn’t happen. If they just said, this is my plan, that’s just a bad investment. Now this is what Elizabeth Holmes tried to use in her court case. She tried to say, no, I thought I could do it. And we all just assumed that it was possible. And it turned out it wasn’t possible. We just made bad assumptions. Right. She makes a very good point that there’s a fine line of being optimistic about the future of your company and lying about the future of your company. So if she says, I think we’ll have a machine that can do this in the future, right, that’s not fraud. That’s her trying to sell something. That’s just regular business, regular investment. Now where hers crossed over into fraud, according to her case, is where she did fake demonstrations saying, I already have this technology, we already did this, and misrepresenting that product. It exists as a prototype. That was untrue. That was a lie. That’s where her case crossed over to fraud.

[00:06:44.930] – Robert

But companies fail all the time. Very common. And that by itself is just an investing mistake. Right. If you invest in a company, your assumptions end up being not true. That was a mistake. It’s not fraud. Next, we have a rip off, or what I like to call a rip off, where you probably could have seen it coming. If you were paying attention to everything that everyone was saying, you probably could have known. Right now, most people who invested in it didn’t know about this, and they weren’t sure, and they didn’t ask the follow up questions. They didn’t say, what happens if and for FTX’s case, this is going to be the margin accounts. Those margin accounts did say, hey, you can take my stuff and lend it out to other people. You don’t have to have my assets in my little room. You can do whatever you want with it as long as I get it back, right? You promise that you’re going to get it back? Now, where this became a rip off is they didn’t read the fine print, and FTX didn’t really talk about the fine print there, and they didn’t really say, well, what’s your vetting process?

[00:08:02.810] – Robert

How are you going to be sure that I’m going to get my money paid back? What types of investments are you going to get? What types of interest are you going to get? And I think most consumers, if they knew that and they read through those full when you click, I agree. Right. We don’t think about it a lot. If you read through that, you’d be able to find some indicators. I’m seeing a lot of these in the market right now. Where it is there, the information there is just hard to find, and it’s not upfront. And people aren’t reading their contracts. When you get a 50 page contract written legalese that says, hey, we can terminate your investment and take all your money back at any time whoa, really? That is disclosed. We can terminate withdrawals at any time. That is a big risk. That’s a big problem. I want to be aware of that. Why is that buried on page 38? It’s not fraud. They told you, you just didn’t know about it.

[00:09:11.630] – Sean

Yes.

[00:09:12.190] – Robert

That’s a rip off. That’s a rip off. And those, I would say, are probably the most common thing. And we can think about it in terms of investing. We can think about it in terms of our life. I just got ripped off. I was on vacation. I paid for some theater tickets that gave me bad theater tickets. Right. They didn’t see what I paid for. And then they said, hey, in the terms and conditions here. If you look on page 15 of the terms and conditions, we’re allowed to do this. We’re allowed to not give you what you paid for. If I only knew that when I was signing up, I would have never done it. If I only had that piece of information, I wouldn’t have even considered this, right? But we don’t have time to do that. I don’t have time to do that unless it’s something that’s really, really important. And when you’re working with your life savings, when you’re working with your investments, it is really important. And especially for the types of investors that were here, where they’re taking very, very aggressive positions, very risky positions, where you know the risks are there, it’s even more important to understand it.

[00:10:19.160] – Robert

Right? That was a rip off. Now, where the prosecutors think it may have been fraud, and where I think we have a lot of evidence of fraud is in the folks who thought their investments were being stored one to one. And they had the promise, if you give me your money, your money is here in this little box, and nobody can touch it but you. Right. That was the promise. The reality was, no, we’re not keeping track of this. We know we got the money. It kind of moved around. But we don’t have an account for you now for, let’s say, like a traditional bank, an FDIC insured bank. We have bank examiners coming in. They are making a similar promise. They’re saying, for the assets that we have on the books, for what we owe you, we have some assets that could satisfy it. And they might not be cash, but they’re reasonably safe. And they meet the criteria for us to call this time deposit account or whatever, a savings account or whatever. They have bank regulators going in and checking on that and that is a very tedious job. If you think accountants are boring, go meet a bank regulator.

[00:11:51.240] – Robert

We’re going to look like rock stars. It’s a very tedious job in most instances because most of these organizations know someone’s looking over my shoulder. I’m not going to try to pull anything. And so you’re just going and you’re checking through thousands of accounts and looking, adding up the numbers. There were no controls. In the business of control, what an auditor means by a control is something that’s in place to help further the mission, to help make sure that our company is not going off the rails here. So I’ll give you an example. Having a policy where somebody has to sign off on every transaction or every time money is flowing out, that’s a control, right? It makes it more difficult to steal money from the organization. And they can take a lot of different forms. I won’t get into the details on it, but just about everything at your job that is inconvenient for you is probably a control. Some auditor probably put it there. And if you look at it and say, this is stupid, why do I have to do this? Well, probably the reason is they didn’t have that before and someone stole money.

[00:13:10.810] – Robert

So they had to add something in to make sure that nothing gets stolen again. So why do I have to badge in and out individually? Well, that’s a control. So we know who’s, where, why do I have to log in every time? Why can’t I share my password, all of those pieces. That’s because there was a problem and an auditor caught it and put something in place to fix it. Those are controls. According to the folks who are looking at FTX now, the Congressional testimony, they just didn’t have any controls. There were no controls whatsoever. So you had a giant pile of money sitting in the Bahamas somewhere, a bunch of people with access to that pile of money and they took it. They took it and they used it for other things other than what the clients were working with. I get really frustrated in this case because everybody wants to compare it to something that we know they want to compare it to Enron. They want to compare it. I’ve heard a lot of comparisons to Lehman Brothers or Bear Stearns and I’ll tell you a little bit about the similarities and then why it’s completely different.

[00:14:27.910] – Robert

So the similarities, the similarities between Enron and FTX are basically that people lost money and that’s where it stopped.

[00:14:37.750] – Sean

Okay?

[00:14:38.550] – Robert

They got the new CEO coming in to unwind everything. That’s the same guy. And that’s where the similarities stops. Enron was phenomenally complicated. Enron had layers upon layers. And with Enron, pretty much everybody in the industry was either fooled or paid off. And that’s why it got so big and that’s why they were able to do it to the extent that they were able to do it. It was also huge. At the time, Enron was the 7th largest company in the world. STX is a little blip compared to that. So we don’t have that comparison. That is not there. The other comparison is Bear Stearns or Lehman Brothers. And basically what happened there is there were a lot of smaller investments. They didn’t do their due diligence and then it kind of trickled up. So as the subprime mortgages started collapsing, then the bigger company started collapsing. Now I should clarify, those were just mismanagement. Nobody ever accused them. Nobody indicted anyone for fraud. Nobody tried to put someone in jail for fraud. For those companies it was just, hey, we were overly aggressive. We made a mistake. We made a mistake. And FTX is not like that either.

[00:16:12.650] – Robert

It certainly didn’t help them that their little components were falling apart. But even if that were to continue, there’s no guarantee that they wouldn’t have collapsed a few months later anyway because there were no controls. Anybody could just grab cash from it. And at a certain point that becomes unsustainable. That was the catalyst. The underlying investments collapsing was a big part of the catalyst of why they had this trouble. But they would have had that trouble eventually because all the money was flying out the door. So those are kind of some of those differences. I go back to FTX. Sam bankman, freed wants people to believe that this is complicated. It is not complicated. Fraudsters often hide behind complexity and they hide behind what you don’t know. Because the way our brains work, most people just shut down and they say, well, I assume someone knows it. Or this fits into my general story. I don’t need to ask any extra questions here. I’m just willing to accept it. And so it’s really not that complicated. Sam Bacon Fried’s company, Alameda Research, had money that was supposed to be held in client accounts. They spent that money or something happened to that money.

[00:17:38.840] – Robert

We don’t know where it is, but very likely it was spent by someone because we didn’t have any controls. And if you think of the movie Dumb and Dumber at the end where the briefcase goes flying open and it’s just a bunch of IOUs, that’s kind of what happened. No, those are just as good as cash. I promise we’re going to pay back every penny.

[00:17:59.890] – Sean

Sure.

[00:18:01.130] – Robert

That doesn’t work. That doesn’t work. And so we now have to kind of wait to see. There’s one more. I’m going to give you a little bit of a quiz here, Sean. In addition to lying, so you got to lie, you got to get money. In addition to those elements, what is the most difficult element of a fraud case to prove compared to this third element? Those other two are easy. So what do they have to prove for this to be called fraud?

[00:18:35.830] – Sean

I’m thinking about their early comments is not true. I would say maybe the proof that the money is not in the accounts, maybe I’m getting too technical.

[00:18:49.130] – Robert

That’s not enough. So let’s say hypothetically, Sam Bakeman Free went in, spent all the money. He just spent all of it, right? I don’t think that’s what happened. But let’s say that’s what happened. They would have to prove what was going on in his heart and they would have to prove that he had an intent to defraud. So a perfect this is advice to any of you aspiring fraudsters out there, anybody who wants to steal a bunch of money. They have to prove that you knew what you were doing. They have to prove that you had intent to take the money. And if it was a mistake or an accident or mismanagement might be gross negligence, but that is different than fraud. Gross negligence is different than fraud. They have to prove in most jurisdictions that you had the intent to do it, that you intentionally took this money and you weren’t planning on giving it back. Or no reasonable person would believe that you had to give it back. That’s extraordinarily difficult to prove and top of mind, elizabeth Holmes’s case is one of the more recent cases that we can look to. The way that they proved it is by looking at things like text messages and looking at things like emails of, hey, this is all she had, the text messages back and forth.

[00:20:22.060] – Robert

This is all going to blow up in our faces. People are going to find out, and now they just keep going. Right, right. Those pieces of evidence prove it or help to prove it to the jury, and we still kind of need to figure that out. And I think possibly what Sam Bankman Freed’s thought process is, if I could just prove I’m incompetent, I won’t go to jail, I’ll lose all my money. All these people will sue me. Everyone’s going to be very mad at me. But if I can prove I tried my best and I took all the reasonable steps to protect this money and I’m just bad at business, that’s a viable defense. I had one of my favorite accounting teachers in college. He told me, he said, I swear, if you’re ever on trial for fraud, I’m going to be a character witness for you. And I’ll say, Robert had no clue what was going on. He sat in the back of the classroom. Whenever I asked him a question, it was a blank stare and abject terror on his face. I would want that at my trial. I would want somebody to say that because we have to prove what was going on before we can call it fraud.

[00:21:36.450] – Robert

It’s one of the key elements that are in there.

[00:21:39.890] – Sean

Right. Let’s take a quick commercial break. Have you ever lost money in the stock market? Maybe you heard or saw a comment on YouTube, TikTok Reddit, or another social platform, or maybe you just received bad advice from a friend. Yeah, I think we’ve all been there. Most people lose money in the stock market because they make decisions based on emotions. What if you could remove emotions from investing? What if you could make consistent returns in the stock market based solely on logic? And what if there’s a software that could handle that logic for you? Introducing Tykr, a platform that helps you manage your investments with confidence. Get started today with a free trial. Visit. Tykr.com. That’s tykr.com again. Tykr.com. All right, back to the show. I want to dive into some of this and get my own perspective, but I really appreciate breaking down the three different categories. There like, it’s a bad investment, it’s a rip off, or it’s fraud. And I think a lot of people listening and even myself, I can put events in my history into those buckets. For example, fun little story. I’ll make it really fast with a rip off.

[00:22:47.670] – Sean

My wife and I, we love doing different trips around the world. We went to Mexico. We like booking excursions, whether it’s snorkeling or whatever, and you’re supposed to book those excursions at the resort. There’s people behind the gate. They’re in the perimeter. They’ve paid or they’re part of the system. Well, we made the mistake of spending $200 for somebody at the airport who could book us an excursion. We never got the excursion or our money back. We’re supposed to throw up at a certain location, and we’re like, we know better than this. This was a stupid mistake. We got ripped off. Slap on the wrist. Moving on. Definite rip off. With the situation of fraud, I think it’s really important for listeners to be really wary of what you’re getting into. If it sounds too good to be true, it typically is with high guaranteed returns. If it’s something new that’s not vetted, even if there’s a lot of big names jumping into it, still like Kevin O’Leary jumped on CNBC. I don’t know if you saw his video, but I really appreciate it. He admitted, all right, he made a stupid mistake. This was a stupid mistake.

[00:24:01.120] – Sean

A lot of people followed him. He got paid, like, $15 million or something like that to promote FTX, and he admitted he was wrong, and I really appreciate that. But a lot of people see a Kevin O’Leary type figure getting into investments. They’re like, Well, Kevin’s behind it. Well, I’m going to do it. And we as investors, we’ve got to throw a flag on the plane, be like, Whoa, whoa, whoa. This is new. Seems too good to be true. I’m going to hold off on this. So that’s just my thoughts there.

[00:24:29.320] – Robert

Yeah. I mean, too good to be true is one of the key indicators. And the better something is, the more questions that you have to ask. And so when you have somebody saying, I can guarantee you 15%, 1st, ask, well, if that’s true, why isn’t, you know, the big the big players? Why isn’t Goldman Sachs just going all in on this investment? Why isn’t everybody in this one investment? And really, when I break it down, I break it down into three questions of, number one, how am I going to get paid back?

[00:25:06.710] – Sean

Yes.

[00:25:08.610] – Robert

Where does that 15% come from? Did they increase their profits by 15% by doing this? Because if you could do that guaranteed, that’s great. How did you miss that opportunity for so long? Right? How do you get your money back? Number two, are they ignoring or hiding something from me? Right? Are there risks involved that they’re not saying? What is backing that guarantee? What prevents me from losing my initial deposit? Are there any strings attached to that? Right? What are the risks? There’s always risks with any investment. And if someone says something is guaranteed, ask more questions. How is it guaranteed? Who’s going to guarantee it? What happens if the guarantee gets broken and it really dovetails into number three of does this person do what they say? Right? So with all the problems that it has, legally, insurance companies can slap the word guaranteed on some of their annuity products, right? Now, if you read the fine print, they’re only guaranteeing a very small portion of that. It’s not the whole investment. There’s still risks that are involved on it. But we can look and say, oh, hey, my state insurance board is looking at this.

[00:26:25.680] – Robert

They’re looking over your shoulder, and they’re making sure that when you tell me that my assets are held somewhere, that you’re really going to do it right. And if it’s just, I’m in the Bahamas and you got to take my word for it. Well, is that person trustworthy? Are they trustworthy? What have they done to earn that trust? And I’m not saying that state boards or the SEC or FTC, I’m not saying that any of these organizations are perfect, right? Things slip through the cracks all the time. But at a bare minimum, you have some level of accountability there. And the more questionable these investments are, the more you have. And we can look at FTX. The Department of treasury was saying, hey, watch out. We don’t regulate this because that’s outside of our zone of control. We can’t just pick things to regulate. They have to pass laws. We can’t regulate this. But I really wish we could because here’s all these reasons that you might get ripped off, and lo and behold, they ended up being true. Less than a month after that, you have a lead analyst from The Wall Street Journal saying nobody could have possibly seen this coming.

[00:27:37.010] – Robert

Like, well, if you read your own newspaper, you could have seen it coming because you put an article about the Treasury’s warning on it. We had experts saying, look out, watch out. And even if we don’t have that developed, that too good to be true o meter, we have to figure it out. And just because something sounds like a good deal doesn’t mean it’s necessarily a scam or a rip off. You just have to answer those questions first, right?

[00:28:07.050] – Sean

I want to dive into real quick here, human psychology of, like, the momentum of making a mistake and then trying to get out of it. And I’ll give an example here. There have been certain situations, and I remember watching a docuseries, I don’t know if it was on Hulu or what, but it was like a series of eight episodes. Eight different we’ll say eight as the number. I’m not sure if that’s it, but eight different scams. And what happens is somebody makes a mistake. For example, there was this one kid who he was investing for his clients. He was a college student. And what happened was, in order to make up for the losses of one customer, he was taking the investment from another customer, essentially the definition of a Ponzi scheme. And he did it once. But the problem is he didn’t phrase it this way. But essentially what I’m about to say is he couldn’t hit the reverse gear. He couldn’t back out of it and admit he made a mistake. And he just kept going forward and saying, okay, so I lost money with this person. Now I lost money with this person, so I got to raise more funds for more people to bring money in.

[00:29:09.010] – Sean

And he kept getting in deeper. And I feel like these people, maybe it is complete negligence to start and then they start devising a scheme with intent thereafter. What are your thoughts on that?

[00:29:23.990] – Robert

Yeah, so a lot of the fraud literature points to this. And it is so important that as part of a fraud investigation, we’re supposed to keep it in mind that a rationalization is one of the elements to look for in fraud risk. Right? So if you’ve heard of the fire triangle, right. We have these three elements and fire exists. We also have the fraud triangle based on the same principles. Where there is an opportunity, there is a pressure and then there’s a rationalization. Our opportunity is that we can take money, right. In FTX’s case, a big pile of money that nobody’s looking after. That’s our opportunity. We have our pressure. Pressure can be either internal or external. Sometimes pressure can be low enough as I want to buy something and I don’t have enough money for it. Typically in these cases we see something a little bit more, stronger pressure there. So, like in your case, I wanted to serve my clients better. So I thought it was okay. I was doing it for them. And a lot of financial statement fraud, you hear people saying I didn’t want people to get laid off. I lied about the company’s books because I didn’t want people to lose their jobs.

[00:30:42.810] – Robert

And then you have a rationalization. And this is the part that I think you’re really getting to of we are all the hero of our own story. And I’ll tell you this, working with the courts, these are people that have already been convicted of a crime. They already had their day in court. And the jury said you committed fraud, right? All of universally I did not meet a single person who took responsibility for their own actions. And they say, well, I just got mixed up in this or I could have paid everyone back if I just kept going. And a lot of times that’s incremental where great example was somebody who was taking checks from her employer. She was basically an administrative assistant to the CFO of the company and she was in charge of the checkbook for some reason. Right. That was a mistake on their part. There’s an opportunity and she kind of started with very small transactions and like, I’m going to buy lunch or I’m going to pay for parking at the airport. Right? Relatively small transactions. And. Then she got more comfortable with it, and she started to invent these new rationalizations of, well, if I’m getting away with it, then everybody’s doing it.

[00:32:07.480] – Robert

It’s just how the company operates. Everybody’s stealing from the company. It’s not just me. Everybody’s doing it. So it’s okay. And it progressed, and it progressed further, further. And she was eventually apprehended. I love this story because it’s such a stupid way to get caught. She had the company checkbook. She went to buy a house with the company checkbook, the whole house. And she was at closing, and the title insurance company said, well, we need certified funds. But, you know, this was before the housing crisis. Title companies were a little bit more lenient back then. You know what? We can just call the bank and see if they’ll certify the funds. And they didn’t tell her. They called the bank. They called the number on the check and said, hi, I have an LB here trying to buy a house with the check. Let me check the signature cards. She’s not on those signature cards. And so they notified the company, and she was apprehended on the spot.

[00:33:17.470] – Sean

My gosh.

[00:33:21.070] – Robert

Before trying to buy a whole house, she embezzled about I think hers was about a quarter million dollars.

[00:33:27.800] – Sean

Wow.

[00:33:28.390] – Robert

And it was just small, and then it got bigger as it went along. That is very much the pattern for these cases. And everybody that I’ve ever worked with, it’s very commonly documented. Everybody has a rationalization. And I believe back to FTX, looking at Sam Bankman Free, I believe that he believes his own lie, that I thought we could pay it back. I thought it didn’t matter. Right. I think he really believes that. And it’s because living with the guilt, living with that challenge, really weighs down on a person. And one of my favorite quotes from Bernie Madoff was his son. When he was arrested, he was quoted saying, I wish they caught me years ago. And later explaining what happened. It just got away. It just got away from me. I started with one lie that I thought was trivial, and then I started adding more to it. And I was in so deep, I couldn’t get up. I was buried under this. And here’s the world’s smallest violin playing for all the fraudsters there. Yeah, it was surely very stressful for them, but they make those justifications and rationalizations, and they do some insane mental gymnastics to this point where they are comfortable with it.

[00:34:58.480] – Robert

And another one, very emotional, very deeply touching. There is a woman who basically took advantage of an older man, and he was alone. He didn’t have any family. He probably needed to be in some type of memory care.

[00:35:21.340] – Sean

Okay.

[00:35:21.990] – Robert

He had very severe mental degradation, severe mental issues. She met him in the grocery store when he was having trouble trying to check out, and she helped him, and she would go to his house and help him out. Right. Now, initially, there’s nothing wrong with that relationship, right? That’s a nice relationship. She was apprehended when his attorney got a call saying, I need to change my will, and I want it all to go to we’ll call her Miss Suite. I want her to get everything right. When the attorney gets a call like this, he says, something’s not right here. Something’s fishy about this. Calls adult Protective Services. They go to his house, find the doors are modified to lock from the inside. There were open cans of cat food. Presumably she was feeding him cat food, and he was wearing soiled clothes. At her sentencing, she insisted that he was better off. Louie was his name. Louie was better off for meeting me, because as bad as his situation was, it was worse before he met me. I didn’t do anything wrong. I didn’t do anything wrong.

[00:36:31.600] – Sean

Gosh.

[00:36:32.280] – Robert

And this guy, I feel terrible. For me, that’s a nightmare. I couldn’t imagine living in those types of conditions, being locked alone in a house with someone, forcing me to give me all my money. It’s a nightmare. And she justifies it of, well, he could be worse. And there’s always that rationalization there, right?

[00:36:58.950] – Sean

I have heard that story. I don’t know if I read it somewhere or watched on a series. It is familiar, though.

[00:37:07.070] – Robert

I hope it wasn’t me last time.

[00:37:10.490] – Sean

Okay, maybe it was, but good story, but really appreciate the context here again on those major three. And the listeners, just to reiterate, look out for bad investments, look out for rip offs, and of course, look out for fraud. You got to be so careful out there. You had a really good point before we hit record. If you know somebody that was a victim of these three things, especially fraud, how do you respond to circumstances like that?

[00:37:38.230] – Robert

Yeah, so we talked a little bit about the rationalization of the criminals. There’s also a great degree of rationalization among the victims. And so another story, Charlie. Charlie was the criminal’s name. Very, very charismatic guy. And even me working with him, knowing he was a criminal, and my job was to take money back from him, still love it. Like, oh, man, I got to go spend a day with Charlie. All right. He’s so immensely likable. He just had that spark to him. Now. He used that spark to steal millions of dollars from members of his own community, members of his own church. His crime was what we refer to as affinity fraud. So he has a specific group that he goes after. And so he would target members of his church, and basically it was just a really bad investment. And he had dead oil wells that he bought for basically nothing and then charged him 20,000, $30,000 for exploration rights. Hey, give me some money, and I’m going to see if there’s oil here. And he didn’t have to see that he already knew it was a bad well, but give me some money and we’re going to test it out and see if we can make a lot.

[00:38:54.090] – Robert

And then he’d go, oh, well, didn’t pan out. Sorry. He pocketed the money, right? He would use the same exploration report for multiple people. So he’d go, he’d explore it. He knew it was a dead well, ask for money and then show them the receipts for the dead well. And that was it. If you’ve seen the movie The Producers, it’s actually the exact same scam. So he really nice guy. And some of his victims think about it from their perspective. Old Charlie. Everybody loves him. He comes up to you and says, hey, you know what? I think we can get rich. I think you and I, we can go in this together and we can make a lot of money. Well, let’s go 50 50. Let’s go 50 50 and give me $5,000 and I’m going to go hire a prospector to come out to see if there’s oil. And then he’d go back a few months later and say, you know what? He wasn’t sure. We need some more tests. We need to run some more tests and and these ones are going to be more expensive. But if we strike oil, we’re going to be really rich.

[00:39:57.830] – Robert

And you already put the 5000. Why not give me 10,000 this time? Give me 10,000. We’ll get a really good test and we’ll try to figure it out. And then you come back a month later and say, you know what? That test came back negative, but there’s another spot on the claim, and maybe that spot will give us better results. Let’s go to this other spot. I just want to get the best testing off the bat. Why don’t you give me $15,000 this time, right? So I think the average amount he stole from his victims was about $20,000. And it was just these little increments. And I had a really difficult job collecting the money and giving it back to them. And they’d say, no, I don’t want it. This is Charlie’s money. This was a fraud. This was a mistake. We just made a bad investment. I said no. Charlie lied to you. He never intended to deliver. He knew there was no oil there. He said no. Not Charlie. Not Charlie. You just don’t understand what’s going on. Not Charlie. He wouldn’t do that. And a lot of information comes in. We have the receipts.

[00:41:02.830] – Robert

We have proof that he knew. We had proof that he ran the prospecting reports before he asked for the money. We had proof of all of this stuff. And the people couldn’t reconcile it with the way they thought the world worked. They couldn’t fit it into their picture of the world. And so they fight to the nail. And so make sure if you have somebody that you think might be the victim of, especially fraud, but even just ripoffs or making these critical mistakes, you’re not going to be able to change their mind. And that’s something that’s very difficult to hear, especially if it’s a loved one. Especially. It could be anybody. But the one that’s most heartbreaking. You have an elderly family member, they’re relying on this money to live and they’re falling for something like this. If you tell them this is a rip off, they’re going to outright reject it. Even if there’s all this evidence out there and they know it, even if you have somebody who’s a firm believer in crypto, it’s going to be the new money. I put all my retirement into FTX. No, it’s going to be fine.

[00:42:10.680] – Robert

You just don’t understand, right? We have all this evidence piling up. Really ask questions and see if you can get them asking questions. Because if it’s their idea, if they need to be able to save face, they need to be able to be the hero of their own story. And you don’t need to be the hero of this story, and in fact, you never will be. Because if you come in like a white knight, I’m here to save you because you’re stupid and you need my help, they will never listen to a word you have to say. If you come in and say, hey, I’m ready to be your sidekick, you’re the superhero here who has the smarts and the brain to get out of this scam, then they’re going to start accepting that information and they need to be the hero of their own story. Everybody is the hero of their own story. And so really have that humility going in. Never tell them I told you so. And remember, in addition to losing money, they’re losing their pride, they’re losing their sense of ability, they’re losing what they feel makes them a good investor.

[00:43:32.190] – Robert

And that was part of their identity for so long and partially why we want to scream I told you so. Because if you were there three Christmases ago and say, hey, look at this. This new blockchain is going to make us all rich. We’re all going to be millionaires. I put all my money, look at you messing around with stocks. You’re going to lose so much. I’m so smart. We want to say I told you so. We want to rub it in their faces. But remember, we love them for a reason. And it’s probably not their crypto knowledge. That’s probably not the reason, but that became part of their identity, that became part of who they are. And they’re the ones that need to realize it’s a scam. You knowing it’s a scam doesn’t help them, right?

[00:44:16.450] – Sean

And you don’t need to make them feel any worse than what they are. They could have lost significant sum of money. You don’t have to rub their face in the ground on it. So I love that there are so many opportunities out there, especially on social media, not just in person, but to really do the told you so and just be really cruel to people. It’s like they know they made a mistake. Don’t make it worse. Good advice.

[00:44:41.610] – Robert

Meet it with compassion, meet it with knowledge. Saying, hey, but understanding how the stock market works, understanding basic finance theory, understanding how things can turn around, asking questions, getting answers, that’s what makes people good investors. Not tricking people, not getting lucky. It’s that and meet them there and see if they can come along with you to say, yeah, we can do this. I can be a smart investor. I can be a good investor. I can be smart with my money. That scam doesn’t have to define them, right?

[00:45:17.990] – Sean

Let’s take a quick commercial break. Hey, this is Sean. I’d like to say thank you for taking the time to listen to this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for taking the time to listen to this one. I have a quick request if you have a moment. Could you please head over to Apple podcasts and leave a five star review? The reason is the more ratings we get and the higher those ratings are, the more Apple will shares with the world. So thanks in advance for doing that. And then I have a quick comment. If there are any questions you want me to ask the guests, please head over to our Tykr Facebook group. You can drop a question right there. I’ll go ahead and make a note and I’ll do my best to ask that question on the podcast. All right, back to the show. Well, thank you, Robert. What I’d like to do next is ask you two questions of a rapid fire round and then I’ll have you share with audience where they can reach you. And that first question would be I’ll actually start with the podcast.

[00:46:12.850] – Sean

What is the recent podcast you’re listening to right now?

[00:46:16.090] – Robert

I just started with odd lots from Bloomberg. Fantastic. Really good in depth stuff. And they look at some of the less common elements of finance. They’re also talking a lot about FTX right now.

[00:46:32.850] – Sean

Okay. It’s a hot topic. Odd Lots. I’ll add it to the list. Thank you. And next question is on the book. What is a recent book you read and would recommend?

[00:46:45.570] – Robert

I’m going to cheat a little. There’s two. An Illustrated Book of Bad Arguments is where to start and if you like that one, the next one is Illustrated Book of Loaded Language. Both of those are by Ali Al Mosawi and they really do a great job of laying out how people lie and how you can think in a conversation so you’re not getting lied to. You can deconstruct some of the arguments that are there.

[00:47:15.390] – Sean

Got it. Just to rephrase those again, illustrated. I’m going to Amazon as we speak.

[00:47:21.370] – Robert

Illustrated Book of Bad Arguments. Equal and Illustrated Book of Loaded Language.

[00:47:27.590] – Sean

Got it.

[00:47:28.380] – Robert

The book of bad arguments. That one’s. Really good start there. That one’s my favorite. But they all have information that can help you not get lied to and see through deceptive tactics. Really great.

[00:47:44.120] – Sean

I love it. All right. I’m actually just found it on Amazon, adding to cart as we speak.

[00:47:51.480] – Robert

Wonderful. Awesome.

[00:47:53.050] – Sean

Thank you. All right, where can the audience reach.

[00:47:55.590] – Robert

You so I can be found? At my website, which is delagify.com. That’s D-E-L-A-G-I-F-Y. We also have a newsletter and content to help you not get ripped off. And of course, you can always give me a call, get my contact information from there. We’re happy to help clients keep their money by avoiding scams ripoffs in the States.

[00:48:17.780] – Sean

Awesome. Thank you, Robert. Always love having you on the show.

[00:48:21.200] – Robert

Wonderful thing.

[00:48:22.080] – Sean

All right, we’ll see you. Hey, I’d like to say thank you for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. Also, if you have a moment, could you please head over to Apple podcast and leave a review? The more reviews we get, the more Apple will share this podcast with the world, so thanks for doing that. And last thing, if you do hear anything stocks mentioned on this podcast, please keep in mind this podcast is for entertainment purposes only. Please do not make a buy or sell decision based solely on what you hear. All right, thanks for your time. Talk to you later. See you.