The Elaborate Con
by David Reavill
I began in the Securities Industry as a Stock Broker in the early 1970s. After a few years I went into management, and from that point on at least part of my responsibility was in Compliance.
Now, compliance is a unique responsibility in the financial services industry. It involves a snippet of risk management, a dash of securities regulation, and a whole lot of common sense. As a compliance officer, you’re often called upon to determine which deals that you’ll commit the firm. And what clients that you’ll do business with.
As such, compliance officers find themselves dealing with cons. Customers whose objective is to “rip off” the broker. I quickly learned that there are certain patterns that these cons operate under. The rule of engagement, if you will, that you see in every successful con. I remember one of my earliest cons, she was the literal little old lady from Pasadena.
I kid you not, this lady lived in Pasadena California and presented herself as a very proper, conservative stock investor. She came into the office well-dressed, and soft-spoken. Presented us with a check to purchase a new issue. What I didn’t know at the time was that check was only good if the stock went up. If it declined, she would stop payment on the check. And we would be stuck with the loss. As it turned out, down the street at another brokerage house, she had done the opposite. Presented another check, shorted the stock, and if it went down in value, she would pay for the check.
She was covered each way the stock moved. Paying only the broker where the stock moved in her direction, stiffing the broker on the other side. Incidentally, this was exactly the same con that a particular prominent politician is alleged to have done in the commodities markets back in the 1990s. Do you remember the “Cattle Futures Scandal?”
But that’s all small-time fraud. A one-time deal by the con, which in the overall scheme of things isn’t that big a deal.
The really big money is in, what I call the “elaborate con.” The con that goes on and on for years. I’ve really run into only one of these “elaborate cons,” although I suspect that another “elaborate con” is currently operating.
To understand this type of con, you have to appreciate the first principle of the con, the credibility of the con man, or woman. The person, I’ll call the “big guy.” And like that little old lady from Pasadena, the “big guy” has to be absolutely impeccable. Every word and action is beyond reproach.
I meet this particular “elaborate con” back in the mid-1980s, although we had crossed paths years before. The “big guy,” the con himself was a quiet man, who I’d seen at several industry conferences, usually sitting by himself. Pleasant, but not too talkative.
He was a giant in our industry. He was the founder of one of the first specialty firms in his field. He sat on all the industry boards, including ironically the industry’s regulatory board.
In short, he was a leader in his field. A man beyond reproach. Ironically, just the kind of person who can pull off a major multi-year con. Do you know anyone like this? If you do, it pays to look into their background.
Briefly, the way this con worked, and a pattern for how the “elaborate cons” operate were two parts. In the first part, the actual business was also impeccable. An entirely legitimate operation with no nefarious operation. Remember to be a true con, the upfront, visible part of the “big guy” and the “front” operation have to be entirely “legit.” They can raise no suspicion in the targets, you and me.
But, behind the scenes, completely out of site ran the other part of the operation. The part we weren’t supposed to see. Usually run by a younger relative, this is the actual con. A completely nefarious operation, in which nothing was as it seemed. Undercover, hidden, and entirely felonious.
Intriguingly this con was so good, and so successful that it went on literally for decades. In fact, a book was written alleging that there was possible wrongdoing involved in the operation. But the powers that be, and the regulators simply ignored the warnings. That’s how credible the con artist was. And how he had achieved such a high level of power and influence.
You see it’s an unfortunate reality in our society today, that we tend not to question the most powerful among us. It is regrettably true, that certain people, who hold high positions, are indeed above the law.
Oh, and as for our example of the elaborate con, that was Bernie Maddoff. Who ran the entirely legitimate Maddoff and Company, a third market dealer. Which I dealt with for many years without any complaint. But he also ran a back office, an investment advisory service, which was completely corrupt. And last I heard had ripped off its investors for something in the order of $50 billion dollars.
And that’s how these cons work. Half entirely legitimate, half entirely corrupt. An operation whose sole reason for existence is to enrich the con.
Remember: it’s “10% for the Big Guy.”
