As the jury debates the case against Elizabeth Holmes, the founder of the disgraced Theranos blood testing company, who has been charged with wire fraud and conspiracy to commit wire fraud, many are wondering why the jury still cannot decide. Whether he is a fraudster who deliberately misled investors or an aspiring startup executive who only amplified the truth by believing his questionable statements about the company will eventually turn out to be true.
Fraud in business transactions is complex and far more common than you might think. Furthermore, the more complex the fraud, the less likely the offender is to be successfully prosecuted. As I explained in my recent book, How to Steal Lots of Money—Legally, a plausible argument can be made by the true velvet-throated huckster for any distant investment.
Happening scammers often follow what I call the no-kiss principle. You’ve probably heard of the KISS principle which is an acronym for “keep it simple stupid”, a design essentially generated by the US Navy in 1960. The KISS principle states that simplicity should be a key goal in design, and unnecessary complexity must be avoided. In scamming, the non-KISS approach involves deliberately creating overly complex schemes – schemes that can be painstakingly disclosed in marketing materials as well – but which are neither investors nor regulators/law enforcement (or juries) Will be able to understand More about the disclosure later.
So, how common is fraud?
While forensic and fraud accounting experts estimate that the cost of fraud globally is trillions of billions annually, the true figure is exponentially higher. The overwhelming majority of investment fraud is not included in global estimates because fraud experts with accounting backgrounds are not trained to identify and seek the myriad forms of fraud.
For example, I focus on forms of damage caused to investors in my forensic investigations, typically focused only on numbers not included in overall damage calculations by accountants.
My guess—based on decades of experience—is it over half of all investments This includes some form of fraud.
Lying, cheating and stealing are so common in life in general and in the investing world in particular that they are no exception. Scamming ruthlessly overpowers any so-called rules and devours those who play by them. Therefore, the “rules” make no sense without learning the even bigger “exceptions” – it’s reckless. Schools and professors who teach “rules” alone are reckless in my opinion, and put students, at the very least, at a competitive disadvantage, or worse, in harm’s way.
In How to Steal Lots of Money—LegallyOf course, I’ve noticed that potential scammers can easily reveal all-important or what regulators call “physical” information to investors. Disclosures can be negative or positive in nature but generally the more negatives a scammer discloses, the less likely they are to be prosecuted when the investment fails to perform well.
Fortunately for scammers, disclosure statements are always written by lawyers to protect sellers of bogus products and are intentionally written to be incomprehensible to the average reader. Lawyers use “boilerplate” clauses that are verbose and are written in awkward legalese. Disclosures are often printed in shorter types (aka “micro-prints”) because they are so long, making it more and more likely that they will never be read by the investor. In short, industry-wide practices and disclosures are so reprehensible that apparently horrific disclosures by scammers—especially those focused on abusing customers—may be indistinguishable from industry norms.
Just say and do what the big Wall Street companies say and do. Don’t hesitate to tell me what a filthy rotten scoundrel you are. No alarm will sound in the minds of investors.
In short, there’s never Any excuse for a scammer to hide any potentially bad behavior from the victim.
Why would that be? There is no such thing as disclosure so bad that it kills sales.
So, if you’re a cheater, expose your worst behavior and rest assured that as long as you choose your words carefully, no one will read, understand, or stop giving you your money.
Finally, as I’ve seen thousands of corporate pension failures, there has never been a pension that failed that didn’t have a room of hired experts who believed it wouldn’t. So, they will be scammers who surround themselves with well-paid experts—consultants, accountants, and lawyers—who dutifully believe all kosher will end up in the Well, not jail.