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Dec
24
Devastating truths. This morning, in an NPR broadcast, Dean Emeritus of the Boston University Law School, who wrote this article for the Wall Street Journal, titled, “Madoff Exploited the Jews,” spoke about his view of how Bernard Madoff preyed on Jews not because that’s who he knew but because that’s who was most vulnerable to trusting in him.
The alleged Bernard Madoff Ponzi scheme is the latest example of a crime referred to as affinity fraud. The SEC has warned about these crimes, in which a member of an ethnic or religious group preys on his own. Ronald Cass, dean emeritus of the Boston University Law School, wrote about affinity fraud recently in The Wall Street Journal. He talks with Linda Wertheimer about why affinity fraud is relatively easy to pull off.
Is this any different from just being gullible? Yeah, it’s worse.
From the WSJ article:
The Madoff tale is striking in part because it is like stealing from family. Yet frauds that prey on people who share bonds of religion or ethnicity, who travel in the same circles, are quite common. Two years ago the Securities and Exchange Commission issued a warning about “affinity fraud.” The SEC ticked off a series of examples of schemes that were directed at members of a community: Armenian-Americans, Baptist Church members, Jehovah’s Witnesses, African-American church groups, Korean-Americans. In each case, the perpetrator relied on the fact that being from the same community provided a reason to trust the sales pitch, to believe it was plausible that someone from the same background would give you a deal that, if offered by someone without such ties, would sound too good to be true.
The sense of common heritage, of community, also makes it less seemly to ask hard questions. Pressing a fellow parishioner or club member for hard information is like demanding receipts from your aunt — it just doesn’t feel right. Hucksters know that, they play on it, and they count on our trust to make their confidence games work.
The level of affinity and of trust may be especially high among Jews. The Holocaust and generations of anti-Semitic laws and practices around the world made reliance on other Jews, and care for them, a survival instinct. As a result, Jews are often an easy target both for fund-raising appeals and fraud. But affinity plays a role in many groups, making members more trusting of appeals within the group.
What I hate the most about the Madoff scandal is how, like discovering the pervasiveness of hanging chads and the fact that the decision remains that of humans who have biases just by being them and not me, is how the foundation of trust in each other – regardless of affinity – has been, again, perhaps irreparably stricken.
By Jill Miller Zimon at 9:34 am December 24th, 2008 in Culture, Ethics, Gambling, Jewish, Judaism, Law, Scandal, Social Issues
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6 Responses to “Jews, Madoff and affinity fraud: when you can’t trust your own”
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You know that social security is a Ponzi scam….
While I appreciate your point….isn’t it true that the biggest reason why Madoff’s fund was so attractive was the unusually high percentage payouts he recorded year after year? Without those high returns, Jewish or not, at least in seems to me, Madoff wouldn’t have attracted so many big investors.
And…no, SS is not a Ponzi scam.
Although non-fraudulent in intent, a pension fund can share some of the characteristics of a Ponzi scheme in that, except during the final period of the fund’s life-span, the outgoing cash used in any month to pay pensions is usually taken from the incoming contributions of the active members of the pension scheme. In a year of poor equity returns such as 2008, a pension fund can often perform worse for its members than a Ponzi scheme.
SS does not even have any equity!
I hadn’t heard the term “affinity fraud” before, but I certainly know the concept. Multi-level marketing schemes, for example, love to get a toe-hold in a tight-knit religious community, and take advantage of the trust that exists among members. The Jehovah’s Witness organization has warned about this so many times that it rarely happens within their community. It’s not that there are “rules: against it….rather it’s that there is such an atmosphere in JW congregations that talking up your business schemes using “theocratic contacts” has become a bit like farting in church…..nobody does it.
this good link on the matter
http://www.ynetnews.com/articles/0,7340,L-3644697,00.html
Fox News reported today, 90 year old man in Florida lost $700K to [Madoff]. Poor man has to bag groceries now to survive. Lost his retirement!
I wonder if anyone in the Government took kicks from this guy and knew what he was up to. No one can tell me that someone in the SEC didn’t know what was happening!