Recently, a friend of a friend Claire (not her real name) was swindled by a man who, while we can’t be certain, was likely a psychopath – or at least an exceptionally skilled con artist who certainly lacked empathy. I’m sharing her experience to help you recognise the warning signs, so you can avoid falling victim to the same kind of scam.
The con begins
It all started when Claire was offered an “exclusive” investment. It promised high returns, with a guarantee that she couldn’t lose a cent. The man behind the offer assured her that he’d “underwrite” it himself. He made it clear that this wasn’t something just anyone could access – it was special, and she had to act fast.
This tactic is called “Scarcity.” It’s all about making something seem rare and valuable – a once-in-a-lifetime opportunity that you’re lucky to even hear about. And, of course, there’s always a time limit, pushing you to act quickly without thinking it through.
You might be thinking, “Surely Claire should have been more cautious? Everyone knows that high returns with no risk don’t go together.” But here’s the thing – good con artists don’t shove their schemes down your throat. Instead, they use subtle psychological tricks to make you want what they’re offering, making you believe you’re the one who’s asking for it.
Building trust
The first step for a con artist is to get you to like them. They find something in common with you. In Claire’s case, she met this man at a golf course. She plays golf. He plays golf. Straight away, there’s a connection.
Then, just like in Dale Carnegie’s How to Win Friends and Influence People, the con artist got Claire to talk about herself. Before long, she was telling him about her life, her goals, and her future plans.
When the topic of work came up, he casually mentioned that he worked for a large investment firm in Sydney. This establishes credibility, making it easier to trust the person in front of you.
Then, almost as an afterthought, he mentioned that he was working on a special investment for wealthy clients – something that promised big returns with no risk. He didn’t push it further. Instead, he shifted the conversation back to Claire, asking her about her financial goals.
This approach, known as “Consistency,” involves getting the victim to reveal what they want, then subtly suggesting that their goal could be met through the con. In Claire’s case, she wanted to pay off her mortgage and move closer to her ageing parents. The con man was quick to seize on this, suggesting that a high-return investment could speed up her plans.
But again, he didn’t push. He hinted that it might be possible for “regular people” to get involved in this investment, but only just. After all, it was really meant for high-net-worth clients.
The hook is set
Claire, now intrigued, asked if she could invest. But the con man played it cool. “It would be nice,” he said, “but probably not.”
This played right into the psychology of scarcity – we always want what we can’t have. Bernie Madoff, who orchestrated one of the biggest Ponzi schemes in history, used the same tactic. He often turned people away at first, telling them they couldn’t invest with him, which only made them more desperate to get in.
Claire, now feeling the pressure, was practically begging to invest. And in doing so, she missed every red flag.
The red flags
Red flag 1: Claire handed over money to buy shares in a company the man claimed was listed on the US Stock Exchange. He said the shares were being sold to her at a special discount – a huge red flag, as legitimate investments don’t work that way.
Red flag 2: The company had a single-page website that looked professional at first glance. But dig deeper, and you’d find it lacked basic details, such as what the company actually did or its financial reports – information that any real company would have available.
Red flag 3: The stock symbol he provided matched a real company, but the name wasn’t the same. This is a classic trick used by con artists – mixing just enough truth in with the lie to make it seem believable.
Red flag 4: There was even a fake government registry for the company. But there were inconsistencies that a closer inspection would have revealed.
Red flag 5: The con man offered Claire free shares if she referred friends. This is a hallmark of Ponzi schemes, where new investments are used to pay returns to earlier investors.
Red flag 6: Claire was promised huge returns, with a guarantee that she couldn’t lose any money. This is the kind of promise that should set off alarm bells for any investor.
The trap springs
Once the money was handed over, the con man was gone. Claire’s investment vanished with him, and there was no recourse. He’d done his job well, using tried and true methods to gain her trust and blind her to the warning signs.
Con artists don’t always rely on elaborate schemes. Sometimes, all it takes is a convincing story, a few psychological tricks, and the promise of something too good to be true.
How to protect yourself
Unfortunately, these types of scams are all too common. While not all scammers are psychopaths, many are willing to deceive others for their own gain. This doesn’t just apply to obvious fraudsters either – it can include those promoting dodgy investment products like hedge funds, private equity funds, or high-fee managed funds.
The best defence? Stick to low-cost index funds. They outperform the majority of investment professionals, and they’re a safe bet. And more importantly, they’ll keep you safe from the smooth talkers and con artists of the world.
