How to commit fraud

It is fitting that Boris Johnson’s premiership should be in doubt so soon after Elizabeth Holmes has been found guilty of defrauding investors, because both show us how easily people are fooled.

Inspired by them, here are some tips for any would-be con artist.

Exploit wishful thinking. Experiments by Guy Mayraz have shown just how easy it is to induce this. People want to believe there’s been a great medical breakthrough, or that an obscure mining company has discovered huge mineral deposits, or that they’ve met “the one” who won’t cheat on them.

Ms Holmes preyed on this: people wanted to believe there was a new Steve Jobs, and the wish was father to the belief. Similarly, Johnson’s supporters in 2019 thought you could get Brexit done by sunny optimism rather than hard bargaining. And, writes Robert Hutton, ministers are now defending him in the “hope that, when Johnson is finally removed from office, the stink won’t linger on them or their party.” 

FOMO is your friend. This is clearly the case for Prime Ministers or would-be PMs: MPs will support you in the hope of winning office themselves, and journalists will do so for fear of being frozen out and denied scoops. But it also worked for Ms Holmes. Private equity investors not wanting to miss the next unicorn pile into start-ups, sometimes without adequate research.  Fear of missing out drive stock market bubbles, and it also enables fraud.

Be glamorous. “Investors are attracted to stocks that have emotional ‘glitter’” says Alok Kumar. We’re also attracted to people who glitter. We’re apt to trust good-looking ones even if they don’t deserve it – a fact Ms Holmes used on Henry Kissinger.

Of course, Johnson doesn’t have physical attraction on his side. But his schtick of raffish charm, bumbling good humour and optimism appeals to some. You’d rather go for a drink with him than Theresa May, even if you would have to buy it yourself.

Like attracts like. Affinity frauds are good business, because it’s easier to win the trust of people who think you are one of them. Bernie Madoff, for example, sold his Ponzi scheme to people like himself - affluent, respectable-looking Jews.

Similarly, Ms Holmes appealed to the rich because she was from a “good family”. One investor “says he thought Holmes would come by medical talent naturally because her grandparents had their name on a hospital.”

Hence the power of the “Boris” brand. Calling him by his first name creates an impression that he’s your mate. And you trust your mates, don’t you?

Have a story. Vanity Fair reports:

Holmes also paid indefatigable attention to her company’s story, its “narrative.” Theranos was not simply endeavoring to make a product that sold off the shelves and lined investors’ pockets; rather, it was attempting something far more poignant. In interviews, Holmes reiterated that Theranos’s proprietary technology could take a pinprick’s worth of blood, extracted from the tip of a finger, instead of intravenously, and test for hundreds of diseases—a remarkable innovation that was going to save millions of lives and, in a phrase she often repeated, “change the world.

Narratives matter. People believe them more than they should. And better still, as Robert Shiller shows in Narrative Economics, some of them go viral. People will do your work for you, by repeating your story.

Johnson also has used this trick. “Get Brexit done” and “levelling up” are stories – albeit ones we have to fill in ourselves.

Exploit deference. We have, wrote Adam Smith, a “disposition to admire, and almost to worship, the rich and the powerful.” You don’t have to be very rich or powerful to get such admiration. Some experiments in 1968 showed that drivers were less likely (pdf) to honk their horns in impatience at expensive cars than at cheap ones, for example.

This gives the fraudster his chance. If you pretend to be a bank official or policeman, somebody will hand over their account details to you out of deference.

And it’s part of the secret of Holmes and Johnson: journalists at least defer to bosses and Prime Ministers. The corridors of power turn venality into virtue and stupidity to wisdom.

Be different. In a superlative paper (pdf) the late Werner Troesken showed how snake oil salesmen thrived for centuries in part by differentiating their products. Disenchantment with some quack remedies therefore merely fuelled demand for others.

Ms Holmes exploited this. Merely by being a woman she stood out in male-dominated Silicon Valley.

And it’s part of Johnson’s success too. Tom McTague has written:

Johnson is nothing like the other prime ministers I’ve covered. Tony Blair and David Cameron were polished and formidable. Gordon Brown and Theresa May were rigid, fearful, cautious. Johnson might as well be another species.

That’s his appeal. In differentiating himself from both the cold fish Theresa May and from the technocratic style of New Labour, people disillusioned with both of those thus turned to him.

Now, in writing all this I’m not suggesting that you become fraudsters. For one thing, it’s difficult to pull off these tricks, especially if you are from the wrong background. For another fraudsters, like other businessmen, need not just personal skills but the right opportunities too. And for another, I've missed out some necessary advice - how to have an exit strategy and avoid getting caught. 

Instead, what I’m trying to do is solve a puzzle raised in the Times recently by Matthew Parris. He describes how “scores of individuals” have had their reputations ruined because “they got themselves mixed up with a superlative confidence trickster”. What he doesn’t do is say why so many people fell for Johnson. It’s not because they are stupid. Isaac Newton and Jonathan Swift both lost money in the South Sea bubble which tells us that even brilliant men can fall for cons. Instead, it’s because there are so many ways to trick even intelligent people.

Comments

[Jan Wiklund]

The Egyptian-Swedish con- and businessman Refaat El-Sayed, see https://en.wikipedia.org/wiki/Refaat_El-Sayed, had some of these qualities. He was, however, definitely not glamourous, and that was one of his charms: he was "one like us", even a man from the backyards, that had succeeded but still lived like the rest of us.

[rsm]

May we conclude that those who agree with Adam Smith get the government they deserve?

[Jim]

I don't know what was in Ms Holmes's mind, perhaps she thought it would work out and pushed her spiel a bit too far.

Having worked in product development and consultancy I can only think 'there but for the Grace of God'. Because I suspect a lot of startups and new products don't really work out. Theranos looked fairly believable - the sort of thing that ought to work - with a bit of luck. Just a bit more cash, just one more test tube.

CEOs and sales managers of new startups tend in my experience to be very optimistic and positive - on the surface at least. Their role is to act like everything is all A OK. When things get rocky it's time to kick the techies a bit harder and burn some late night oil. That usually works but sometimes doesn't. Best for a company to have more than one string to its bow.

That's the honest ones. Just a little further toward the Mayfair end of town sit the bunko artists. Good resonant voices, strong presentations and absolute certainty and a certain sexual magnetism. When you come across this combination you must count your silver and show them the door. There is a lot of something very very close to fraud about.

The difficulty for Boris et al is that nothing is going to work out. There is no strategy nor changing a few faces is going to help. The politicians are telling us 2+2=7 when they know it doesn't. No late night oil will help, but the s^&t will hit the fan very slowly and no one will go to prison. We will shuffle the cards and continue the game. Hang on to your shirt.

[LJC]

The sad thing about Theranos, is that is really is possible to do all these tests with a single drop of blood, but no-one has ever succeeded in engineering the equipment to measure it. Way back in the early 1990s, I got to know Roger Ekins at Middlesex Hospital, who pioneered the technique he called ambient immunoassay (or multi-analyte immunoassay).

https://pubmed.ncbi.nlm.nih.gov/2488616/

At the time a German company (Boehringer-Mannheim) bought the rights to his work and they commissioned the company I worked for to build a scientific instrument to measure the very small signals. We succeeded but they ran into problems making the substrates needed for the process and the project was dropped.

[ltr]

The sad thing about Theranos, is that is really is possible to do all these tests with a single drop of blood, but no-one has ever succeeded in engineering the equipment to measure it....

[ This is incorrect, since so small a blood sample will always be cell-damaged in any drawing. The concept was impossible. ]

[ltr]

January 14, 2022

Coronavirus

United Kingdom

Cases ( 15,066,395)
Deaths ( 151,612)

Deaths per million ( 2,215)

China

Cases ( 104,580)
Deaths ( 4,636)

Deaths per million ( 3)

[LJC]

@ltr

Your comment demonstrates your ignorance. The molecules to be detected are all in the blood plasma, not cells. It have no doubt your other comments are from a position of ignorance too.

[ltr]

https://www.nytimes.com/2018/05/21/books/review/bad-blood-john-carreyrou.html

May 21, 2018

How One Company Scammed Silicon Valley. And How It Got Caught.
By Roger Lowenstein

BAD BLOOD
Secrets and Lies in a Silicon Valley Startup
By John Carreyrou

The premise was scientifically dubious...

[ltr]

https://www.businessinsider.com/science-of-elizabeth-holmes-theranos-2015-4

April 25, 2015

Scientists are skeptical about the secret blood test that has made Elizabeth Holmes a billionaire
By Kevin Loria

https://www.nytimes.com/2015/10/30/business/the-narrative-frays-for-theranos-and-elizabeth-holmes.html

October 30, 2021

The Narrative Frays for Theranos and Elizabeth Holmes
By James B. Stewart

Eleftherios Diamandis, the head of clinical biochemistry at Mount Sinai Hospital in Toronto, raised numerous issues in a June medical journal article....

[Blissex]

«The difficulty for Boris et al is that nothing is going to work out. There is no strategy nor changing a few faces is going to help.»

And here we have the usual hallucination by leftoids: that the 14 million votes the Conservatives got and are mostly keeping are entirely from morons who voted for Johnson despite him being wholly incompetent and cravenly unreliable.

But from the point of his voters his achievements (booming house prices, hard brexit got done, rejection of "collectivist" zero-COVID strategy, early mass vaccination on the double, quick lifting of COVID restrictions, protecting England from the "bullying" of the ECJ, and from "aggression" by Russia and China) are those of a competent, reliable leader.

[ltr]

https://www.healthnewsreview.org/2018/06/pathologists-predicted-the-theranos-debacle-but-their-voices-were-missing-from-most-news-coverage/

June 11, 2018

Pathologists predicted the Theranos debacle, but their voices were missing from most news coverage

[Blissex]

«there is no strategy»

The overall core strategy has been the same for the past 40 years: rapid inflation of housing costs buys the votes that support policies that benefit property and finance vested interests, mostly about increasing debt levels and relatedly housing costs; thatcherism in other words.

It is a declinist strategy that has worked well for 40 years (but for a few years in the 1990s and in the 2000s), and on which Conservatives, New Labour and LibDems are all agreed, and indeed Starmer and even Davey also support Johnson as to that core strategy.

What has changed with Johnson is that globalist thatcherism has been replaced by nationalist thatcherism, so the vested interests that are dominant within the Conservatives have changed. The current "two minutes of hate" campaign against him is based on fairly trivial bad behaviour that until recently was ignored, and it is obviously pushed by the globalist thatcherite faction.

That is just an opportunistic tactic, his enemies have no new strategy, and neither have Starmer or Davey, they are all agreed on "thatcherism forever", even with slightly different details, as between Thatcher, Major and Blair, or Blair, Cameron and May.

[LJC]

@ltr

You seem to be suffering from the delusion that journalists understand science well enough to be able to write accurately about it. From my own experience, even academic scientists who are not experts in the exact field often do not appreciate the subtleties involved. In the case of Roger Ekins, I was there and I do not believe for a moment that the German diagnostics company was conned. It was a technology that worked in the research laboratory; the problem came in trying to make a diagnostic instrument that could go into clinics.

[rsm]

《China

Cases ( 104,580)
Deaths ( 4,636)

Deaths per million ( 3)》

Why should anyone believe a government that lies about the Tiananmen Square incident?

《China’s True COVID-19 Death Toll 366 Times Higher Than Official Figure, Analyst Says, By Eva Fu and David Zhang, January 13, 2022》

[Jim]

Well Blissex, my reference to no strategy is of course strategies that are helpful to us hoi polloi. As you say Boris et al can continue to play the music albeit with a slowly diminishing music budget and a slowly diminishing audience.

The big problem is what to do with a very mature 'democracy' in a service economy. Such a setup will have a tin tack pay structure. Low wages for most with a steep spike for some. Ally this with a high housing cost that you dare not meddle with, the prospect of high energy costs and the impossibility? of greening our energy consumption and there may be trouble ahead. The many must be shackled to the mortgage wheel for this system to work and a carrot dangling in front is part of the shackle.

The tricky problem is making capitalism work more fairly. Making the pie bigger is not so easy and vested interests want to keep their share. Finding some alternative to capitalism maybe - not seen any credible answers to that one. Worse still, our very mature democracy has accumulated an awful lot of parasites and barnacles. One has recently been relieved of some fancy dress but a long long way to go yet.

So poor old Boris must continue to play the flute and hope the rats follow, otherwise they will eat him. Bless.

[ltr]

From my own experience, even academic scientists who are not experts in the exact field often do not appreciate the subtleties involved. In the case of Roger Ekins, I was there and I do not believe for a moment that the German diagnostics company was conned. It was a technology that worked in the research laboratory; the problem came in trying to make a diagnostic instrument that could go into clinics.

[ Thank you for the argument. I was convinced in readings, primarily from the New York Times and Wall Street Journal, that the pin-prick-drop concept as such was impossible for many important tests. The argued-supposed impossibility impressed me.

I can take the German development attempt as refuting what I gained in reading. Company technicians would have been convinced the concept was workable.

I argued incorrectly and am grateful for the explanation. ]

[ltr]

Blissex:

The overall core strategy has been the same for the past 40 years: rapid inflation of housing costs buys the votes that support policies that benefit property and finance vested interests...

Yes, this makes sense:

https://fred.stlouisfed.org/graph/?g=HPQw

January 15, 2018

Real Residential Property Prices for United States and United Kingdom, 1980-2018

(Indexed to 1980)

[ltr]

January 15, 2022

Coronavirus

United States

Cases ( 66,664,283)
Deaths ( 873,149)

Deaths per million ( 2,614)

China

Cases ( 104,745)
Deaths ( 4,636)

Deaths per million ( 3)

[LJC]

@ltr

That's all right. I have become very sceptical of what I read in the non-technical press about scientific developments. Too often they are taken in by press releases that may never translate into peer-reviewed scientific papers and peer-review only assures one that there are no obvious errors; the gold-standard of science is reproduceability by others.

In my case, I was fortunate enough to meet Roger Ekins and to read his papers on the subject (there are rather more than the one I quoted) so I understood his approach, which was diametrically opposite to the methods used by the big (US-based) diagnostics companies. For someone who had not done so and was US-based the 'not invented here' way of thinking might well have caused them to disbelieve that it was even possible.

Nowadays, Ekins' work is out of patent and so could be taken up by anyone, but it will need a company with deep pockets and one which doesn't have shareholders expecting quick returns on its back. I don't think the problems were insuperable even with 1990s technology; it is just that sometimes you need the right person with the right background in the right place to identify the breakthrough that turns the technique from a laboratory curiosity to a standard technology.

I recommend Ben Goldacre's "I think you'll find it's a bit more complicated than that" https://www.amazon.co.uk/Think-Youll-Find-More-Complicated/dp/0007505140 as a good read on how science (principally but not wholly medical science) is reported.

[ltr]

LJC:

I was fortunate enough to meet Roger Ekins and to read his papers on the subject (there are rather more than the one I quoted) so I understood his approach, which was diametrically opposite to the methods used by the big (US-based) diagnostics companies....

I recommend Ben Goldacre's "I think you'll find it's a bit more complicated than that"...

[ I will read your recommendation on the work of Eakins: https://pubmed.ncbi.nlm.nih.gov/2488616/ . Also, Goldacre.

This will be excellent for me. Really nice to have the references. ]

[ltr]

https://www.globaltimes.cn/page/202201/1246123.shtml

January 17, 2021

China’s GDP grows 8.1% in 2021, fastest in 10 years, spurring confidence despite challenges ahead
Stellar performance boost confidence, but challenges emerge
By Chu Daye and Li Xuanmin

China on Monday posted an 8.1 percent GDP growth in 2021, defying market expectations and further cementing the world’s second-largest economy’s leading position in the global economy’s recovery from the still raging COVID-19 pandemic, as major growth drivers, particularly exports, saw remarkable improvements in the face of mounting global challenges.

However, a significantly slower GDP growth of 4 percent in the last quarter of 2021, the weakest since the second quarter of 2020, also offered sobering reminders of the growing downward pressure on the Chinese economy, including from shrinking demand, supply chain disruptions and weakening expectations, in addition to risks of the spread of the Omicron variant....

[ Looking to health and life, and having economic growth... ]

[ltr]

LJC:

What this fundamentally teaches me is the need to work on technology collaboratively, and that includes coming to an understanding of and portraying or implementing technology advances. Sure, I knew that but foolishly forgot. Press reports on technology can easily simply repeat each other.

A German technology strength is collaboration. Look at what is being gained from German companies working in China.

[rsm]

《Look at what is being gained from German companies working in China.》

Mass surveillance and censorship techniques?

[ltr]

https://www.nytimes.com/2022/01/17/business/brexit-food-imports.html

January 17, 2022

In London Shops, Greek Cheese, Sicilian Citrus and British Headaches
For companies depending on fast, small deliveries, the costs of new Brexit trade rules are mounting.
By Eshe Nelson

[ Which suggests that Brexit will be more costly than critics anticipated. Britain needs to look outward in concerted fashion, but where is the political will? ]

[Bill Bedford]

[ Which suggests that Brexit will be more costly than critics anticipated. Britain needs to look outward in concerted fashion, but where is the political will? ]

It suggests that the writers were only looking at niche markets.

[ltr]

The fierce problem with Brexit, is that a country that looks increasingly inward will become increasingly uncompetitive in world markets. Britain has long looked outward and prospered, while Brexit is a terrible threat to British well-being.

The Germans and French will not turn inward.

[ltr]

January 18, 2022

Coronavirus

United Kingdom

Cases ( 15,399,300)
Deaths ( 152,513)

Deaths per million ( 2,229)

China

Cases ( 105,258)
Deaths ( 4,636)

Deaths per million ( 3)

[rsm]

《China exports ideas. The Stanford report takes this as its primary subject. The “50 Cent Army” of propagandists responsible for boosting pro-regime narratives domestically has turned its attention outward. Through a combination of overt state-sponsored media and covert tactics such as content farms and fake personas, China is trying to convince the world of the same thing it attempts to prove by touting invasive technologies: that closed is better than open and that controlled is better than free. The only bright spot? The trickery isn’t all that sophisticated or convincing — yet.》

https://www.washingtonpost.com/opinions/china-is-exporting-its-digital-authoritarianism/2020/08/05/f14df896-d047-11ea-8c55-61e7fa5e82ab_story.html

[ltr]

When a person has a psychological need to vilify and harm 1.4 billion people, that person is in sore need of professional counseling. I am saddened for that person, and only hope counseling will be sought.

Please be well.