There's no fool like a rich fool
Date: November 8 2012
It was the moment in Sunday’s Downton Abbey that will have had financially savvy viewers yelling at the screen. Lord Grantham had already brought the estate to the brink of bankruptcy with his hare-brained investment in a single railway company.
Now, facing more financial trouble, he popped up with something even more unhinged: ‘‘Well, there’s a chap in America, what’s his name... Charles Ponzi... who offers a huge return in 90 days.’
’Yes, that Ponzi - the 1920s swindler who promised 100 per cent profit within 90 days from canny arbitrage with international postal coupons. The returns looked even more fantastic than some of the plotlines devised by Julian Fellowes. And so it proved. But that didn’t stop investors across North America queuing up to be fleeced by the Italian-born con artist who, legend has it, arrived in Boston in 1903 aboard the SS Vancouver with just $2.51 in his pocket, having gambled away the rest of his life savings during the voyage.
A century on, nothing much has changed. This week stockbroker Nicholas ‘‘Beano’’ Levene was jailed for 13 years for cheating investors out of £32 million ($A49 million) via what ended up as a classic Ponzi scheme.
He joins the recent roll-call of charlatans headed by Bernard Madoff, the 74-year-old now serving a 150-year term in the US for masterminding a £40 billion scam. High up the list, too, is Allen Stanford, the cricket-mad Texan fraudster jailed for 110 years for orchestrating a £4.5 billion Ponzi scheme, who will forever be remembered for landing his helicopter at Lord’s and pawing the wives of the England cricket team in Antigua.
Then there is Indian-born Kautilya Nandan Pruthi, sentenced in March to 14 years for Britain’s biggest-ever Ponzi fraud, running to £115 million. Those with longer memories will also recall Roger Levitt, the disgraced financial adviser branded ‘‘thoroughly and markedly dishonest’’ by a judge, after milking investors during the 1980s boom to bust and then going bankrupt in 1990 in a £34 million scandal.
All of them peddled their own brand of silken-tongued charm, confidence and bravado. But what is intriguing is not just how, initially, they got away with it - but the type of people they fleeced. For history shows that when it comes to con artists, there are few bigger suckers than the rich. Stinking rich, even better. Rich and famous, an added bonus.
The poor get done by loan sharks, the middle classes - arguably - by pension consultants. But what, you wonder, makes some of the richest, most financially astute people around fall for smooth-talking chancers?
Take Levene, the son of an electrician who hardly set the stockbroking world alight, rising from tea boy at Phillips & Drew to the little-known Integrated Asset Management. By 2004, he had amassed a £16 million fortune and was living a lifestyle that even his father found ‘‘beyond comprehension and understanding’’.
It grew to include a chauffeur-driven Bentley, £10,000-a-day pheasant shoots, villas in Israel and a £588,000 bar mitzvah party for his son, held in Battersea Park in 2009 and organised by Banana Split - the creatives behind Simon Cowell’s 50th birthday bash.
Few stopped to ask how Beano, so named after his favourite comic book, could afford it. Not least the people who had been unwittingly funding Levene’s lavish lifestyle - built, it later turned out, on taking money off new investors to finance an addiction to monster spread bets.
His victims included two of the sharpest cookies in business - Sir Brian Souter and his sister Ann Gloag, founders of the Stagecoach bus and rail group that is today worth £1.6 billion. Levene took them for £17.6 million.
Then there was Richard Caring, owner of The Ivy and Le Caprice restaurants in London’s West End, who is thought to have lost £4 million, and Ray O’Rourke, founder of the Laing O’Rourke construction business that helped to build the Olympic Park.
Louise Brittain, the Deloitte partner who has spent three years unwinding Levene’s estate since he was declared bankrupt in October 2009, says: ‘‘If you look at the personality profile of people like Charles Ponzi, Levene and Madoff they’re all much the same - very strong personalities, charismatic, able to emotionally manipulate people. They start small and build trust so they get a ring of people around them happy to recommend them.
‘‘All the returns come through initially, and then what they are very clever at doing is building a bigger network with bigger investments. People join it and start asking questions, but it all seems to stack up - even though the returns on offer are massive and should set the alarm bells ringing. But people like Levene have this ability to make people want to believe them. Then, on the other side, maybe you just have other people’s greed.’’
Pruthi is a case in point. His 800 victims included cricketer Darren Gough, actor Jerome Flynn and actress Frances de la Tour. Like Levene, Pruthi knew that first impressions count. He wore the best suits, the latest Rolex and got about by Bentley, Rolls-Royce or, on some occasions, helicopter.
Investors were shown into his Knightsbridge office where, above a teak table, plasma screens relayed the latest news from the stock market, enhancing the veneer of financial acumen. After contracts were signed, gulled investors were treated to a blow-out lunch at an exclusive restaurant.
He claimed his company, Business Consulting International, made bridging loans to import/export firms that had run into cash-flow problems. Pruthi alleged he was bailing them out at around 20 per cent interest and was willing to share more than half of that - some 13 per cent a month - with those happy to invest alongside him.
For a while he was true to his word. But the initial returns turned out to be bait to lure even bigger investments.
Levitt tried another method on clients, including Michael Winner and novelist Frederick Forsyth, who lost £2.2 million. ‘‘I saw him as a personal friend but he turned out to be a conman,’’ explained Forsyth in a Sunday Telegraph interview in 2009.
‘‘His talent was to recommend a portfolio of about 20 shares and then suggest that, since there was a lot of paperwork and you would have to sign 20 cheques, why not let him do it for you? You just gave him one cheque payable to the Levitt Group... I never saw the money again.’’
There is another technique highlighted by the Serious Fraud Office: the promise of an ‘‘exclusive opportunity, too good to pass up’’. It was a trick used by Madoff, a man whose financial credentials seemed genuine enough as the former chairman of the Nasdaq stock exchange and a celebrated Wall Street trader.
He cultivated the impression that investors were being invited into an exclusive club - one, admittedly, that had a ring of truth, given that his victims read like a hall of fame. Actors Kevin Bacon and John Malkovich, CNN’s star interviewer Larry King, the estate of the late singer John Denver, the family trusts of Henry Kissinger and, on this side of the Atlantic, Lady Victoria de Rothschild, all fell for Madoff’s investment hocus-pocus.
He promised much steadier returns - 1 per cent to 1.2 per cent a month - but the sort that professional investors would know could not be achieved month in, month out over the long term. Given that, it’s hard to figure why his victims also included some of the world’s biggest banks - UBS, Citigroup, Deutsche Bank and Bank of America - repositories, you would think, of some of the biggest financial brains on the planet.
Greed is the obvious answer, of the sort pilloried by Anthony Trollope in his great novel The Way We Live Now. Published in 1875, and comfortably pre-dating Ponzi, its themes are resoundingly familiar today. The villain of the piece, Augustus Melmotte, sets out to fleece investors in a far-flung new railway line running from Salt Lake City to Veracruz.
Among his aristocratic punters is Sir Felix Carbury - who, unlike Downton’s Lord Grantham and his Ponzi temptation, actually parts with his cash. But who needs fiction? In the real world, there are plenty of Sir Felixes for whom no investment ever looks too good to be true.
The Daily Telegraph