Don't Fall For It

A Short History of Financial Scams

Ben Carlson

• Publisher: Wiley
• Year: 2019
• Print ISBN: 9781119605164
• eBook ISBN: 9781119605188
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Learn financial and business lessons from some of the biggest frauds in history

Why does financial fraud persist? History is full of sensational financial frauds and scams. Enron was forced to declare bankruptcy after allegations of massive accounting fraud, wiping out $78 billion in stock market value. Bernie Madoff, the largest individual fraudster in history, built a $65 billion Ponzi scheme that ultimately resulted in his being sentenced to 150 years in prison. People from all walks of life have been scammed out of their money: French and British nobility looking to get rich quickly, farmers looking for a miracle cure for their health ailments, several professional athletes, and some of Hollywood's biggest stars. No one is immune from getting deceived when money is involved. Don't Fall For It is a fascinating look into some of the biggest financial frauds and scams ever.

This compelling book explores specific instances of financial fraud as well as some of the most successful charlatans and hucksters of all-time. Sharing lessons that apply to business, money management, and investing, author Ben Carlson answers questions such as: Why do even the most intelligent among us get taken advantage of in financial scams? What make fraudsters successful? Why is it often harder to stay rich than to get rich? Each chapter in examines different frauds, perpetrators, or victims of scams. These real-life stories include anecdotes about how these frauds were carried out and discussions of what can be learned from these events. This engaging book:

• Explores the business and financial lessons drawn from some of history's biggest frauds
• Describes the conditions under which fraud tends to work best
• Explains how people can avoid being scammed out of their money
• Suggests practical steps to reduce financial fraud in the future

Don't Fall For It: A Short History of Financial Scams is filled with engrossing real-life stories and valuable insights, written for finance professionals, investors, and general interest readers alike.

CHAPTER 1
No One Sells Miracles

It’s not a lie if you believe it.

—George Costanza

In the late 1980s a group of chemists from Pfizer created a compound called sildenafil citrate. It was developed to fight cardiovascular diseases such as high blood pressure and chest pain. The project was called UK92480 (the UK is because the chemists were based in the United Kingdom) – but even though it sounds top secret, it ended up being a low drug on the totem pole because of disappointing test results. No one involved with the effort thought they were onto something groundbreaking at the time.^[1]

In fact, in the summer of 1993, the group was given an ultimatum that unless they could come back in the fall with conclusive data, it was time to close up shop and move on. Just a few short days later the researchers were doing a study on a group of miners in South Wales. Per protocol, they asked the miners if they noticed anything different after taking the drug. One of the men spoke up and said, “Well, I seemed to have more erections during the night than normal.” The other men grinned and nodded in agreement.^[2] One of the nurses in another clinical trial around the same time also noticed many of the men were lying on their stomachs, embarrassed that they ended up with an erection after taking the drug. A drug that was meant to treat cardiovascular disease was having very surprising unintended consequences.^[3]

One of the main causes of chest pain is a condition called angina, which has to do with a reduced flow of blood to the heart. The reason this chest pain occurs is because the vessels that supply your heart with blood become constricted, which leads to pain in your chest as well as shortness of breath. Scientists often know how certain compounds are supposed to work but they don’t always know if they will have the intended effect on the intended area of the body. The idea behind sildenafil was that it would dilate the blood vessels in the heart, thus reducing chest pain and breathlessness. Instead, the blood vessels in the penis became dilated. This drug inhibited the enzyme that breaks down a chemical that is key to the biology behind an erection.^[4]

This isn’t the first time a drug was discovered by accident. After vacationing in Scotland for a month in 1928, a pathologist named Andrew Fleming returned to his laboratory to discover he had left a petri dish on a windowsill at a hospital in London. Fleming was growing bacteria in these dishes but noticed the one he accidentally left out had grown an airborne fungus. The fungus stopped the bacteria dead in its tracks. This mold was called Penicillium notatum. Fleming inadvertently made one of the most important discoveries in the history of medicine. He created the antibiotic penicillin.^[5]

It can’t be overstated how huge this discovery was. At the time, the average life span in the United States was under 60 years of age. That number is now around 80 years old, and Fleming’s accidental discovery had a lot to do with this. Fleming would later say, “When I woke up just after dawn on 28 September, 1928, I certainly didn’t plan to revolutionize all medicine by discovering the world’s first antibiotic, or bacteria killer. But I suppose that was exactly what I did.” ^[6]

A failed cardiovascular drug that gave men erections didn’t have quite the same impact as penicillin, but these scientists did stumble across one of the most successful drugs of the modern era. Today we know of this drug as Viagra. According to Pfizer, since it was officially launched in 1998, 62 million men from around the globe have purchased the erectile dysfunction drug. It’s estimated that people in the US alone spend almost $1.5 billion on Viagra each year. Even the US military is said to spend almost $42 million on the little blue pill.^[7]

A few months after the drug was released, there were over 300,000 prescriptions filled in a single week. Obviously, there was a ton of pent-up demand for this product. Before Viagra’s approval by the FDA in 1998, there really was no treatment for erectile dysfunction. The only options available included a painful injection or an implant, not exactly as easy as popping a little blue pill in your mouth. And before even penicillin was discovered, men went to far greater lengths to cure their libido.^[8]

Goats as Viagra?

Before the discovery of penicillin the field of medicine was full of quacks, hucksters, and charlatans. The general public knew so little about their healthcare options that it was easy to take advantage of people’s ignorance. In the early 1900s the entire field of medicine was still in its infancy in many ways. The American Medical Association was founded in 1847 but each state still had its own licensing board which led to a lax system of oversight and ease of corruption because no one knew any better. Medical quackery isn’t exactly like the typical financial scams that go after our need for greed. Instead, it preys on our worst fears: mainly death, disease, and our hope that miracles do truly exist when it comes to healing.

Samuel Hopkins Adams wrote a series of articles in 1905 entitled “The Great American Fraud.” He wrote, “Gullible America will spend some $75 million (that’s more than $2.1 billion in today’s dollars) in the purchase of patent medicines. In consideration of this sum it will swallow huge quantities of alcohol, an appalling amount of opiates and narcotics, a wide assortment of varied drugs ranging from powerful and dangerous heart depressants to insidious liver stimulants; and, far in excess of other ingredients, undiluted fraud.”^[9]

The wild west that was the medical profession was the perfect fit for Dr. John Brinkley. Brinkley never actually finished medical school, instead opting to purchase a diploma for $100 which granted him the ability to practice medicine in eight states. Unbelievably, this was all it took to practice medicine in the early twentieth century. Still in his 20s, Brinkley opened up a doctor’s office in Greenville, South Carolina with a partner. They took out ads in the local paper which asked:

Are You a Manly Man Full of Vigor?

Each morning the two “doctors” would ask the patients who answered the ad different questions, take some notes, collect $25 – a massive sum at the time – and inject colored water into their posteriors. They called the treatment electric medicine and claimed it came from Germany. The two men skipped town a few months later to avoid those who figured out their scam. After running out of money, Brinkley found a newspaper ad looking for a doctor in Kansas, in a town called Milford with a population of just 200 people. So he and his wife Minnie moved to Milford to open up a doctor’s office and drugstore.^[10]

The couple were barely making ends meet when a 46-year-old farmer named Bill Stittsworth came into their office. Stittsworth said he and his wife had been unsuccessfully trying to get pregnant for 16 years. “I’m a flat tire,” he told the Brinkleys. Then Stittsworth looked out the window at a nearby farm and observed, “Too bad I don’t have billy goat nuts.” You see, billy goats are known to be some of the healthiest, most fertile animals on the planet. The farmer knew firsthand a goat’s appetite for sex was famous.^[11]

No one really knows exactly what happened next. Brinkley claims the farmer begged him to try an experimental procedure using goat glands. The farmer’s family claims Brinkley paid Stittsworth to experiment on him. Regardless of whose idea it was, a few nights later both men were back in the office prepping for a unique surgical procedure. Brinkley slit the farmer’s scrotu...

Table of contents

• Cover
• Title Page
• Copyright
• Introduction
• Chapter 1 No One Sells Miracles
• Chapter 2 How to Sell Anything
• Chapter 3 Fast Money
• Chapter 4 It’s the End of the World as We Know It
• Chapter 5 Sleight of Hand
• Chapter 6 When Success Doesn’t Translate
• Chapter 7 When Fraud Flourishes
• Chapter 8 The Siren Song of New Technologies
• Chapter 9 The Seductive Power of FOMO
• Chapter 10 Type I Charlatan
• Chapter 11 Type II Charlatan
• Chapter 12 Fooled by Intelligence
• Chapter 13 How Gullible Are You?
• Chapter 14 The Easiest Person to Fool
• Conclusion: Six Signs of Financial Fraud
• Index
• End User License Agreement