Old Scams, New Skins

The current issue of Forbes has an interesting short article titled "New Dog, Old Tricks" on the Madoff scandal. Apart from reworking the old pyramid scam (Ponzi scheme) formula, Madoff's game plan had a variety of other classic plays in it.

• Using reputation (as a former NASDAQ chairman) to engender trust
• Using ethnic and religious affinities to win confidence
• Betting that regulators will always be several steps behind
• Finding investors foolish or greedy enough to forget the importance of diversification
• Being opaque about his operating methods, and fending off requests for details
• Refusing to allow truly independent audits of his operations by disinterested third parties

The article goes on to give previous examples of all these tricks. Not only should these be red flags to potential investors, but also to prospective employees. You don't want to get caught working for a company that is as dodgy as Madoff's.