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There Will Be More Madoffs and SBFs

We want to trust a three-time chairman of the NASDAQ, a notable philanthropist, a well-respected figure in his religious community, and a devoted husband and father. We hope that the unbelievable returns he is promising on our investments are true.

We want to trust the world’s youngest self-made woman billionaire and a member of the Harvard Medical School Board of Fellows, who peppered the covers of countless magazine covers for her next-gen invention. We hope that her genius will save lives.

We want to trust Fortune magazine’s CFO of the Year award winner who helped lead the world’s largest natural gas supplier. We hope that his financial acumen will yield profits and sustain a workforce.

We want to trust a Silicon Valley entrepreneur testifying on Capitol Hill and imploring for more regulatory oversight. We assume that if his parents are law professors at one of the top schools in the country, then surely he is a law-abiding, model businessman. We hope that crypto investment will pay off and we will be part of the next big thing.

In fact, we don’t just want to trust Bernie Madoff, Theranos’ Elizabeth Holmes, Enron’s Andrew Fastow and FTX’s Sam Bankman-Fried, we inherently do. And where there may be gaps in that trust, we have hope because of the promise of the returns.

Unfortunately, when that type of trust is there, the measures we would typically take to ensure we are making a good decision fly right out the window. It is in these situations and relationships, where inherent trust lives and hope thrives, that we must go beyond trusting.

Here are a few things you must verify before investing time, money, trust and hope in a person or company:

  • Reputation: Ponzi schemes like the one perpetrated by Madoff and the reason why Holmes made such far inroads with large corporations and notable investors depended heavily on their respective reputations and the people who could vouch for them. Beyond the immediate circle of trust, it is imperative to pierce the veil of those who always have good things to say and explore all sides of a public presence. In many instances, it is important to conduct ongoing monitoring of a management team and company activity with discreet human intelligence inquiries with sources both currently and formerly associated with the company.
  • Education and Work Experience: George Santos isn’t the only person to “embellish” on a résumé. In fact, more than 50% of people in the U.S. admitted to lying on their CVs at least once, according to StandOutCV. Trusting what is on the page isn’t enough, even when you personally know someone, or have limited time or resources. The best practice is to verify university attendance with a registrar and call former employers to verify not just employment, but conduct, reviews and character.
  • Litigation History: Evaluating the legal history of an individual could uncover a pattern of actions. Has the individual been sued on multiple occasions for allegations of breach of contract or fraud? Conversely, do they frequently pursue legal action against others and are litigious in general? Do they hide behind LLCs and corporate entities when pursuing the legal action?
  • Business Partnerships and Investments: Associations are just as important to consider regardless of the degrees of separation. Whether the individual is a silent business partner or an active investor, considering the nature of the investments and obtaining feedback from failed partnerships may help build out a full picture of one’s professional character.
  • Financial Track Records: Beyond litigation, a pattern of adverse financial history such as frequent tax liens and bankruptcy records can be important factors in determining one’s reliability.

As forensic accountant and Madoff trial expert witness Bruce Dubinsky said in Netflix’s “The Monster of Wall Street,” the latest documentary about Madoff’s crimes, “There will be another Bernie Madoff in the future. That will happen. Mark my words.” He wasn’t wrong. Only this one is pleading not guilty.


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