September 20, 2011
Fraud Victims Can Be Profiled
Which profile describes the most common victim of investment frauds like Bernie Madoff’s?
a. Tech-savvy young adult
b. Man over 50 earning high income
c. Elderly widow on fixed income
Widow, you say? That’s the stereotype, said Laura Carstensen, founder of Stanford University’s new Research Center on the Prevention of Financial Fraud.
“The old woman who’s demented and living on her own, and the guy who knocks on her door and sells her the policy – that does exist, but it doesn’t represent older people,” she said. Older people who have a history of long-standing relationships are often better at determining who they can trust, she said.
The correct answer is b: Man over 50 earning high income.
Fraudsters feed successful men’s egos by appealing to their investment savvy, enticing them to get into a deal others might not understand. By building up their egos, a fraudster ensures that the victim isn’t thinking clearly when he agrees to invest, said Doug Shadel, a member of the Stanford Center’s board who co-authored the AARP Foundation National Fraud Victim Study.
“Every con man I’ve ever interviewed said women ‘ask all these questions, and they want to know stuff.’ Whereas with the men, they get them into an ego play … they’re puffing their chest out,” he said.
But elderly, less-educated women on low incomes do tend to be victims of a different type of scam: lottery fraud, Shadel’s profiling research has shown. Lottery fraud consists of mail, e-mail, or text messages telling someone they won $1 million and asking them to send in, say, $19.95 to learn more about their winnings.
Fraud victims have several common characteristics, he said. They are:
- less able to identify persuasion tactics than the general population;
- more open to sales pitches;
- risk takers;
- less happy than the general population; and
- less concerned about losing money.
The economy may be struggling, but Americans turned over $1.7 billion to fraudsters last year, according to the Federal Trade Commission, which tracks complaints. Fraud prevention is the goal of the Stanford Center, which Carstensen said will bring together academics and financial regulators, such as the SEC and state attorneys general, to share information and find new areas of research to advance the goal.
Profiling victims is one piece of that. Technological interventions also may be designed to prevent fraud, she said. For example, banks could set up alerts for fraud-prone customers or their family members when the customer writes an unusually large check to an unidentified party.
To read the AARP’s study by Shadel and Karla Pak, click here.