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Featurette
www.fsprivatewealth.com.au Volume 10 Issue 02 | 2021
Why financial fraudsters can fool anyone Melissa Caddick’s story has barely left the headlines since November 2020. The investment scam she is accused of perpetrating is nothing new. So why do fraudsters keep coming for our investment portfolios? And how do they pull off the con? Elizabeth McArthur writes.
n April 15, Bernie Madoff died in a prison hospital at the age of O 82. He had been serving a 150-year sentence for what is said to have been the largest Ponzi scheme in history, in which approximately 38,000 investors lost an estimated US$65 billion in principal and fake returns. As Maddoff spent his final days in a North Carolina medical centre for male offenders, a fraudster in Australia was making headlines for a similarly bald-faced scheme. Melissa Caddick had been missing since November 2020, shortly after ASIC raided her Sydney mansion. By March 2021, she was presumed dead. And, by April, ASIC had to drop the 38 charges it was pursuing against her. The regulator had to accept that Caddick wasn’t turning up for court any time soon, and by withdrawing the criminal case her victims could start civil proceedings and attempt to claw back some of what they had lost.
Like Madoff, Caddick presented herself as a highly educated, trustworthy financial professional. She let those who handed over their money to her believe that she was an investing expert, that she could manage their money in ways others could not. Caddick and Madoff both played a game of keeping up appearances. Madoff had his penthouse apartment in New York, the façade of a genuine Wall Street company and tickets to black-tie galas with the city’s elite. Caddick had some of the most expensive real estate in Sydney, designer clothes and extravagant overseas holidays. They are just two high profile examples of the kind of investment fraud that’s been around for as long as the stock market. Forensic psychologist Kim Dilati says anyone can fall for an investment scam. While it’s easy to think that only the less financially literate would get caught up in fraud, that is simply not the case.
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Everything may appear to be compliant from the outside and the scammers exploit that.
In fact, perpetrators of investment fraud are likely to see the wealthy as big targets and then will deploy their best tactics. “They’ve got the dispositions to be able to pull these scams off. A lot of these scammers have developed techniques to force compliance with their victims. It could be flattery, they could pretend to be friends with them over the course of many months, they try and build trust. A lot of them are quite deviant but you don’t get to see the precursors before the scam,” Dilati explains. “The scammers are often quite self-confident in the way they manage the scam. Everything may appear to be compliant from the outside and the scammers exploit that, they exploit their position of authority.” Professor of psychology at Wake Forest University John
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