Successful Madoff Investors Worry About Lawsuits
LINDA WERTHEIMER, Host:
Bernard Madoff's alleged Ponzi scheme was not good for the Jews. So many of the victims of his $50 billion swindle were wealthy co-religionists and Jewish philanthropies. The Madoff case may be the most spectacularly successful example of an age-old phenomenon known as affinity fraud. Ronald Cass, dean emeritus of the Boston University School of Law, wrote about this recently in the Wall Street Journal. Dean Cass joins me now.
DEAN RONALD CASS: Delight to be here.
WORHTHEIMER: Now, you write that the Securities and Exchange Commission warned about affinity fraud two years ago. What sorts of things where they talking about?
RONALD CASS: Well, the Securities Exchange Commission identified about a half dozen examples of fraud against people who were similar in the basis of faith or ethnicity. They talked about examples, for instance, in the Armenian-American community in California.
The same happened with Korean-Americans who were target by another Korean-American in Southern California, who got $36 million from them in a similar sort of Ponzi scheme. The numbers that were being thrown around by the SEC, were large for anyone looking for this prior to the summer of 2008.
WERTHEIMER: Is this affinity fraud, what has happened here with Madoff?
RONALD CASS: I think this is affinity fraud. He was clearly targeting people who were Jews because he's Jewish. This is the circle he moves in, it's the circle that is going to be most trusting of him. I think it's not any accident that Mr. Madoff went out and sought out as clients many, many prominent Jews.
WERTHEIMER: You suggested in the Wall Street Journal, that Jews are particularly vulnerable. Why is that?
RONALD CASS: Jews have for centuries been brought up to believe that there are people out there who don't like us, who may be doing things that are targeting us, so we turn to one another. We have generations of people who say we have to trust each other, we have to help each other.
When my wife, who's a lawyer, and I were going to try to pick somebody to do health insurance for, we asked the rabbi in our congregation, do you know anybody who does this? And he recommended another member of the congregation. We didn't go out and do due diligence, we didn't have to. The rabbi said this one's OK. And I think a lot of that is the sort of thing that was happening with the Madoff investments.
WERTHEIMER: With some of the other groups you mentioned, you might have imagined that perhaps they don't speak English fluently, or they're marginalized economically. But some of the people and institutions who say they were duped by Madoff were very sophisticated folks like Steven Spielberg, or university endowments, which have very fancy people sitting on their boards watching out for their investments. Why would they be gullible?
RONALD CASS: Well, in some ways, it's easier to fool people who are very successful. If you're talking to somebody who is used to being successful, used to knowing what they're doing, they don't want to appear foolish.
But if they have someone vouching for them, someone they know to be very successful - Bernie Madoff was the chairman of NASDAQ, an advisor to the SEC, he was someone who had within his circle of clients enormously successful people. It was like he came pre-certified. You had every reason to trust the guy. He looked like and sounded like you and your friends. It is, in some ways, exactly that sort of set-up that makes sophisticated and successful people easy targets.
WORHTHEIMER: When the SEC turned its attention to Madoff, I guess you'd have to say the investigators seemed to feel some kind of affinity with him.
RONALD CASS: When they get a complaint against somebody who is as prominent, as successful as Mr. Madoff, they tend to look at it like this is unlikely to be a real, meaningful complaint. If you have a complaint against somebody who seems to be in a fly-by-night operation, you look at it differently. And I'm sure when people at the SEC saw a complaint against the former chairman of NASDAQ, somebody who was an advisor to the SEC, they start out giving him the benefit of the doubt. And you read things differently when that happens.
WERTHEIMER: Dean Cass, thank you very much.
RONALD CASS: My pleasure.
WERTHEIMER: Ronald Cass is president of Cass and Associates, which is a legal consulting firm.
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