August 31st, 2006

Brad @ Burning Man

Why Johnny Can't Identify Scams

Of all the follies of this world, there's one that's hard for me to live with. Republican attempts to steal elections? So stop them. Terrorists? Yawn; wake me when you're talking about something important. People who rob the poor? Makes me angry, but not so depressed it makes me tired. Stupid people, mean people, greedy people, people who don't live up to the ideal standard in some way or other? I just think of Spider Robinson's remark about how many millions of years it took evolution to make a talking ape, so it's unreasonable to expect a rational one in only a few tens of thousands of years, and marvel that we're as good as we are. But of all the sadnesses and evils and follies of this world, the only one that so depresses me that it makes me feel old, tired, and ready to go back to bed and stay there is this:

There is no scam so old, so well documented, and so obvious that it doesn't make money hand over fist, no scam so well and widely denounced that a con man can't effortlessly find dozens, hundreds, sometimes even thousands of enthusiastic willing victims.

You probably saw a news article a little while ago about the economics of penny stock fraud via spam? "Pump and dump" is one of the oldest scams there is; there is no excuse for anybody who goes anywhere near a stock exchange or broker not to know about it. And my mind absolutely boggles at the thought that there is anybody out there who thinks that somebody who knows how to make a lot of money off of a particular stock that's about to move would rush directly to a spam mailing list and tell everyone in the world about it, instead of merely making the money themselves. I mean seriously, the people who receive these spams and fall for it? What are they thinking? But there are so many people who fall for it that it works, and it works every time. The most stupidly obviously transparently crooked "stock tips" generate enough sales that spammers effortlessly make 5% per day on their investments in those stocks, while those who stupidly follow those stock tips lose about 8% and never get it back. They're not even trying to use any of the fancier, more complicated forms of pump and dump; this is literally one of the oldest tricks in the book. But it's so uniformly successful that at this point I'm getting about 10 times as many pump-and-dump stock spams as I am "herbal viagra" spams and account-info phishing spams combined.

Similarly, there are discussions rattling around the Internet this week about a guy who pulled a classic Ponzi scheme inside the massively multiplayer online science fiction game world of EVE Online. Basically, he promised everybody some fairly high percentage return on their loans to him, paid every month. He wasn't investing that money in anything, he was just paying people back the returns out of the money they sent him. They, of course, were then enthusiastically volunteering to tell all of their friends about what a great investment this was. Simple word-of-mouth advertising got him tons of "satisfied customers" -- and when he hit 700 billion "ISK," exchangeable for roughly $82,000 worth of goods at the official exchange rate, he simply took the money and ran. What's more, thinking that what he did wasn't illegal because it involved scamming in an Internet-only currency, he's openly bragged about it. So of course, tons of bloggers and columnists and people on web discussion forums are discussing the legality or lack thereof, the tax ramificactions for the scammer if any, and other legal issues that might be able to be used to screw him back. All of which have interested me in the past; I wrote two columns about this last August entitled "Is Everquest II Illegal Now in 49 US States?" and "If virtual goods are actually worth money ...." But right now, that's not the part that interests me.

Right now, all I can think is oh my loud and drunken twice-born god, how on earth do you find that many people who don't recognize a Ponzi scheme when they see one? Except, sad to say, that the reason that law enforcement has to crack down this hard on this scam whenever they can get enough evidence to prosecute is that, like pump-and-dumps based on fake insider trading data, it works every time, whether it's post-Communist Romanians investing their entire national economy and savings into them, or American Christians falling for "prosperity gospel" scam preachers, or New Agers falling for "the Airplane Game," or apparently EVE Online players falling for "investments" with no actual prospectus and only the shallowest sham appearance of legitimacy. Over and over and over again, and yet nobody ever learns from the last victims' sad example.

And it occurs to me that the reason I never fall for this crap is that my parents, especially the Man of Concrete, made absolutely sure that I knew how to spot every classic scam in the history of the human race by the time I was 12. I also have been reading the newspaper more or less every day since I was 4, and I remember what I've read. These are rare advantages. It occurs to me that this stuff really isn't covered in schools, at least not in America. (Anywhere else?) And that just makes me feel sad, and tired, and worn-out old.