Never Play with a Cardsharp
In the spring of 1893 the Sicilian town of Corleone had one socialist café. It was run by Bernardino Verro, a peasant leader who had just then joined the local Mafia, which called itself the Fratuzzi, the “little brothers”. Dash writes that the café was packed with “little brothers” placing bets with counterfeit notes. The place got such a reputation that Verro thought it wise to keep away from his own café. The owner was afraid to walk into his own place. How about that?
Imagine you sat down to play there. You might play beautifully. You might even win. And you’d carry home a wad of paper that no shop on the whole island would take. In any game, the main thing is decided not at the table but before you sit down at it. Who are you playing with?
Who’s the Mark Here
In Lefty Ruggiero’s club, Pistone writes, the talk was of bets, odds, debts and upcoming games. Everyone was forever complaining they had no money, even when they were winning, and all anyone thought about was how to clean out the next mark. A mark, there, was a sucker with money who was practically begging to be robbed.
Remember that whenever you sit down at any table: cards, the stock market, negotiations. At every table somebody is feeding the rest. Can’t see who? Maybe it’s you. The professionals across from you usually know far more than you do about the rules, the fees and the catches, and they didn’t come for the fun of it.
The Cheat Who Sells Distrust
Gambetta describes why cheating pays not only the cheat himself.
A Neapolitan cab driver told how a local mafioso once helped him sell a blind horse as a healthy one. The buyer was a chance customer, not under the mafioso’s protection, and Gambetta reads this shrewdly. By “guaranteeing” the sale of a blind horse to someone outside his protection, the mafioso shows everyone: without me, you’ll be cheated for sure. The mafioso, Gambetta argues, has an interest of his own in injecting distrust into the market in measured doses, so that demand for his product—protection—keeps growing. If people learned to trust one another, he’d be out of work.
A middleman who lives off your ignorance wants you to go on knowing nothing. And not only the mafioso at the horse fair. A financial salesman who earns from his product being complicated won’t make it simpler. A broker who takes a commission on every trade won’t talk you out of trading every day. Ask yourself: who gains if I never figure this out?
The Cheat Who Never Gets a Bad Hand
And here is the cheat at his most respectable.
Bernard Madoff was a respected man on Wall Street, had once chaired the board of one of the exchanges, and for years his investment firm showed clients remarkably steady returns—around ten per cent a year, with hardly a losing month. One of the funds linked to him delivered roughly ten and a half per cent a year for seventeen years straight, in good years and bad.
From 2000 on, the financier Harry Markopolos wrote several times to the regulators that this was impossible, and one of his memos was titled “The World’s Largest Hedge Fund Is a Fraud”. Nobody listened. On 11 December 2008 Madoff was arrested. According to their statements, clients believed they had about sixty-five billion dollars in their accounts, but almost all that money existed only on paper. It was a pyramid: old clients were paid with new clients’ money. Madoff got a hundred and fifty years.
What gave the cheat away? Not losses. The absence of them. In a real game you get bad hands; in a real market there are bad years. Whoever never has any is most likely not playing but dealing to himself.
How to Spot a Cheat
I won’t promise you’ll always recognise him. Madoff fooled experienced people. But there are signs every old player knows, if he’s sat at other people’s tables long enough to learn to watch not the cards but the hands.
The results are too smooth. Money doesn’t grow along a ruler.
It’s unclear where the income comes from. They can’t explain to you in plain words how the money is made—or they explain it beautifully, but in a way you can’t check? Be careful.
The same person keeps the money and manages it. Madoff’s firm kept the accounts, checked itself and sent out the clients’ statements. An honest manager keeps clients’ money with an independent custodian, and the custodian is checked by an independent auditor.
They rush you and flatter you. “We don’t offer this to everyone.” Told you’re special? Check your wallet.
The Man Who Never Lost
Once a man was brought to Don Vincenzo who wanted the laundries’ money put into a “safe business”. He showed papers: exactly one per cent every month, three years running, not a single miss. I was thrilled. Twelve per cent a year, and not one bad month!
The Don leafed through the papers for a long time. Then he asked: “And in the month when everybody in town had problems, you made exactly one per cent too?” The man said yes, the system was reliable. The Don closed the folder and politely saw him out. “I’ve had laundries for forty years,” he told me afterwards. “And every year at least one month was bad. If a man never has one, then either he’s lying, or he’s lying.”
A year later that man vanished along with the money of several shopkeepers from our street.
The Bottom Line
Smooth results don’t prove fraud by themselves. But if they can’t explain where the income comes from and won’t let you check where the money is, get up from the table. Even if you’re winning for now.