The recent drop in my newsletter frequency is due to ongoing litigation against a former colleague. This individual's wrongdoing has affected several entities connected to The Family over the years, as confirmed by multiple court rulings… and a disturbingly frank on-the-record admission. While some legal procedures are still pending, including a criminal case in France, the impact of these actions has already been clearly established.
As for me, navigating the repercussions of the whole affair has been nothing short of daunting, leaving me with little time for writing. Yet, in line with my beliefs, The Family’s ethos, and the purpose of this newsletter, I firmly believe that even the most challenging ordeals can offer valuable learning opportunities.
Throughout this legal journey, I've gained insight into the mechanisms of financial fraud. To deepen my understanding, I've explored high-profile fraud cases and listened to personal accounts from members of the business community who have shared with me their own encounters with fraud in confidence.
Strikingly, the patterns of fraud I've personally encountered often mirror those in other cases. It’s almost as if all fraudsters attended the same School of Deception, employing eerily similar tactics to exploit their targets. The repetition of these schemes underscores just how recognizable certain behaviors can become once you know what to look for.
What follows is a distillation of essential lessons on the nature of fraud and the behavior of fraudsters. It combines my observations, others' experiences, and insights from well-documented cases. None of this should be interpreted as direct commentary on The Family’s situation or any other specific case unless explicitly mentioned. Rather, these are general insights aimed at helping others identify and understand fraudulent behavior. While this isn't a topic I ever expected to be writing about, I hope these hard-earned insights will help you navigate the sometimes treacherous waters of the business world.
TL;DR: Exercise caution if someone exhibits ostentatious generosity, frequently changes their explanations for delayed payments, or subtly discourages communication with third parties who could validate their claims. Additional red flags include offering reimbursements instead of answering questions, showing consistent negligence in details, or testing personal boundaries with inappropriate comments. Finally, if they invite you to join an exclusive club or treat you to extravagant meals while avoiding direct answers to financial questions, you may definitely be dealing with a fraudster.
The following cases have provided valuable insights over the years: Donald Trump’s decades-long business controversies, the Madoff investment scandal, the Abraaj Group fraud chronicled in the book The Key Man, the 1MDB scandal depicted in Billion Dollar Whale, the Anna Delvey affair explored in Netflix’s Inventing Anna and Rachel DeLoache Williams’s My Friend Anna, and the Tinder Swindler romance fraud. Additionally, I’ve learned from the Fyre Festival debacle, the Theranos and FTX scandals, crypto-related fraud discussed in Zeke Faux’s both hilarious and daunting Number Go Up, and even fictional portrayals in The Wire and Ozark. Read on 👇
1/ Don’t Trust the Echo—Verify the Source
Fraud does not occur because people fail to ask questions; rather, it often happens as they do ask questions, but are met with lies that obscure the truth.
One form of deception involves the fraudster presenting forged documents, the most blatant and severely punished type of fraud in business. However, more commonly, fraudsters lie about their oral interactions with others. For instance, they might say, “Yes, I did that because I consulted with X, and they gave their consent,” or claim, “I received a phone call from Y suggesting this course of action,” when no such communication ever occurred.
Verifying these claims can be challenging for the person raising questions. They may not know X or Y and feel uncomfortable reaching out directly. Even if they do know X or Y, they may perceive them as too high-placed, busy, or inaccessible to address trivial inquiries about potential fraud. Instead, simply hearing that someone else has supposedly endorsed the fraudster’s actions, even without proof, is often enough to dispel doubts. A strong bias is at work here: people naturally want their suspicions to be unfounded, especially when they’ve known the fraudster for a long time and have been working with them in confidence.
Lying about someone else's position is so central to fraud that fraudsters often go to great lengths to prevent direct communication between parties. They may respond to only one person in an email conversation, subtly excluding others from the loop and isolating their target within a web of lies and personal reassurances. They might claim that a particular individual who allegedly endorsed their actions is unavailable, easily bored, or should not be bothered with trivial questions, ensuring that the person seeking answers does not approach them for confirmation. Alternatively, they may preemptively discredit the individual asking questions so that when that person reaches out to the other party, they are met with hostility or icy indifference, leaving their inquiries unanswered.
Additionally, fraudsters often insist that all complaints or questions from victims—or anyone who could expose the fraud—be directed exclusively to them. This allows them to maintain control while offering a sense of relief to those working with them. Lacking the necessary information to address the issues at hand, colleagues who are unaware of the fraud tend to trust that the self-proclaimed person in charge is best suited to handle the situation, even if it’s dealt with behind closed doors.
2/ Guard Your Boundaries—Don’t Feed the Manipulator
Fraudsters rarely succeed without accomplices—people on the inside who assist them, even if they don’t benefit personally. In fact, fraudsters seldom act alone, either because they actually need help from colleagues with access to certain resources or because involving others provides deniability. They might think, “I wasn’t acting alone, so it’s not my fault—it’s the organization’s.”
This raises the question: If most accomplices don’t gain from the fraud, why do they help instead of preventing it?
From my observations and readings, several explanations emerge. In some cases, these individuals were simply lied to. In others, they were coerced by sheer authority, often facing threats to their careers or compensation. But in many instances, they were simply manipulated, as fraudsters are experts at identifying a person’s weaknesses and exploiting them to their advantage.
A common weakness is the overwhelming desire to please one’s boss and seek validation. In this context, mutual flattery between a malicious manager and an employee can mislead the employee into believing they are working under the most promising figure in the organization. They may assume that unquestioningly following the fraudster's orders will lead to promotions, higher pay, a fulfilling career, or simply a more enjoyable day-to-day work experience.
Other weaknesses can only be uncovered through the fraudster’s probing into a person’s psyche. For instance, they might deliberately make offensive, sexually charged remarks, such as, “I saw your breasts yesterday,” followed by, “What?!” and then, “Don’t worry, not for real, but in my dreams.”
If the person reacts with shock and disgust, they are fortunate, as this resistance to the probing effectively disqualifies them from further involvement with the fraudster. However, if they respond in a way that seems to play along, it can trigger a downward spiral. In this scenario, the fraudster may begin to cultivate an increasingly inappropriate and manipulative relationship, employing various tactics—such as bragging about their (real or imagined) sexual exploits, making suggestive comments, or exploiting personal secrets. This dynamic can become so twisted that the target eventually feels compelled to comply with the fraudster's demands at all times.
3/ Stay Alert—Don’t Be Blinded by Chaos
In general, fraudsters tend to act in a disorderly manner, which paradoxically works to their advantage. Their general sloppiness projects an image of carelessness and lack of rigor, and such apparent negligence conveniently masks more serious fraudulent activities.
The English graphic novel Tamara Drewe, later adapted into a film by Stephen Frears, illustrates this pattern of deceit well. The fraudster—or philanderer, in this case—frequently creates false alarms to lull their victim (or spouse) into a false sense of security. This tactic calms any lingering suspicions, making it easier to execute the real deception when the moment arrives.
The same principle applies to fraudsters in real life. Their carefully cultivated sloppiness serves as a constant false alarm, making it challenging for others to recognize genuine fraud when it happens. Instead, the common reaction to anything suspicious is, “Oh, yet another instance of X failing to document a transaction on time because they’re always so disorganized and hasty.”
This issue also extends to alarms raised by outsiders. Those on the outside may sense that fraud has occurred, but they are often mistaken about its source. When they attempt to raise the alarm, they typically focus on areas where no fraud has been happening. This leads insiders to dismiss their concerns, which not only deflects suspicion but also helps the fraudster evade exposure.
4/ Look Closely—Fraudsters Always Leave a Trail
This raises a broader question often asked in the context of fraud: Why do most fraudsters leave so many traces and make so little effort to cover their tracks? There are a few possible explanations.
One is hubris. Fraudsters often feel superior to those around them, believing the world revolves around them. They assume they can always rely on shaming their victims into silence. With this mindset, why bother covering their tracks? It’s easier to defraud without putting in the extra effort.
There’s also a psychological factor: deep down, fraudsters want to get caught because they know they deserve it—that’s their Freudian slip.
Another explanation is more sociological. Many fraudsters resort to deception because they lack the skills necessary to succeed in legitimate fields, aside from exploiting others' vulnerabilities. If they possessed qualities like discipline, rigor, or a general ability to conduct business honestly, they could likely accumulate comparable wealth through legal means. Alternatively, they might still choose fraud—but on a much larger scale, such as embezzling $4.5 billion from the Malaysian sovereign fund (as in the 1MDB scandal) or even $65 billion from wealthy investors (like Bernie Madoff), rather than defrauding individuals or smaller organizations for a few million.
5/ Rich Fraudster, Poor Fraudster—Beware of Illusions of Wealth
There’s a notable difference between the sloppy fraudster and the meticulous one. The meticulous fraudster understands the need to keep their activities hidden and avoids drawing attention by leading an ostentatious lifestyle. A good example is Proposition Joe from The Wire, who, despite running a powerful drug-trafficking organization and accumulating great wealth, spends his days modestly, repairing electronics in a cramped backroom.
In contrast, the sloppy fraudster isn’t interested in building an empire like Prop Joe. Instead, they’re driven purely by a desire for easy money and immediate lavish spending. For this type of fraudster, it’s essential to appear wealthy from the start so that any fraudulent income blends seamlessly into their flashy lifestyle, avoiding suspicion and uncomfortable questions.
To maintain this illusion of affluence, fraudsters strategically associate with genuinely wealthy individuals, making their extravagance appear as part of a shared, collective lifestyle. This blurring of lines makes it more difficult to identify the fraud. Additionally, they display ostentatious generosity toward their entourage, further reinforcing their image of success and benevolence.
Then when their fraudulent gains run dry, these individuals rely on their manipulative skills to extract sympathy, borrowing money they never intend to repay or staying in luxurious accommodations for free under the guise of temporary financial troubles.
Note that despite their outward generosity, a sloppy fraudster's motives are far from altruistic; they’re driven by a need to evoke sympathy. Often bordering on psychopathy, fraudsters typically lack genuine compassion for their victims, as was made clear in the Madoff case. Yet, they still craft an image of kindness and care, quickly gaining trust, and that façade becomes the foundation for their scams. As Jeremy Faust, MD, once remarked in relation to Elizabeth Holmes of Theranos,
Bad people don’t wake up, kill a kitten, throw hot coffee at homeless people, and show up to work, do some evil, take a lunch meeting, do more evil, come home, filet the neighbor’s gerbil and enjoy it as an amuse-bouche prior to eating raw veal, before cozying up for some shut-eye and doing all over again. They give money to charity. They shroud themselves in good deeds. And when something does not go their way, it is then that they lie and cheat and steal and intimidate and pull every lever—even if that means harming other people’s lives—so that they can get their way.
6/ Resist the Allure—Don’t Chase the Exclusive Club
There is a seductive allure in deception, which is why many victims of fraud initially seem as if they want to be defrauded.
In some cases, the seduction is literal. Take the Tinder Swindler—a handsome, charming, and seemingly affluent young man. Fraudsters like him manipulate their victims into falling in love, exploiting these emotions to extract money.
Not all fraudsters rely on physical charm, though. For those who can't, other psychological tactics come into play. One technique is the "hot and cold" treatment—being affectionate one day and indifferent the next—which makes victims crave closer connection. Others use the soothing power of words. An expert I spoke with explained that fraudsters often "talk and talk and talk," but their words are useless, even dangerous. The key with fraudsters, the expert said, is "not their words, but their actions."
Some fraudsters also exploit the allure of exclusivity. Victims are invited to join an "exclusive club" and made to feel lucky for the opportunity.
This was central to Bernie Madoff’s scheme with wealthy investors who wanted steady returns. He claimed his fund was closed, with a strict selection process and high minimum investment. When insiders asked uncomfortable questions, he’d threaten to expel them for bothering him. In addition, those who trusted Madoff with their money were forbidden from mentioning his name to outsiders. Like in Fight Club, if you were in, you had to keep it a secret.
A variation of this tactic is anchoring a wealthy victim to convince others to join. The fraudster might say, "We don’t provide detailed financial statements to someone investing such a small amount. You’ll have to trust X, a well-known, affluent professional who’s already invested. Just follow their lead."
You might argue that responding to a persuasive pitch doesn’t necessarily lead to fraud. After all, greed, envy, and the desire to belong are common levers pulled by shrewd salespeople, especially in finance. But in my view, the surrounding ecosystem determines how easily you can tell the difference between a salesperson and a fraudster. In an immature ecosystem—where the courts are slow to act, and victims stay silent, driven by shame as much as greed—fraudsters thrive. Conversely, when fraud is swiftly punished by the courts and properly documented, the ecosystem learns from it and deters fraudsters attracted to easy money.
This, by the way, is exactly how it works in Silicon Valley. An insider once told me that the district attorney in San Francisco makes it a priority to quickly prosecute fraudsters who flock there, drawn by the wealth in tech companies. If they weren’t dealt with aggressively and consistently, the entire system would collapse because it would become nearly impossible to tell legitimate startups from scams. (Note: Kamala Harris was once the district attorney in San Francisco.)
7/ Stay Wary—Victims Can Be Tools of Manipulation
In a fraudster’s circle, you’ll often find some of their victims still in close contact. The fraudster uses these individuals to send signals like, “It’s not true—I didn’t do it,” or “We’ve sorted things out, and we’re on good terms now,” or even, “I may have defrauded this person, but look—they’re not making a fuss.”
A typical scenario might involve someone from whom the fraudster has borrowed a substantial sum of money in the past. Unable (or unwilling) to repay it immediately—or ever—the fraudster convinces the victim to stay close, hinting that it’s their only chance of getting their money back. This is how fraudsters keep victims visibly within their circle—whether by living with them in luxury, engaging in business together, or publicly interacting on social media, liking each other’s posts to maintain appearances.
An example of this can be seen in the documentary The Tinder Swindler, where the main character deceives his victims—women who fall in love with him—by keeping one of his exes, along with their child, in his inner circle. The message to future victims is clear: If even his ex is still close to him, how dangerous could he really be?
However, if a victim refuses to submit or cooperate, the fraudster—often referred to as a “pervers narcissique” in French, describing a narcissistic manipulator—retaliates. They will belittle, shame, and shift all the blame onto their victims. More insidiously, they may turn these former victims into supposed enemies, real or imagined, using them as scare tactics to manipulate new targets. They might say, “I would repay you if I could, but right now I’m in trouble because my enemies think I’ve stolen from them and are pursuing legal action. Maybe you could help me instead?” As we know, polarization is a powerful tool for rallying people to your side, and the fraudster leverages it to gain new support.
8/ One-on-One Interactions—Don’t Be Alone With a Fraudster
What happens when a fraudster interacts directly with their victims behind closed doors? Due to the shame surrounding fraud, this dynamic is rarely documented. However, I’ve gathered a few insights into what typically occurs.
Overall, fraudsters carefully evaluate their victims based on two factors: (i) financial status and (ii) level of sophistication.
A sophisticated victim, whether wealthy or not, is more likely to uncover the fraud if given enough information. Therefore, the fraudster’s top priority is to eliminate such individuals quickly, often by offering swift reimbursement under strict confidentiality. This was the strategy Bernie Madoff used with wealthy investor Jeffry Picower, who sensed something was wrong with Madoff’s investment fund. (Although Madoff initially reimbursed Picower to silence him, the Picower estate later had to repay a staggering $7 billion, as the money received came from other defrauded investors.)
With a wealthy but unsophisticated victim, the fraudster doesn’t worry as much about exposure. The focus shifts to preventing the victim’s questions from reaching others, thus avoiding suspicion among colleagues or other victims. To achieve this, the fraudster strengthens their grip through frequent calls, extravagant lunches, or new investment pitches. The goal is to isolate the victim while extracting more money. Eventually, the victim realizes they never received answers to their initial questions and lost even more in the process—like waking up with a headache and an empty wallet after a wild night out.
Finally, as for victims who are neither wealthy nor sophisticated, the fraudster’s approach is simpler: they will be ghosted, and the relationship will quietly fade away without any explanations.
9/ Don’t Get Blindsided—Focus on Patterns, Not Just Problems
Fraudsters often exploit a cognitive bias that leads people to focus on resolving specific, immediate issues rather than addressing the broader pattern of deceit, which feels more abstract and difficult to confront.
For example, when attention is drawn to a missing payment or an incomplete document, the fraudster creates the illusion that progress is being made and that a resolution is imminent. This tactic distracts the suspicious individual from noticing inconsistencies in the fraudster’s explanations and alleviates their overall distrust, as their focus shifts to resolving the immediate issue at hand.
A typical scenario involves someone awaiting payment from a cash-strapped fraudster. After sending multiple reminders, the victim receives a series of ever-changing excuses, such as, “I placed the order but forgot to validate it,” followed by, “I used SEPA, but I should have initiated a SWIFT payment,” and finally, “I called the bank. It blocked the payment and now needs your proof of address. You know how banks are!” Desperate to recover their money, the victim becomes increasingly inclined to play along and overlook the fraudster’s flimsy excuses, which drag on for weeks.
In these situations, people often think, “Let me resolve this pressing issue first, and then I’ll reflect on the larger pattern.” Unfortunately, when the immediate issue is finally resolved (if it ever is), the individual usually retreats with a mix of relief and exhaustion, then moves on. As a result, the opportunity to address the fraudster’s overall behavior slips away.
10/ Challenge the Shame—Seek Justice, Not Silence
Most fraudsters commit their crimes knowing that few, if any, of their victims will seek justice. This creates a market failure in which much financial fraud goes unpunished.
Some victims simply lack the financial resources to pursue legal action, having often lost the majority of their money. Wealthier victims, on the other hand, may view the amount lost as insignificant relative to their overall net worth, deciding that the effort and cost of litigation aren’t worth it. Fraudsters frequently target these types of individuals—either those with limited wealth or wealthy people who aren’t deeply concerned about their finances—assuming the financial damage won’t trigger a response.
However, I believe most wealthy individuals are rich precisely because they value every penny and don’t leave anything on the table. And so for them, the real barrier to seeking justice is often shame. After all, wealth implies intelligence and competence—so how could they have been deceived? Such shame can prevent even those with ample means from confronting a fraudster or seeking legal recourse.
That doesn’t mean ashamed wealthier victims can’t recover their losses. In Inventing Anna, for example, a wealthy woman defrauded by Anna Sorokin (posing as Anna Delvey) didn’t pursue Sorokin directly to avoid bad publicity. Instead, she confronted the store that allowed Sorokin to charge extravagant purchases to her credit card and was reimbursed in full, thanks to her status as a valued customer and the store’s fear of reputational damage.
All in all, similar to victims of sexual assault, all those who have been defrauded experience shame, which can deter them from seeking justice, regardless of their financial status. However, as multiple-rape victim Gisèle Pelicot said, “shame must change sides.” In a business context, the shame can be overcome when a determined victim has the resources to litigate, feels compelled to act to uphold their combative reputation, has a fiduciary duty to recover losses, or faces consequences beyond financial harm.
A prime example of the latter comes from Rachel DeLoache Williams, also featured in Inventing Anna. Sorokin maxed out Williams’ corporate credit card to pay for a lavish stay at La Mamounia in Marrakech, leaving Williams not only financially strained but also at risk of losing her job and damaging her career. The stakes were too high for her to remain passive, as she recounts in her book My Friend Anna.
(Interestingly, some doubted that Sorokin had committed fraud in this case because Williams had willingly provided her corporate card and personally benefited from the Marrakech stay. This highlights a common tactic used by fraudsters—involving their victims in the benefits of the fraud, typically through extravagant trips or parties. This creates ambiguity about the loss when the fraud is uncovered, blurring the lines and making it harder for victims to pursue justice.)
11/ Stand Firm—Don’t Make Nice With a Fraudster
One might assume that once a fraud is uncovered, the fraudster—fearing legal repercussions—would promptly return what they took and try to move on. However, this couldn’t be further from the truth. For most fraudsters, lying becomes second nature—a habitual part of their existence—and remorse is nonexistent. So, there’s no reason to expect them to stop lying once they’re caught. In fact, those unfamiliar with dealing with fraudsters often enter negotiations with them in good faith, only to find themselves at an impasse.
Indeed, it quickly becomes clear that settling with a fraudster is a different kind of challenge. To me, this was well illustrated in The Key Man, a revealing book about the $1 billion Abraaj Group scandal. David Nierenberg, a director at the Washington State Pension Fund—one of the Limited Partners in the defrauded $1-billion Abraaj Growth Markets Health Fund—articulated a key lesson learned in dealing with fraudsters:
Just like you don’t negotiate with a terrorist, you don’t make nice with a fraudster. The only language they understand is force. We don’t even know how to think the way they do; they are wired differently.
Simply put, if someone has committed fraud by lying and using fake documents, they will continue doing so during negotiations to resolve the fraud. Therefore these discussions are often just a tactic for the fraudster to buy time and stall any resolution. And this is why you don’t make nice with a fraudster.
What about you? Have you ever encountered a fraudster? Did you notice any of the patterns mentioned above, or are there others worth highlighting? Let me know!
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From Lagos, Nigeria 🇳🇬
Nicolas
I've had my share of encounters. There's a draft, never published, in my substack with the title "close encounters of the fraud kind" but I did publish a review of a book about fraud (Lying for Money) https://investorama.substack.com/p/this-book-will-help-you-avoid-financial it has a different perspective from your excellent list, it looks at the fraud itself not the individual.
The author, Dan Davies, offers a "Golden Rule" that startups may not like: "Anything which is growing unusually quickly needs to be checked out, and it needs to be checked out in a way that it hasn’t been checked before."
Nigeria? But there are so few spelling mistakes.