American Greed

The Greed Report: Admit it: There’s a Little Greed in All of Us

Tim Durham in his office in Indianapolis
Source: Indianapolis Monthly
Tim Durham in his office in Indianapolis

Indiana businessman Timothy Durham was greed personified. Cars. Yachts. Mansions and models.

He's now serving 50 years in federal prison, convicted of fraud and conspiracy in a $200 million scam.

But it wasn't just his own greed that allowed him to pull off the fraud for so long. Durham had plenty of help from his own victims.

Yes, most of them lived simple lives — certainly in comparison to Durham.

But Donna Immel, whose father Herman Nussbaum lost $170,000 in the scam and has since passed away, recalls the time she suggested to her dad that he might want to be a little more cautious about putting all his savings into Durham's firm, Fair Finance.

"I just said, 'Well, Dad, I said maybe, maybe it'd be a good idea to diversify a little bit.' He said, 'No.' He said, 'Fair Finance has treated me well, and I don't have any problems with it."

No savings
Dan Brownsword | Getty Images

Like many clients, Nussbaum had begun investing with the company when it was operating legitimately under a previous owner. Most customers either didn't notice or failed to ask questions when Durham took over in 2002 and began turning Fair into his personal piggy bank. Perhaps lulled by the seemingly dependable returns, they just kept pouring their money in.

It's a tragically common theme in scam after scam: perfectly intelligent people willing to set aside their own common sense — and some basic principles of investing — in the quest for a little extra return or steadier results. Nussbaum paid dearly, losing his entire life's savings. He is hardly alone.

Thousands of people invested with Minneapolis businessman Tom Petters, convicted in 2009 of running a $3.65 billion Ponzi scheme.

Tom Petters

Attorney Douglas Kelley, the court-appointed receiver seeking to return funds to the victims, calls the case "a little insight into our own psyche."

"There are a lot of folks who turned their backs on questions they should have asked," he told "American Greed" in 2012. "And the reason they turned their backs was because they were making so much money."

Both Petters' and Durham's scams were built on what can best be described as "alternative" investment vehicles. Petters trafficked in promissory notes supposedly used by big box retailers to buy consumer electronics. A federal jury in 2009 found the notes were largely bogus. Petters, now 57, is serving a 50-year sentence at the federal penitentiary in Leavenworth, Kansas.

Durham's fraud involved consumer debt. If, for example, a health club knew it would be billing its members $100,000 over the next year, it could sell those "receivables" to Durham's Fair Finance Company at a discount — say $90,000. The health club would get most of its cash upfront, while Fair Finance and its investors would make a tidy profit on anything over $90,000 the company could collect.

Alternative products like these can be attractive to investors who want to feel like they are "beating the system," finding that special path to wealth that the general public has missed. And in fact, many alternatives are perfectly legal.

Con artists like to sell alternative investments because they are less regulated and less subject to scrutiny.

The Securities and Exchange Commission in Washington.
Jim Bourg | Reuters
The Securities and Exchange Commission in Washington.

Fair Finance, while registered with state authorities, was able to use a special exemption to avoid reporting to the U.S. Securities and Exchange Commission. Tom Petters typically sold his promissory notes through hedge funds, which were more loosely regulated than more traditional outlets.

Indeed, the biggest investment scams in history have all followed the same playbook.

Texas billionaire Allen Stanford sold $7 billion worth of certificates of deposit through his offshore bank in Antigua, claiming the better-than-average returns were the result of shrewd investing. Thousands of investors were eager to believe him. But a jury found most of the money went toward Stanford's lavish lifestyle — and buying off the Antiguan regulators.

Bernie Madoff
Getty Images
Bernie Madoff

Bernie Madoff's investors were all too willing for decades to believe that he somehow never had a losing quarter in the stock market. In fact, all his purported trades were made up, and Madoff had managed for years to position his firm away from the gaze of the SEC.

And the man who gave the modern financial fraud its name — Charles Ponzi — convinced eager investors they could make huge money investing in postage coupons of all things, when in fact the whole thing was a scam.

How can you protect yourself?

A sign for the Financial Industry Regulatory Authority (FINRA) is seen outside the offices in New York's financial district.
Brendan McDermid | Reuters
A sign for the Financial Industry Regulatory Authority (FINRA) is seen outside the offices in New York's financial district.

The SEC's investor education web site offers five questions to ask before making any investment:

  • Is the seller licensed? Check out an investment advisor using the SEC's Investment Adviser Public Disclosure site. You can check a stockbroker's credentials using the Financial Industry Regulatory Authority (FINRA)'s Broker Check.
  • Is the investment registered? Most must be registered either with the SEC or another government agency. Registration is not a guarantee the product is legal, but it does provide an extra measure of security. Check it out using the SEC's EDGAR database.
  • How do the risks compare with the potential rewards? "Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes," the SEC says. If you are being promised big returns with little or no risk, run away — or report it to the authorities.
  • Do you understand the investment? If you don't, stay away. A good con artist will try to make you think you understand. Don't be fooled.
  • Where can you turn for help? The SEC and FINRA have plenty of resources. Every state has a securities regulator as well. You can find yours through the North American Securities Administrators Association (NASAA).

Remember, don't be a victim of your own greed. It's a scam artist's most effective tool.

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