American Greed

The Greed Report: American Ego — the Common Thread in the Biggest Scams’

Ross Mandell
Ross Mandell

What would possess a smart, wealthy, successful business executive to lie and steal money they don't really need from people who do?

If you said greed, you only have part of the equation according to Terry Leap, a University of Tennessee-Knoxville management professor who has spent some three decades studying deviant behavior in business.

The other factor frequently found in some of the most egregious frauds: "narcissistic personality disorder," or that close cousin of greed: ego.

"Narcissistic people have a high sense of entitlement and an abundance of egocentric, 'the world revolves around me,' and egotistical, 'I'm better than anyone else' behaviors," Leap told CNBC. "They are shameless self-promoters who are arrogant, haughty, and oblivious to the harm they cause others."

Leap says a hallmark of narcissistic personality disorder is what he calls "a strong sense of entitlement."

"When they see something they like and want, such as the hard-earned money of fund investors, … they believe they are entitled to take it, regardless of the damage they cause."

In the annals of modern-day white-collar crime, few people have had a more powerful combination of greed and ego than Sky Capital founder Ross Mandell.

Even after his 2009 indictment for running a $140 million investment scam, Mandell refused to be humbled.

"Conventional wisdom for people in my situation is to lay low, get small, lawyer up," he said at the time.

But not Mandell. The statement is part of a video to pitch a new reality show he hoped to produce, chronicling his fight with the feds to stay out of prison. The working title: "Facing Life."

"My name is Ross Mandell and I have the perfect life. I've worked on Wall Street for 25 years. I've made millions of dollars. I have a gorgeous wife and two amazing little girls," Mandell confidently declares in his gravelly, Long Island-accented voice.

"I've just got one small problem. I've been indicted by the United States government for conspiracy and securities fraud and I'm facing 25 years in prison."

The reality show pitch promised an inside look at Mandell's real-life drama. He also envisioned the show as a vehicle to help clear his name.

"We're prepared to reveal all. Let the public make up its own mind. Whatever the outcome," he says in the video.

The series never did get made, and today Mandell is serving a 12-year prison sentence for fraud and conspiracy. But the fact that he believed he could make a TV show out of something most people would consider the most humbling experience of a lifetime is a prime example of Mandell's massively inflated self image. It is a trait he apparently possessed nearly all his life, according to people who grew up with him on Long Island.

Prisoner prison
Manuel-F-O | Getty Images

"Ross was a very interesting character. He was very aggressive. He was very loud. He wanted to be the center of attention," childhood friend Norman Chess told CNBC's " American Greed."

Mandell's business career was a reflection of that.

Created at the end of the technology bubble in 2001, Mandell's Sky Capital was supposedly an investment vehicle to take promising new companies public. But in 2011, a federal jury agreed with prosecutors that the real purpose of the firm was to enrich Mandell and his cronies. After the tech bubble burst and the market for IPOs dried up, Mandell instructed his brokers to lie to customers to keep the money rolling in.

Yet even the jury verdict wasn't enough to curb Mandell's delusions.

His plans for a reality show dashed, Mandell nonetheless started producing motivational videos while his appeals played out.

"I know what you're thinking. Man, that dude looks handsome today," Mandell says to the camera in a video called "Dress for Success."

Today, he has traded the suit, power tie and the sunglasses he wears in the video for prison khaki, growing old in a federal correctional system that houses plenty of other ego-driven crooks.

'My ego was too big'

Russell Wasendorf, former CEO of Peregrine Financial Group.
Source: PFGBest
Russell Wasendorf, former CEO of Peregrine Financial Group.

One of the few corporate crooks to actually admit the role of ego in his crimes is Russell Wasendorf, the founder of Peregrine Financial Group, a defunct Iowa-based commodity brokerage. His $200 million scam is detailed in a 2014 "American Greed" episode "The Falcon and the Con Man."

The admission comes in a suicide note written by Wasendorf in 2012. His attempt to take his own life as regulators were moving in failed. But the note offers a frightening look inside Wasendorf's twisted mind, and into the psyche of a narcissist.

"When a narcissist is backed into a corner," Leap said, "the wheels usually fall off. Their egos are extremely fragile."

Wasendorf explains in the note how in 1993 the firm did not have enough capital to meet regulatory requirements.

"I had no access to additional capital and I was forced into a difficult decision: should I go out of business or cheat?" he writes. "I guess my ego was too big to admit failure. So I cheated. I falsified the very core of the financial documents of PFG, the bank statements."

For nearly 20 years, Wasendorf created phony bank statements, sending them to a post office box that he controlled, then presenting them to regulators as proof that his firm was financially sound. But all the while, he was stealing millions of dollars in customer funds.

Today, Wasendorf is serving a 50-year prison sentence after pleading guilty to four felony counts including fraud, larceny and embezzlement.

Under a plan recently approved by a federal judge, PFG customers will receive less than 14 cents for every dollar they invested, the rest of their money consumed by Wasendorf's massive ego.

The Dark Knight

Indicted financier R. Allen Stanford, accused of leading a $7 billion investment fraud scheme, arrives at the Bob Casey Federal Courthouse in Houston, March 6, 2012.
Aaron M. Sprecher | Bloomberg | Getty Images
Indicted financier R. Allen Stanford, accused of leading a $7 billion investment fraud scheme, arrives at the Bob Casey Federal Courthouse in Houston, March 6, 2012.

Robert Allen Stanford brought a Texas-sized ego to one of the largest financial frauds of all time. The $7 billion global Ponzi scheme, profiled in a 2012 episode of "American Greed," fittingly involved the firm that bore the fraudster's name: Stanford Financial Group.

Born in rural Mexia, Texas, where his grandfather ran a local insurance business, Stanford set out to prove he was bigger than all that. He ran a failed bodybuilding gym in the '80s, then enjoyed some modest success investing in distressed Texas real estate during the oil shock. Eventually, he found his fortune in offshore banking in the Caribbean.

He co-opted the regulatory system in the island nation of Antigua and Barbuda, and launched Stanford International Bank, which sold certificates of deposit around the world.

Stanford himself became a key selling point for the CDs. He portrayed himself as an international man of mystery, nurturing rumors — never proven — that he was a CIA operative. He falsely claimed he was related to Stanford University founder Leland Stanford, until the university sued to make him stop. And he created a $20 million international cricket tournament — funded with his investors' money — with dreams of bringing the high-brow sport to the masses.

As his fortune grew, Stanford persuaded the Antiguan government to award him a knighthood, which "Sir" Allen Stanford would falsely claim was bestowed upon him by the queen of England.

It all collapsed during the depths of the financial crisis in 2009, when the Securities and Exchange Commission alleged that the CDs were not backed by the sound investments Stanford claimed, but rather were used to fund his lavish lifestyle.

Today, Stanford is serving a 110-year federal prison sentence, a federal appeals panel recently upholding his 2012 conviction on 13 criminal counts.

Somewhere along the way, the Antiguan government stripped Stanford of his knighthood. Cold comfort to his 28,000 investors — many of them retirees — who have lost nearly everything.

Mother of All Scams

Bernard Madoff leaves U.S. Federal Court after a hearing regarding his bail on Jan. 14, 2009, in New York.
Timothy A. Clary | AFP | Getty Images
Bernard Madoff leaves U.S. Federal Court after a hearing regarding his bail on Jan. 14, 2009, in New York.

The most notorious fraud of all time, Bernie Madoff's $65 billion swindle, was also supercharged by ego.

In his final statement to the court prior to his 2009 sentencing for the giant Ponzi scheme, Madoff claimed he started the fraud to cover a rough patch in the markets in the 1990s.

"I refused to accept the fact, could not accept the fact, that for once in my life I failed," he said.

But while he famously apologized to his victims that day — "I am sorry. I know that doesn't help you." — most of the statement was about Madoff, and all he was feeling as he prepared to head to prison for the rest of his life. The nearly 600-word statement used the words "I" or "me" more than 40 times.

In multiple e-mails from prison to CNBC since then, Madoff has claimed he helped authorities recover billions of dollars for investors by pressuring those he claims were "complicit" in the scam, including large investors and big banks. Federal prosecutors and a court-appointed trustee deny that Madoff has been of any assistance. In an e-mail on Oct. 28, Madoff claims his clients earned more than 4 percent per year on their investments, even though he has previously admitted fabricating investment returns for years.

Leap says Madoff is a prime example of "major league offenders."

"These guys had way more money than they could ever hope to spend, yet they seem to get a perverse pleasure out of living on the edge and stealing even more money, while getting a rush from outsmarting shareholders, prospective investors, employees and even the FBI," he said.

Ego Proofing

moodboard | Getty Images

How do you spot the narcissist in your portfolio? Leap suggests looking at the types of narcissism we all encounter in daily life — the person who displays excessive wealth, talks but doesn't listen, or is constantly grabbing the center of attention.

"Most narcissists are annoying, but they are not dangerous," Leap said. But that may not be the case when you are considering giving a narcissist access to your money.

While many investment firms bear the name of their founder and the vast majority are honest, a firm in which the founder is the pitch man (or woman) deserves some extra scrutiny. That's especially true if those pitches promise great wealth or above-market returns.

You should also be conscious of your own ego when making investment decisions. Admitting failure is never easy, but sometimes it makes the most sense to cut your losses and move on. Don't let cousins' ego and greed get the better of you.

Watch "American Greed," Thursdays at 10 p.m. ET/PT on CNBC Prime.