Another such scammer is Steven Palladino, profiled in the latest episode of
American Greed, who is serving a ten-year prison sentence for running the biggest white-collar fraud in Boston in 100 years.
From a small office above his ice cream shop in the West Roxbury section of Boston,Palladino ran Viking Financial Group, which recruited investors to fund loans to local businesses.
By making himself a part of the tight-knit neighborhood, Palladino had his victims right where he wanted them. He would even hold court every morning at the local Dunkin Donuts.
"He knew everybody," says investor Ron Nasif, a retired orthopedic surgeon who often attended the sessions. "He would often speak about a loan he was going to do that day or about some upcoming gala event that he was sponsoring. It was always a way for him to make his contacts."
Weisman says it is a common tactic for con artists: playing on potential victims' common interests. Like Madoff targeting the Jewish country club set in Palm Beach orStanford going after retirees in the oil patch, Palladino played to the West Roxbury neighborhood of working class people seeking safe investments. The experts call it "affinity fraud."
"It is an innate sense of empathy. It is an innate sense of being able to mirror people when they talk with them," Weisman says. "So maybe it is someone who goes to the same house of worship. So maybe it's someone who belongs to a particular organization, a religion, race, whatever."
Palladino's Viking Financial Group turned out to be a giant Ponzi scheme in which his neighbors' investments funded his lavish lifestyle. Even after authorities tried to freeze his assets, Palladino kept spending money, landing him a separate federal conviction for criminal contempt.
In hindsight, Ron Nasif, who says he lost $1 million, tells American Greed it's no wonder Palladino got away with it for so long.
"We believed it because we wanted to believe it," he says. "Many of us had our life savings with him."
To protect yourself against affinity fraud, the Securities and Exchange Commission saysin a 2014 Investor Alert to do your own homework.
"Even if you know the person making the investment offer, be sure to research the person's background, as well as the investment itself—no matter how trustworthy the person who brings the investment opportunity to your attention seems to be,"the agency says.
Other tips include:
- Never make an investment based solely on the recommendation of a member of an organization or group to which you belong.
- Do not fall for investments that promise spectacular profits or "guaranteed" returns.
- Be skeptical of any investment opportunity that you can't get in writing.
- Don't be pressured or rushed into buying an investment before you have a chance to research the "opportunity."
"No one is too smart to be scammed,"Weisman says. "Actually studies have been done in regard to investment fraud showing that sophisticated, knowledgeable, well-educated investors can be scammed."
Or maybe you think you've got a great B.S. detector and you can tell when someone is lying. That too can be a fatal mistake.
Remember those conversations with Madoff and Stanford in which two of the biggest convicted con artists of all time clearly believed everything they were telling me? It is a whole lot harder to spot a lie when the person telling it is convinced he is telling the truth.
Think you could have spotted Steven Palladino's scam? Watch an ALL NEW episode of AmericanGreed—"The Bad Neighbors"—Thursday, August 4 at 10pm ET/PT on CNBC Prime.