Ben Carlson - Don't Fall For It

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Learn financial and business lessons from some of the biggest frauds in history Why does financial fraud persist? History is full of sensational financial frauds and scams. Enron was forced to declare bankruptcy after allegations of massive accounting fraud, wiping out $78 billion in stock market value. Bernie Madoff, the largest individual fraudster in history, built a $65 billion Ponzi scheme that ultimately resulted in his being sentenced to 150 years in prison. People from all walks of life have been scammed out of their money: French and British nobility looking to get rich quickly, farmers looking for a miracle cure for their health ailments, several professional athletes, and some of Hollywood’s biggest stars. No one is immune from getting deceived when money is involved.
is a fascinating look into some of the biggest financial frauds and scams ever.
This compelling book explores specific instances of financial fraud as well as some of the most successful charlatans and hucksters of all-time. Sharing lessons that apply to business, money management, and investing, author Ben Carlson answers questions such as: Why do even the most intelligent among us get taken advantage of in financial scams? What make fraudsters successful? Why is it often harder to stay rich than to get rich? Each chapter in examines different frauds, perpetrators, or victims of scams. These real-life stories include anecdotes about how these frauds were carried out and discussions of what can be learned from these events. This engaging book:
Explores the business and financial lessons drawn from some of history’s biggest frauds Describes the conditions under which fraud tends to work best Explains how people can avoid being scammed out of their money Suggests practical steps to reduce financial fraud in the future
is filled with engrossing real-life stories and valuable insights, written for finance professionals, investors, and general interest readers alike.

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Radio sales doubled in 1923, and then tripled from there by 1924. The biggest reason radio spread like wildfire is because it was free. There was nothing else to pay for once you purchased it. And the reason it was free is because the business model was predicated on advertising. The swift rise in radio ownership coincided perfectly with Brinkley’s rise to prominence as a healer of all things to all people with ailments. Brinkley was a world-class charlatan, but according to one media historian he was also, “the man who, perhaps, more than any other, foresaw the great potentialities of radio as an advertising medium.” [15]

Advertising these days is everywhere you look. It’s on the websites, social media, billboards, TV, radio, and podcasts. But advertising wasn’t always so ingrained in our lives. When the radio went mainstream in the 1920s and revolutionized how we communicate with large groups of people, it was controversial to advertise on the platform. In 1922, future president Herbert Hoover even said, “It is inconceivable that we should allow so great a possibility for service, for news, for entertainment, for education, and for vital commercial purposes to be drowned out in advertising chatter.” [16]

Brinkley saw the future well before many businesses and invested heavily into radio to spread his message. By 1923, tiny Milford, Kansas had the fourth largest radio station in the country. How did Brinkley pull off this feat? He was essentially the Dr. Ruth of his day, talking about sex on the radio, something that was a taboo subject at the time. He also used radio as a sales tactic for his services and the new line of “medicine” he created. The radio show he produced was basically the WebMD of the early twentieth century. People would write in questions about their illness or injury, which Brinkley would read aloud on his show. Prescriptions were then given on air, which listeners could then go buy from the more than 500 drugstores he developed relationships with all over the country. [17]

No self-respecting doctor would hand out prescriptions without first examining the patient and making a diagnosis, but Brinkley wasn’t trying to appeal to reason: he was trying to appeal to people’s worst fears. Snake oil salesmen had always targeted people’s emotions, and Brinkley was no different. Now he had the ability to do so on a massive scale. This entailed not only promoting his goat gland operation, but an entire line-up of healthcare products and services.

The Kansas State Medical Board eventually revoked his medical license on the grounds of “gross immorality and unprofessional conduct.” The Kansas City Star proclaimed: “The superquack of Milford is finished.” [18]

Narrator: He was not finished.

The Placebo Effect

Morris Fishbein, an actual physician with morals who worked with the AMA, had made it his life’s work to take down hucksters and quacks, and the man at the top of his list was John Brinkley. Fishbein knew Brinkley’s ruse couldn’t last forever. The goat gland procedure was completely fabricated. There wasn’t an ounce of scientific or biological proof it could work.

The question you’re probably asking yourself is this: How the hell did it actually work for those farmers who went through this painful procedure? It could have been due to the placebo effect, but the true answer is likely simple regression to the mean. Most sick people tend to get better. In fact, it’s estimated that four out of every five physical ailments will heal themselves. [19]So even the biggest quack in the world could “heal” most patients through the passage of time or dumb luck. Unfortunately, it was those patients who came to Brinkley in dire need of treatment who suffered the most.

The Kansas Medical Board proved that at least 42 people Brinkley treated (some of whom were not sick before he treated them) had died after undergoing one of his operations or medicine programs. This number is significantly higher than almost any serial killer in history. At least six of those people had undergone the goat gland transplant. Not only was Brinkley performing medical procedures with no scientific reasoning behind them, but he would often treat patients while drunk. One patient claimed that instead of stitching him up after a prostate operation, Brinkley used a piece of rubber from a boot heel to patch him up. [20]The worst part about these statistics is they occurred at the midpoint of his career. He was far from completing his medical reign of terror.

Fishbein finally put together enough evidence to bring Brinkley to trial. It was during this trial that the prosecution used Brinkley’s own autobiography against him. Consistent with his personality, Brinkley’s autobiography was filled with lies and fabricated stories. Even though he never graduated from medical school, Brinkley gave the date of his graduation in the book. The prosecution pointed out Brinkley was actually in jail on that date. In his writings Brinkley compared himself to Martin Luther, Galileo, and Jesus Christ. The lies and deceit finally caught up with him. After practicing medicine in Texas and Mexico, even going so far as starting a radio show south of the border (since he was barred from broadcasting in the US), he was forced to declare bankruptcy in 1941. The malpractice lawsuits finally caught up with him and he died a year later. [21]

Correlation Does Not Imply Causation

People often have a difficult time understanding the idea that correlation does not imply causation. Just because women were getting pregnant after their husbands received goat testicle implants does not mean that’s what caused them to bear children. The world is full of examples of two things that appear to be related because they move in concert with one another, merely by chance. The number of films actor Nicolas Cage appeared in is highly correlated with the number of people who drown in a swimming pool each year. The divorce rate in the state of Maine neatly tracks the annual consumption of margarine. [22]

There’s an old saying that the data will tell you anything if you torture it long enough. Investor David Leinweber once ran a test to show how data can be manipulated. He found that the production of butter in Bangladesh could have been used to predict how well the US stock market would perform between 1983 and 1993. When butter production was up 1%, the S&P 500 would be up 2% the following year. And if butter production was down 10%, the S&P 500 would fall 20%. This relationship has no basis in reality but I’m guessing if you showed enough people the backtest, some of them would begin to believe they’d found a foolproof system to beat the stock market. [23]

Brinkley’s client list was said to include former Secretary of State William Jennings Bryan and the 28 thPresident of the United States, Woodrow Wilson. Actor Buster Keaton even mentioned Brinkley and the goat testicle transplant in one of his movies in the 1920s. A US Senator from Colorado named Wesley Staley went so far as to say, I wear goat glands and am proud of it,” in his public defense of Brinkley. A US Senator seriously said this out loud. To other people. [24]

Unfortunately, there will always be charismatic charlatans like Brinkley around to take advantage of human nature. Certain people have the ability to convince others they can make the impossible become routine. Brinkley became fabulously wealthy from his practice and it was a boon for the town of Milford. Brinkley paid for a new hospital and put in sidewalks, a new post office, and a sewage system. He even bought new uniforms for the Little League team, who were aptly named the Brinkley Goats. [25]

Not long after having his license revoked for practicing medicine in the state of Kansas, Brinkley decided to try his hand at politics by running for governor. The campaign was marked by all sorts of outlandish promises he couldn’t possibly keep – every county would have its own lake, free books, and free healthcare for all. The campaign was ridiculous from the word go and somehow, he still almost won! [26]Being active in charitable causes, politics, or the local community are all wonderful ways to get people off your scent when bilking unsuspecting victims in a financial scam.

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