The Three Common Features of Black Finance (Investment Scams)
Investment scams, also known as black finance, typically share the following three key characteristics:
- High Returns
- Expertise
- Recruitment Methods
High Returns: This is a common tactic used by fraudsters. After all, if an investment doesn’t promise high returns, no one would pay attention to it in the first place.
Expertise and Sophistication: This is used to gain the trust of potential victims. Scammers often claim to be increasing money through methods that are difficult for the average person to understand, such as “earning immense wealth through personal trading” or “using automated trading machines equipped with cutting-edge AI.”
Recruitment Methods: A frequent strategy is to create the image of a successful person. Scammers may flaunt a lavish lifestyle or even use celebrities as spokespersons to lure in potential investors.
One of the largest investment scams in history occurred in the United States, perpetrated by Bernard Madoff, a former chairman of NASDAQ.
Madoff, who had also risen to the position of chairman of the National Association of Securities Dealers (NASD), used his fame to attract funds to his own investment firm. However, instead of investing the money, he operated a Ponzi scheme, using funds from new investors to pay returns to earlier investors.
Madoff, known as a successful figure on Wall Street, managed to evade scrutiny from the SEC (U.S. Securities and Exchange Commission) for years. Harry Markopolos, a certified fraud examiner, submitted reports to the SEC five times, but his warnings were ignored.
When Markopolos began investigating Madoff’s fund after noticing suspicious activities, he was shocked to find that many people were aware of Madoff’s fraudulent activities. Despite this knowledge, some chose to turn a blind eye, while others continued to invest and profit. Although many people doubted Madoff’s story, the scam eventually resulted in losses totaling $65 billion (approximately 7 trillion yen).
When the Lehman Brothers bankruptcy triggered the financial crisis in September 2008, Madoff could no longer meet redemption requests, leading to his collapse. He was sentenced to 150 years in prison and died in 2021 at the age of 82 while serving his sentence.
People tend to interpret situations in ways that suit their own interests, and scammers exploit this tendency.