Source Credibility/Phantom Riches
Don't Just Rely on Someone's Name
Sarasota, Fla., is a con-artist's dream. The area attracts affluent, well-educated professionals, lured by the great weather and economic prospects. For cons like Beau Diamond, these professionals can be an easy catch.
Diamond easily integrated himself into the social circles of wealthy Sarasotans and appeared to do well for himself. He drove a luxury car, wore expensive jewelry and lived in a multi-million dollar waterfront home. In addition, his father was the author of a few best-selling health books, lending credibility to the Diamond name. For the area's well-to-do, an investment with the "golden" Diamond name seemed like a no-brainer. Many signed on to the bogus security investments without bothering to check if Diamond was licensed or if the investments were registered.
Diamond used his status in the community to lure investors, a persuasion tactic called "source credibility." Most of his investors relied heavily on the reputation of the Diamond name, and didn't think twice about trusting him. For those who did, Diamond told them the type of investments he was selling didn't have to be registered—a clear red flag.
John McKenney, a local tax attorney and a lawyer for more than 20 years, knows his way around a balance sheet and the complexities of the tax code. He also lost $250,000 in the estimated $37 million Ponzi scheme Diamond was running.
"The word was around, he was producing some seriously nice returns," said McKenney. "I felt lucky to get involved…this was my ticket to the big dance."
The problem, says Robert Cialdini, a psychologist at Arizona State University and an expert on the psychology of persuasion and influence, is that your own self-confidence can lower your guard.
"If you think you're invulnerable to these things, your defenses come down and you become more vulnerable as a consequence," he said. "So those individuals who have the background and experience, who think they know what constitutes a trick and what doesn't, then open themselves up to the possibility of being tricked because they're sure that they can spot it and resist it. Oftentimes they are wrong."
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