One of the odd things about confidence games is that, structurally speaking, there are so few of them—only about as many as there are simple machines. What looks like their near-infinite multiplicity is just a lot of variations on a small number of forms.
By my current reckoning there are seven:
1. Simple misrepresentation.
2. Using high-pressure tactics to confuse or intimidate the victim.
3. Shell games, sleights of hand, and switch-and-retraction cons: the pigeon drop, the Jamaican switch, Three-Card Monte, etc.
4. The Spanish Prisoner
5. Ponzi Schemes
6. Pyramid schemes
7. Selling information about, or access to, uncommon opportunities
(The list is a work in progress. I’m not altogether sure #2 belongs on the it, though I’m not sure why or why not, and #7 might turn out to be a subcategory of one of the first six. False billing is off the list, subsumed under #1. But the whole idea of a taxonomy might be folly; everyone who thinks a lot about fraud comes up with one, and they’re all different. Here’s one, here’s another.)
From these come all the myriad versions of the confidence game. Pyramid schemes include everything from chain letters to Amway distributorships to the Dotcom bubble; their commonest form is the Multi-Level Marketing (MLM) scheme. Two excellent articles on this are Le Club Scambuster’s What’s Wrong with Multi-Level Marketing? and Ami Chen Mills’ Shaking the Money Tree.
A Ponzi scheme is a pyramid scheme where the participants don’t know it’s a pyramid. It offers investors an improbably high rate of return (for whatever reason; some are quite ingenious) on short-term investments. Early investors make big profits and tell their friends about it. But in fact, there is no lucrative investment strategy powering the machine; the early investors are getting paid out of the money paid in by later ones, and they’re being strongly encouraged to roll over those profits into even bigger investments. Excitement builds. More and more people invest. At some judicious point, the scammer up and disappears: Bye-bye profits, bye-bye initial investment. In 1996-97, a plague of Ponzis took down the Albanian economy.
The family of scams based on selling information about supposedly lucrative or otherwise advantageous schemes is huge. It includes advance-fee loan finders, lists of hot scholarships or employment opportunities, manuals that tell you how to get jobs on cruise ships or Alaskan fishing boats, this bit of effrontery, most of the “work at home” and “be your own boss” scams, a dozen dozen dubiously wonderful business opportunities involving reports, or display racks, or government auctions, or reviewer coupons; and of course Make Money Reading Books.
A particularly juicy subspecies is selling bad tax-avoidance information. This one’s a beaut; you have to check it out. There’s a whole section on it at the Quatloos! Cyber-Museum of Scams & Frauds, which is a great site in general for information about tax- and finance-related frauds. For some time now I’ve been meaning to blog their Tax Protestor Dummies exhibit; this seems like the right moment for it.
Before I stumbled upon Quatloos!, I’d wondered how “tax protestors” (i.e., would-be tax evaders) managed to come up with so many wacky theories about why they shouldn’t have to pay. Turns out there’s a separate class of scammers who sell them Secret Insider Information about these great tax avoidance schemes, then walk away whistling as they count their money, leaving their customers to find out the hard way that these methods absolutely do not work.
The theories are a hoot. Quatloos also has them in the form of a neatly catalogued list, but I think the gallery of Tax Protestor Dummies is more fun. I’m particularly fond of the cases where the tax evaders argued that the court proceedings were improper because there was gold fringe on the flag in the courtroom. The page begins:
These are people who really believed in the tax protestor literature, who followed it to the letter, and then was either sent to prison for tax evasion, or sanctioned or fined for asserting a stupid theory in court, or had some goofy case against the IRS dismissed, etc. These cases demonstrate conclusively that irrespective of what the scam artists who sell the tax protestor materials tell you, the only thing that will happen is that you will get creamed by the IRS in court. Oh, and you will also have lost the money you paid for the materials, your defense attorney’s fees, the value of your lost time fighting the IRS, and your reputation as a sensible individual.Some of the cases:
Greene v. Commissioner; T.C. Memo. 2000-26; No. 15225-98 (January 21, 2000): Argued that the federal income tax laws apply only to employees of government-related entities.Uh, yeah, right. Hard to believe they thought those would work. The final kicker, says Quatloos, is:
McQuatters v. Commissioner; T.C. Memo. 2000-34; No. 16871-98 (February 3, 2000): Argued, among other things, that letters addressed to “Dear Taxpayer” were fraudulent, and that “income” cannot be defined — In addition to losing, he additionally received a $5,000 fine from the court for making frivolous arguments.
United States v. Ross, No. 93-1010 (7th Cir. 1995): Argued that the district court lacked jurisdiction because Indiana is not part of the United States, and because there were no regulations issued to implement the criminal statute under which he was convicted.
Miller v. United States, 868 F.2d 236 (7th Cir. 1988): Argued that the Sixteenth Amendment was never legally ratified.
United States v. Genger, No. 87-1043 (9th Cir. 1988): Argued that the district court erroneously exercised admiralty jurisdiction over him, and that filing a federal tax return violated his First Amendment right to freely exercise his religion.
McLaughlin v. United States, 832 F.2d 986 (7th Cir. 1987): Argued that the federal income tax is a contract, and that he didn’t owe any tax because he rescinded the contract.
Casper v. Commissioner, 805 F.2d 902 (10th Cir. 1986): Argued that wages are exchanges of property rather than taxable income.
Eicher v. United States, 774 F.2d 27 (1st Cir. 1985): Argued that the Fifth Amendment allowed him to withhold all financial information from his income tax return.
Newman v. Schiff, 778 F.2d 460 (8th Cir. 1985): Irwin Schiff offered $100,000 to anyone who could prove that the tax code requires individuals to pay income tax.
Lovell v. United States, 755 F.2d 517 (7th Cir. 1984): Argued that they are exempt from federal taxation because they are “natural individuals” who have not “requested, obtained or exercised any privilege from an agency of government.”
McCann v. Greenway, 952 F. Supp. 647 (W.D. Mo. 1997): Argued that a state court lacked jurisdiction over him because the flag in the courtroom had yellow fringe on it, thus converting it into the “maritime flag of war.” A Favorite!
United States v. Greenstreet, 912 F. Supp. 224 (N.D. Tex. 1996): Filed UCC-1 financing statements against federal employees. Argued that as a “white Preamble natural sovereign Common Law De Jure Citizen of the Republic/State of Texas,” the district court lacked jurisdiction, that the case should be moved to “Our One Supreme Court for the Republic of Texas,” and that fringe on an American flag denotes a court of admiralty.
Valldejuli v. Social Security Admin., No. 94-10051 (N.D. Fla. 1994): Argued that he was fraudulently induced into signing a “contract” with the Social Security Administration, and that he is a natural sovereign citizen of the United States who is not subject to the Social Security system.
Snyder v. United States, 596 F. Supp. 240 (N.D. Ind. 1984): Argued that the I.R.S. is a private corporation and not part of the government of the United States.
McKinney v. Regan, 599 F. Supp. 126 (M.D. La. 1984): Argued that as a “Sovereign Individual,” the “Common Law of the United States of America, a Republic” protected him from penalties for filing a frivolous tax return.
Somewhat humorously, in several cases where the IRS has gone after promoters of “Don’t File” schemes, it was determined that the promoter—while advocating not filing returns—had been filing their returns all along. This really isn’t surprising, since most of the promoters will secretly confide that they really don’t believe these theories either, but it makes them good money.It’s just too cute for words.
The variety of scam I find most fascinating is the Spanish Prisoner. It’s named for its first recorded version, dating from the 16th century, when it went something like this:
Lord Whatever has been taken prisoner in Spain. He has withheld his name and condition from his captors, lest they torture him for military or diplomatic secrets; and so they think him a common soldier, worth only a paltry ransom, and hold him in conditions of great misery and want. He cannot send to have his ransom paid out of his own vast estates, since to do so he must peforce reveal himself. The man who could supply the trifling sums needed to ransom him, and bring him home safely to England, would have Lord Whatever’s eternal gratitude, and be rewarded many times over.
Naturally, there are variations. Lord Whatever can have a beautiful daughter who’ll be ever so grateful. He may be a staunch English Protestant, in danger not of being tortured for military secrets, but of being handed over to the Inquisition. And sometimes it’s just the money, plus the gratitude of the high and mighty.
What’s wonderful is that not only is it not necessary that Lord Whatever exist; it isn’t necessary that Spain exist. All you need is the piece of Secret Inside Information about an immeasurably rich prize, which for some odd reason needs to be extricated from its current situation, and which can be had for a very little money. You could play it with, say, a hitherto unrecognized Faberge egg and a pawnshop ticket. The Nigerian 419 scam is a Spanish Prisoner variant; on which, more anon.
Sometimes the McGuffin to be rescued is a fabulously wealthy unclaimed estate, like the Drake Inheritance, supposedly left to his descendants by Sir Francis Drake but tied up for centuries in court; or the Baker Estate, which supposedly included a large chunk of prime real estate in downtown Philadelphia. If you had the right surname, you got hit up for contributions to help finish the last bits of legal work and genealogical research.
Unclaimed funds are another major McGuffin. The liveliest modern variant of this (which Neal Stephenson picked up for Cryptonomicon) involves 2,000 metric tons of gold buried in the Phillippines by the Japanese near the end of WWII. The recovery project needs investors—that’s where you come in—but it has to be kept quiet, because the government will doubtless queer the deal if they find out about it. Your return will of course be many, many times your original investment.
A couple of days ago I finally put my finger on something I’ve been sensing but not grasping—you know, one of those itchy back-of-the-brain apprehensions that there’s a pattern here, only you can’t quite see what it is. Somehow it’s felt like literary analysis. The question is, why do these scams—inheritance cons, MLMs, tax dodges, Make Money Fast, hot stock tip swindles, et cetera—take the forms they do?
What did it was looking at my list of basic scams and observing that what they have in common is the promise of lucrative, risk-free investments. Lord knows the things exist, I thought, but nobody ever gives them away. In theory, high rates of return are the investor’s payoff for taking on higher-risk investments. Achieving that happy state of all payoff and no risk is the main reason the wealthy and powerful manipulate the system.
These scams take the forms they do because they’re parodies—no, a better way to put it: they’re cargo-cult effigies—of the deals the ruling class cut for themselves. If you’re an insider, if you have the secret, you can have a job where you make heaps of money for very little work. You can avoid paying your taxes. You can inherit a pile of money because an ancestor of yours left a moderate fortune that’s been appreciating ever since. You can be your own boss. You can have other people working for you, who have other people working for them, who all pay you a percentage of the take.
Of course people believe it. After all, they vaguely know this sort of thing happens. It just doesn’t happen to them. But why shouldn’t they be the lucky ones, this time around?
I give you Exhibit A, Omega Trust & Trading, as outlined by Quatloos:
After five long years, victims of one of the longest-running bank debenture scams of the 1990s have finally realized that they have been scammed. Yes, we’re talking about Omega and Destiny, two programs in which funds were pooled so that investors (called “lenders”) could invest in various bank debenture programs. The problem, as we have repeatedly chronicled, is that bank debenture programs do not exist.Thus also the late great bull market. As Chris Quiñones has observed, people invested in it because they thought they were finally getting in on the games the rich get to play.
The bank debenture scam is one of the best-known to law enforcement, because it became so prolific in the mid-1990s. The storyline is that there is a “secret” banking system, in which the “prime banks” and the ultra-wealthy make trades that yield 70% per week and upwards. According to the storyline, so called “little people” (small investors) don’t have the money to enter into these transactions, so they must “pool” their funds together and let someone who does have a magical “in” to this system invest for them.
My two favorite recent Nigerian 419 variants:
I know they’re pernicious, but I love Nigerian scams because the best ones are such great examples of story construction and narrative compression.
First specimen. Patrick got this one last week. I’ve transformed it from all-caps to u&lc and cleaned up the spelling a bit, just to make it more readable:
THE PRESIDENCYThat is, if you’ve already fallen for one of these scams in the past (and suckers who’ve fallen for one con are proverbially prone to fall again), we can arrange for you to have a repeat experience! So ingenious, building a new Nigerian scam around mythical reparations for past ones.
14/20 WUSE II ONABANJO AVENUE
234-1-471 8233 ,
234-80 234 233 85
FAX : 234-1-272 1250
OUR REF: FGN/ANT/DT09
ALLOCATION OF YOUR ENTITLEMENTS
This is to inform our numerous contractors all over the world the awareness of the fraudulent practices of Nigerians have reached the Federal Government attention and means to eradicate this virus from our society has been of great concerned to us.
The Federal Government on behalf of all the law abiding citizens of this great nation do solemnly regrets the action of the fraudster. And however we have been doing all within our possible powers to stop the act of terrorism in our global world
The American and British conquest against the advanced fee fraud known as 419 has been commendable and encouraging. They instigated this campaign and this is to inform you to desist from all forms of business relationships with Nigerians, the Nigerian Chamber of Commerce and Industry has been mandated to foresee any international business which involves foreign investors and business.
The British/American campaign has also given the Nigerian Government the sum of $10,000,000,000 million to compensate and pay contractor all foreign partners/investors that has suffer great financial loss in the hands of the evil perpetrators.
Hence, all foreign contractors are advised to forward the following via the above fax number:
1. The Certificate of Incorporation
2. Letter of Credit/Evidence of Due Payment
3. Name of Ministry
4. Name of Contractor
This will be crosschecked among the list given to the government by the British /American Aid and Fraud Reconciliation Committee. please we would like to inform you that prior to the evidence and proof of the activities before us.
You will have to pay a mandatory and non-refundable fee of $650 for the processing and application fee as well as the transfer fee, because henceforth all payment shall be remitted in person via our Payment Centre in Spain.
Having evaluated your contract sum and contract claims thoroughly we will forward your original documents to the corresponding bank in Spain and they will immediately call your attention and our officials located in Spain will invite to come and receive you fund in person
Please note that we have to safeguard this project, because we have discovered that some top officials are also involved in the global fraud, so please henceforth the Central Bank of Nigeria will not
1. Transfer any fund by wire/telegraphic transfer
2. Allocate an attorney for signing document
3. Charge any dollar other than the $650
4. Send the message by fax or with any logo
5. Give any authorization for payment other than the one to be provided by you as evidence.
This is the measure to ensure that the image of this great nation is maintain, we want you to know that we have a list of contractors from the British/American fraudster listing and also from our local source here we have list of people that have been defrauded based on money claimed to be in one security company or the other .
Please you are advised to desist from all emails coming from this part of the continent because this individuals are still at large and have access to governmental documents and we need also need your assistance to curb this act menacing our world. all correspondence should also be sent by mail as this is the surest way of communication: email@example.com
Thanking you for your audience
Long Life the Federal Republic of Nigeria
Special Aid Anti-fraud/Debt Reconciliation Committee
This one was sent to Jordin Kare and asst’d other SF fans:
Date: Wed, 16 Oct 2002 04:03:24 -0700 (PDT)Go here for a last word on Nigerian scam letters. I’ll fix the link when Donald Davies fixes his, but for now just scroll down until you find “Dial 419 for fun”.
From: augustine ogwu
Subject: FROM AN AFRICAN WRITER OF SCIENCE FICTION AND FANTASY
I’m a writer of science fiction and fantasy. A publisher based in London approved one of my books for publication two years ago but I had to call off the deal when I realised they are vanity publishers. I have finally taken the decision to publish my novel, War of the Immortal Kinds, both in print and as an e-book. It is the first real fantasy novel ever to be published by an African and I do hereby request your financial support for the publication.
War of the Immortal Kinds adeptly depicts a Fantasy world governed by unearthly powers and the mystic. The work is also a celebration of nature and humanity in which the impotance of friendship and the pleasure of a life without material possessions was emphasized. I assure you that your support won’t be a waste. The book will surely hold the world spellbound. I will soon open a website where a short story, Beyond the Blue Sky, can be downloaded.
Augustine .k. Ogwu