The Psychology of a Scam

We’ve all heard the timeless admonition “If it sounds too good to be true, it probably is”—great advice, but the trick is figuring out when “good” becomes “too good.” There’s no bright line. Investment fraudsters make their living by making sure the deals they tout appear both good and true.

They’re masters of persuasion, tailoring their pitches to match the psychological profiles of their targets. They look for your Achilles heel by asking seemingly benign questions—about your health, family, political views, hobbies, or prior employers. Once they know which buttons to push, they’ll bombard you with a flurry of influence tactics, which can leave even the savviest person in a haze. Some of the most common tactics include:

The “Phantom Riches” Tactic—dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”

The “Source Credibility” Tactic—trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”

The “Social Consensus” Tactic—leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in—and so is my mom and half her church—and it’s worth every dime.”

The “Reciprocity” Tactic—offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”

The “Scarcity” Tactic—creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”

If these tactics look familiar, it’s because legitimate marketers use them, too. But one key difference is that real deals will still be there tomorrow. So always take the time to stop and think before making a decision.

A car crash that left an 80-year-old man with fatal brain damage has settled confidentially for $1.75 million. The October 2008 crash occurred when a small commercial truck ran a stop sign. The plaintiff, driving from the truck driver’s right, hit the truck’s front-side corner, causing the truck to flip over and skid to the other …

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Plaintiff’s vehicle was struck from behind by a vehicle travelling at 45 mph. Plaintiff lost consciousness in the collision. In March 2007, he underwent cervical decompression, a complete diskectomy, bilateral foraminotomies and decompression of the nerve roots. He developed depression due to his inability to sustain gainful employment and was determined to be disabled by the …

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Judge Kenneth Levy on Monday approved the freezing of assets held by Miller and his related companies, and the appointment of a receiver who will oversee and control those assets. The judge also approved the appointment of a fiscal monitor for the Carrs, and one nominal defendant. Their assets cannot be moved or transferred without the approval of the fiscal monitor.

The state’s complaint seeks restitution for investors, disgorgement of profits, and the imposition of civil penalties.

In a related action, the Bureau of Securities has revoked the Investment Advisor registrations and/or exemptions of Carr Miller Capital, Capital Markets Advisory, LLC, Miller, Brian Carr and Ryan Carr, effectively barring them from the state’s securities industry.

“We charge that these defendants operated a Ponzi scheme for their own enrichment at the expense of investors,” Attorney General Paula Dow said. “Instead of investing funds to produce high rates of return as promised, we allege that the defendants spent investors’ hard-earned money on personal luxuries and indulgences.”

As detailed in the first four counts of the state’s Complaint, the defendants made false statements and omitted materials facts when dealing with investors and also deployed invested funds for unauthorized uses.

The Bureau’s investigation revealed that $13.5 million of investors’ monies were used to pay for a New Jersey Devils sky box at the Prudential Center in Newark, personal automobile purchases, travel and luxury vacations, retail purchases and meals, among other things. An additional $16 million was put into various hedge funds, real estate, film production companies, and an oil and gas venture, among other ventures not authorized by or disclosed to investors.

Carr Miller Capital offered nine-month notes that purportedly provided rates of return between 10% and 15% annually. Certain investors were told they could renew the notes for additional nine-month terms or be paid out at the end of the term. Approximately $8 million of the $40 million was sent to investors as “interest” payments, when, in fact, they were merely new investors’ capital being used to keep the Ponzi scheme in operation.

“These defendants operated a classic Ponzi scheme, using funds from new investors to pay money to earlier investors, all in an attempt to perpetuate the deception,” said Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs. “The promised rates of return sounded too good to be true and, sadly, that turned out to be the case.”

The securities offered by the defendants were not registered for sale in New Jersey and Ryan Miller was not registered to act as an agent, as alleged in Counts V and VI of the state’s Complaint.

“Unregistered investments and unregistered individuals should be an immediate red flag to potential investors,” said Marc B. Minor, chief of the N.J. Bureau of Securities. “The Bureau is a resource that investors can use to perform due diligence as they decide how and with whom to invest.”

If you purchased Carr Miller Capital promissory notes, contact Baker & Slaughter, P.A. at 888-551-7725 for a complementary review of your case and assistance in recovering your investment.