Investor's Watchdog.com: Stock, finance and investment protection for investors

My biggest hurdle has always been the same: getting people past the powerful cognitive bias that convinces them that they are too smart, savvy, or sensible to ever be taken in by an investment fraud. Until people are equipped to turn around and examine their own thinking, they cannot shake that hardwired defense mechanism. And, until they can clear that hurdle with me, nothing I say about how to investigate a prospective investment can do them any good. In addition to teaching them about the cognitive biases, I tell my audiences about all of the very wealthy, successful, and professionally suspicious people who have fallen for well-disguised scams, in hopes that concrete examples will lead them to the thought, If those people could fall for it, maybe there is something else I need to know in order to protect myself. A recent case out of North Carolina gives me another example to share. According to the Charlotte Observer:

John Knox Bridges, the Salisbry man accused of taking money from fresco artist Ben Long, the N.C. Transportation Museum and others, has agreed to plead guilty to federal charges – and to repay his victims. Last year, federal authorities charged Bridges with running an elaborate Ponzi scheme and fraudulently obtaining more than $2.3 million from individuals and charitable groups. Bridges, now 51, falsely told several people he would invest their money in a Texas oil company, but instead used the money for travel and personal expenses, according to the federal indictment. In 2009, the Observer reported on allegations that Bridges made off with money from Long, the Minnesota-based Lindbergh Foundation and the N.C. Transportation Museum in Spencer.

In the years before complaints surfaced, Bridges told friends and associates that he came from a family worth billions. Bridges said he owned a corporate jet, hobnobbed with world leaders, and served on the boards of prestigious groups, including New York’s Guggenheim Museum. In August, Bridges shot himself in the torso after Salisbury police responded to a report that he was suicidal. He was later discharged from the hospital. Two weeks after the shooting, a grand jury indicted him.

The Lindbergh Foundation? The N.C. Museum of Transportation? Those are institutional investors, and our instinct is to believe that they must have policies and procedures in place to adequately vet anyone with access to their funds. But that instinct leads us astray. All the policies and procedures in the world cannot stop the decision to invest from running through a human brain hardwired with cognitive biases that will betray us.

The claim to vast wealth is common amongst financial criminals, and you can understand why. In The Vigilant Investor, I quote convicted scamster Marc Dreier on that point: “It was clear to me that the more you showed people that you didn’t need money, the easier it was to attract money. So having the trappings of success was a very important part of the plan.”

Be wary of those “trappings of success.” They appear in almost every Ponzi scheme case. And, do not think that confirming wealth is an adequate substitute for a thorough due diligence investigation. Most investment scamsters work in tandem with cohorts who are in place to “confirm the wealth” should you go asking. Whether the investment promoter is Warren Buffett, your beloved grandmother, or your trusted broker, do a thorough due diligence investigation before you invest or be prepared to live without that money.