Professional athletes are always in the sights of investment fraudsters for a very practical reason: they have a lot of money. You name the sport, and I can cite you to several cases involving players being swindled. A recent case tells a familiar tale. According to OnWallStreet.com:
A former Bank of America Merrill Lynch financial advisor and one other individual were arrested on charges that they fraudulently wired $2.2 million from an account of National Football League player Dwight Freeney.
That client, who is only identified in court documents as “D.F., a professional football player” is Indianapolis Colts defense player Dwight Freeney, an official confirmed.
The defendants, former BofA Merrill Lynch financial advisor Eva D. Weinberg, 48, and Michael A. Stern, 51, have been charged with wire fraud in connection with the case, which was filed March 22 in federal court in the Central District of California.
Freeney first met Weinberg around January 2009 when she was working in private banking at Merrill Lynch, according to the criminal complaint. Shortly after that, he agreed to become Weinberg’s client, allowing her to oversee his personal bank accounts, Hollywood, Calif., restaurant and real estate investments.
Weinberg left Merrill Lynch in early 2010 to become Freeney’s personal financial manager, the complaint stated. She also introduced Freeney to Stern, court documents show. Weinberg allegedly told Freeney his name was Michael Millar, and that he could help Feeney with business opportunities.
Freeney never signed on to work with Stern, according to the criminal complaint, but both Weinberg and Stern and other unidentified individuals allegedly conspired together to commit fraud against him. That allegedly included a total of $2.2 million in wire transfers from Freeney’s bank accounts from June 2010 through October 2011. Weinberg allegedly authorized the transfers as Freeney’s personal financial manager, and the funds went into accounts controlled by Stern and other unnamed individuals.
The scheme was uncovered by an FBI investigation that included a confidential informant. Audio recordings of that informant’s conversations with Stern include Stern’s admission that both he and Weinberg were part of the scheme, the criminal complaint states.
They also include conversations whereby Stern tried to get the informant to travel from Miami to Los Angeles to destroy possible evidence. That evidence includes a silver Apple Macintosh computer, which was located in a black Lexus SUV at Los Angeles International Airport at the time of the filing.
Stern also allegedly indicated in those conversations that both he and Weinberg, who are believed to be romantically involved, might leave the country within a week, the complaint states. Stern also said that he had personal connections in the Bahamas, Israel and Trinidad that could help him hide. In addition, he said that he and Weinberg planned to travel to Israel for Passover in April, in part to avoid Weinberg’s arrest by the FBI.
Stern was arrested last Thursday as he was on his way to the airport, while Weinberg was taken into custody the following day. Weinberg is now free after posting $225,000 bond.
You might wonder why athletes are so often the targets of investment criminals. If I asked you to give me a list of the top three factors that lead to athletes falling victim to fraud, my guess is that many of you would list their youth, their inexperience, and their gullibility. It’s true that elite athletes are young, but it isn’t their youth that’s to blame. They are inexperienced in the investment world, but it isn’t their inexperience that is to blame. As much as you’d like to chalk it up to gullibility, they aren’t any more gullible than you are. Those who’ve read The Vigilant Investor know that something much more fundamental is the answer. The problem is that they are human and, like all humans, their brains are wired for susceptibility to investment cons.
You are tempted to stop reading now, because you don’t believe me when I tell you that you are as susceptible to an investment fraud as a 22-year-old NFL player. But please keep reading. You are not alone in that reaction. Everyone of you reacted with disbelief. But why? It turns out that your brain is wired with certain cognitive biases that make you reject suggestions of vulnerability. We call it the optimism bias. You intellectually admit that disaster is going to strike someone today, but your brain convinces you that it won’t be you. If you were convinced otherwise you might never leave your home into a world full of germs, crime, and teenaged drivers. You carry that conviction of invulnerability into your meetings with brokers and investment advisers. You can admit that investment losses are possible, but you are reluctant to admit that you could give your trust to someone who has every intention of breaking it. And, of course, because you are convinced that something like this could never happen to you, you take no precautions to guard against the possibility.
Getting past the cognitive biases that make us all so susceptible to fraud is what The Vigilant Investor is about. More than one hundred years of well-meaning advice has taught us that as long as we don’t fall for something that “sounds too good to be true,” we won’t lose our money to fraud. Unfortunately that advice is seriously flawed. Until you learn to step outside your own analysis and scrub it of the impacts of cognitive bias, every list of dos and don’ts will be useless. Learn what is really going on, so that you can protect yourself and those who depend on you. And believe me when I tell you, if you had as much disposal cash as an elite professional athlete, you’d be just as likely to lose it to a con.