Is fraud an American tradition?

Edward J. Balleisen, author of 'Fraud,' says America’s embrace of democracy has eased the path for some charismatic pitchmen of fraudulent schemes.

American swindlers have existed as long as there have been Americans to swindle, and they've just gotten bigger and bolder over time. Indeed, we've played host to "many of the world's most ambitious and expensive frauds," writes Duke University historian Edward J. Balleisen in his new book Fraud: An American History from Barnum to Madoff.

But the fraudsters aren't invulnerable. As  Balleisen reveals, the US has also produced "some of the most far-reaching and innovative responses to financial and commercial deceit."

In an interview with the Monitor, Balleisen talks about the history of the American swindle, the strategies used by fraudsters and our society's efforts to fight back.

Q: What did you learn about swindlers and their schemes as a whole?


Perpetrators of fraud tend to be winsome characters, likable individuals who inspire confidence. They also demonstrate a knack for taking advantage of common cognitive and emotional vulnerabilities, often through compelling storytelling.

Particularly in the case of complex corporate accounting frauds, however, deception sometimes emerges less out of an initially well-worked out scheme and more out of incremental attempts to mask bad news or to meet unrealistic targets.

Q: What about fraud in the US over our history has been particularly American?


America’s embrace of democracy has eased the path for some charismatic pitchmen of fraudulent schemes – investment charlatans like Henry H. Tucker, Jr., president of the early 20th-century Uncle Sam Oil Company, or Glenn Turner, the head of the 1970s multi-level marketing scheme, Dare to Be Great.

These individuals didn't only play up the ability of anyone in American to rise from modest circumstances to riches. They also adroitly deflected public attacks on their methods and honesty as emanating from a threatened business and political establishment.

Q: What did you learn about the victims of fraud in the US?

America’s abundant historical encounters with business fraud suggest that just about everyone gets taken in at some point by some consumer deceptions or investment misrepresentations.

Given the complexity of modern economic life, it’s very difficult for even the most careful consumers and investors to spot every dodgy marketing claim that comes their way.

Frequently the victims of fraud have chosen to remain “silent suckers,” so as to sidestep ridicule for their lack of marketplace savvy.  Compared to the 19th century or even the early 20th century, though, in recent decades American consumers and investors have become far more willing to levy public allegations of fraud.

Q: How have efforts to combat fraud evolved over the past few decades?

From the mid-1970s up through the 2008 financial crisis, the tenor of anti-fraud policy reflected the broader tendencies of a deregulatory era, with deeply problematic consequences.

In implementing policies, officials often chose to err on the side of providing leeway to businesses in how they marketed their products and services, so as not to crimp the creative energies of the marketplace. The result was a regular stream of major fraud scandals.

The costs associated with the worst episodes reached into the billions of dollars, an order of magnitude greater than major business frauds in the mid-20th century, taking account of inflation and the overall growth in the economy. And they've far more frequently involved leading corporations.

Q: As Trump takes over, what do you see going forward in terms of fraud prevention, regulation and so on? Will anyone (government, non-profits like Consumer Reports, etc.) be watching the store?

Given the new president’s stance on regulation, I would not anticipate vigorous anti-deception policing by most federal agencies that have anti-fraud missions.

The Consumer Financial Protection Bureau still enjoys considerable independence, but there are many signs that Congress, the new president, or both will soon try to bring that agency to heel.

Still, we need to remember that states and local governments play significant roles in anti-fraud policing, as do consumer organizations and websites, self-regulatory bodies, and the press.  There is likely to be a greater onus on these institutions to engage in public consumer and investor education, to provide channels for complaints, and, at the state and local level of government, develop effective policies that respond to the always evolving world of economic deception.

Q. Do you think it will ever be possible to really prevent Ponzi and Madoff types?


No open society will ever completely stamp out business fraud. But smart policies and practices can contain it.

The list here would include well-designed public education campaigns, sensible legal defaults like cooling-off periods that allow consumers to cancel transactions within a short window, effective information-sharing among law enforcement agencies about prevailing scams, and tough enforcement actions against the most deceitful firms.

Randy Dotinga, a Monitor contributor, is a board member and immediate past president of the American Society of Journalists and Authors.