Weapons of Fraud: How con criminals scam the public and what we can do about it

1. Weapons of Fraud: How con criminals scam the public and what we can do about it Anthony Pratkanis University of California

2. How do Americans lose $40 billion in telemarketing fraud and $100 billon a year in fraud and what can be done about it? • Some common scams include: • 1-in-5 prize tactic • Canadian lottery tickets • Gold coin investments • Phony Internet investments • Charity fraud • Oil and gas scams • Repeat victimization through reload

3. Myth vs. Reality • Myth: Fraud victims are stupid, naïve, gullible, greedy, mentally deficient, elderly, etc. • Fundamental attribution error • Ultimate attribution error (stereotypes of seniors) • Self-serving bias of the criminal • Reality: The weapon in a fraud crime is social influence; the con criminal establishes a powerful situation that induces compliance

4. How do we know what is myth and what is reality? • Our sources of knowledge • Multiple AARP & FINRA surveys of victims (plus control) • Call Center experiments and experience • Analysis of 320 undercover fraud tapes • Trained over 2,500 fraud fighters • Warned over quarter million potential victims • Science of social influence

5. Research Team • AARP (Doug Shadel) • National Telemarketing Victim Call Center (Melodye Kleinman plus Volunteers) • FBI • A. T. & T Wireless • Department of Justice • US Post Office • California Bureau of Corporations • Network of Fraud Fighters • FINRA

6. Victim surveys find no evidence for Myth of Weak Victim • In general, AARP surveys have looked for a victim profile and has yet to find one. • Victims come in all shapes and sizes – some are active in their community and leaders whereas fit more stereotypic notions • Willie Sutton robbed banks because that is where the money is; con criminals rob seniors because that is where the nest eggs are. • Emerging evidence shows that seniors are taken less often (just the target of more pitches)

7. Survey of lottery & investment victims: No victim personality profile • Trust • Conformity • External vs. Internal Locus of Control** • Susceptibility to hypnotic suggestion • Willingness to give false confession • Need for cognition • Reliance on intuition • Desire for consistency • Impulsivity to buy

8. Victims are More Likely to Have Experienced a Negative Life Event • Survey asked about 25 standard life stress events such as: • Problem with troublesome neighbors or co-workers • Death of a spouse or partner • Developed a condition that limits your physical activity • Difficulties in relationship with a spouse or loved one • Recently moved or changed residences • Negative change in financial status • Change in social activities for the worse • Hypothesis came from the cultic literature, which finds that negative life events are a predictor of joining a cult

9. Investment fraud victims more likely to have a negative event

10. Financial literacy of investment fraud victims and non-victim investors • Asked participants eight financial literacy questions: • The APR is the most important thing to look for when comparing credit card offers. True/False • Over a 40-year period, which do you think gave the highest return? Bonds, Stocks, Bank savings account, IRA, No answer • With compound interest, you earn interest on interest in addition to your principle. True/False • When an investor diversifies his or her investment, does the risk of losing money decrease, increase or stay the same? Decrease

11. Opposite to myth: Victims are more financial literate than non-victim investors.

12. Reality: The Weapon in fraud crimes is Social Influence • Phantom fixation • Social Consensus • Altercasting (Agent of Authority, friend, helper/humanitarian, expert/insider) • Scarcity • Norm of reciprocity • Commitment & Consistency • Door-in-the-face • Plus many others

13. Scam pitches are tailored to the “hot buttons” of targets • The con criminal profiles the potential victim through in-take interviews, list exchanges, and records psychological information about the victim on lead-sheets. • The con criminal tailors the pitch to meet the psychological profile of the victim. • Tailoring influence attempts (using the information to create phantoms, similarities, consistency traps, obstacles to the scam, etc.) • Tailoring the scam to the victim: • High internal controls were more likely to fail prey to investment fraud • High external controls were more likely to fail prey to lottery scam • (Such results are consistent with social psychological findings on individual differences and influence)

14. The 1-in-5 prize tactic • Students told at the end of an experiment: • You have been randomly selected by our computer to receive one of these prizes: a TV, compact-disk player, multicolor university mug, VCR, or $50 mall gift certificate. • To claim your prize, you need to write essays for 2 hours • Control: Asked to stay and write essays.

15. 1-in-5 Prize Tactic results • Across 2 experiments: • 20% compliance in the control treatment • 100% compliance in experimental treatment • Powerful effect (Self-reported victim rates are between 11% to 31% in surveys) • Anyone can fall prey • Multiply determined: phantom fixation, norm of reciprocity, positive affect, etc.

16. How is this crime prevented? • Given: The weapon in fraud crimes is social influence. • Then: How is the crime prevented? • Research question: • Can social influence be used to fight undue influence? • If so, how?

17. Our Approach: The Call Center Research • Imagine you have 5-10 minutes to talk with a potential victim. What would you say? • Santa Monica’s Reverse Boiler Room: Call victims whose names have been seized in FBI raids and warn them. • Does it work? • If so, what works best and why? • Develop interventions scripts for use at other centers

18. The Research Approach • NTVCC Senior Center volunteers call potential victims using an intervention script. • Potential victims are from seized mooch lists (very active lists; common to find someone who just lost money) • Professional telemarketers call shortly afterwards with a sting pitch to assess victimization

19. Experiment 1: Investment Fraud • We contacted 119 at-risks individuals whose names were obtained from a call-list of a fraudulent investment firm. • Received an intervention of: • Control (What is your favorite TV show?) • Prevention: Forewarned • Within 5 days received a sting message from novice or professional telemarketer

20. Forewarned Message • Calling from LA and working with the FBI • Told their phone number had been found in a raid of fraudulent telemarketers • Dialogued about their recent experiences (to gather info for law enforcement) and discussed how to deal with fraud • Provided general info about fraud crimes • Provided specific info about investment fraud • Told never to invest over the phone

21. The sting • Delivered by novice or professional telemarketers • Developed in cooperation with a retired fraud criminal to mimic his “in-take” sting to secure initial compliance • Employed well-known influence tactics such as foot-in-the-door, norm of reciprocity, altercasting, and scarcity

22. The specific sting • I am John (Jill) from Royal American Rarities • Did you get the mailer offering a free Sacagawea Golden Dollar? (no mailer sent) • Good thing I called – last day of the offer • For qualified investors such as yourself, we are offering a free Sacagawea Golden Dollar, with no obligation, just for reviewing our investment package • Can I mail you the free coin today?

23. Ethical Safeguards & Debriefing • FBI on-site to monitor the procedures • Researchers monitored overall participant reactions • Debriefing: • Letter (with a Sacagawea Dollar) explained the dangers in responding to such offers • Materials and brochures describing the nature of fraud crimes and what can be done about it. • Toll-free number for those who wanted to discuss any aspect of fraud crimes.

24. Exp 1: Results

25. Summary of Findings • First demonstration of an effective deterrent to this crime • Forewarning works • Skill of the fraud criminal makes a difference – skill at using the weapons of influence

26. Exp 2: Charity Fraud • Will the “forewarned” message generalize to charity fraud? • Can it be strengthened by more specific information about the crime? • This experiment conducted as a result of Sept. 11

27. Charity fraud methods • Contacted 55 at-risk individuals from a “criminally-qualified” list • Received an intervention of: • Control (What is your favorite TV show?) • Prevention: Forewarned with questions • Within 3 days received a sting message from a professional telemarketer • Same debriefing procedures

28. Charity Prevention Script • Similar to previous “forewarned with fear” script with these additions: • Warning about people calling using Sept. 11 pitch • Ask for a registration number • Ask how much goes to the charity • If they can’t answer these two questions, don’t agree to give them anything

29. Charity Sting • John (Jill) from Citizens for a United America raising money for NYC relief • Anonymous philanthropists giving matching money up to $50 million • Pledge now and receive an American flag pin

30. Exp. 2: Results

31. Summary of Findings • Forewarning worked again • Worked with a charity as opposed to an investment fraud • Few in Forewarned treatment asked the two questions (just hung up) • Specific instructions were more impactful • Lower compliance rate overall may be due to the more demanding request and general media warnings

32. Next question: Can compliance be reduced further? • Teaching volunteers to use these tactics in their communications with possible victims: • Self-generated persuasion • Vivid appeals

33. Exp 3: Self-generated persuasion and vividness scripts • We contacted 100 potential victims to tests 2 new scripts • New scripts: self-generated persuasion and vividness plus control • Procedures were the same as in Experiment 1 with the Sacagawea sting

34. Self-generated persuasion • Same as forewarned script with these additions • Can you help us by tell us what to say to victims? • What would you tell someone like yourself who is about to fall prey to this crime? • What would you tell them on how to develop a plan for getting off the phone? • What would you tell them on how to determine if the call is fraudulent? • What would you tell them to convince them not to do business with such a person?

35. Vividness appeal • Same as forewarned script with these additions: • Imagine a person at your door with a dark ski mask. Would you let them in? • Its no different when a stranger calls.

36. Experiment 3: Results

37. Summary of results • Self-generated persuasion reduced victimization • Vividness increased victimization • Sacagawea lost her luster • Volunteers found it difficult to administer the self-generated script and easiest to administer the vividness script

38. The Bottom line of Our Call Center Research • Reverse boiler rooms such as the NTVCC Senior Center are an effective tool for the prevention of economic fraud crimes! • Some prevention messages are better than others

39. Prevention messages that work! • Forewarning • Specific information about the crime along with specific steps to avoid that crime • Self-generated persuasion (although hard to administer)

40. Prevention message that doesn’t work • Do NOT use: • Vivid appeals that increase the potential victim’s defensiveness • Do NOT raise anxiety without providing a strong coping mechanism

41. Getting to “yes” does not equal getting to “no” • Different Influence Tactics for “No” • Many influence tactics are irrelevant (scarcity, phantom fixation) for “no” • Some may boomerang (vividness) • Others are useful, but can’t carry the day (authority cues, information campaigns) • Successful “no” tactics involve teaching and practicing coping responses

42. Research Application: Western Union Settlement • As a result of an agreement with State Attorneys General, Western Union has funded $8.2 million worth of prevention messages from a nationwide network of reverse call centers.

43. FINRA Investment Fraud Seminar • FINRA has created a multi-million dollar campaign to teach a social norm: Before you invest, ask and check the broker’s license and the product’s registration number • Print and TV PSA campaign • Taught via 2 hour seminars teaching about the crime, social influence, and prevention skills • This campaign was designed using our fraud research and the science of social influence

44. Specific Goal • The goal of this campaign is to turn investors from “passive” recipients of influence attempts to active, critical investors. • Question-asking: Establish a social norm to question; change the investor from a passive recipient of influence to one who actively questions and counter-argues the pitch. • Checking: Establish a social norm of verifying professional license and product registration with authorities prior to investing. • Influence resistance skills: Develop a knowledge of the influence tactics used in fraud along with skills for identifying their use and for resisting these appeals.

45. Outsmarting Investment Fraud: Seminar • Three Sections • Fraud Risk (Nature of investment fraud and personal vulnerability) • Influence Tactics used in Fraud • Prevention (Ask and Check) • Incorporates moderated presentation, videos, and learning activities & exercises • Full version runs 90 minutes; adapted to range from 30-90 minutes in different settings

46. Outsmarting Investment Fraud: Seminar • Group exercises • Investor Fraud Risk Quiz • Explores individual behaviors, such as asking/checking, attending free seminars, etc., resulting in a personalized risk score (green, yellow, red). • Based on research; used to overcome illusion of invulnerability • Influence-spotting practice • Role play exercises • Teach & practice “ask and check” behavior

47. Outsmarting Investment Fraud: Seminar • Video/DVD Modules • Risky Business video teaches about investment fraud using interviews with victims and con criminals. • Provides an overview of investment fraud • Weapons of Fraud video demonstrates common influence tactics and relates them to investment fraud • Builds influence-identification skills • Smart Shopping Network video tests knowledge of influence in a humorous manner. • Preventing Investment Fraud video includes interviews with victims, con criminals, and state securities regulators and a sequence on the right way and the wrong way to respond to a pitch • Models how to deal with fraud and teaches “ask and check”

48. Seminar Evaluation: Behavior Change • Respondents were randomly assigned to a first seminar (N= 117) or to a second seminar delivered one week later (N = 158) • After the first seminar but before the second, a retired con criminal pitched seminar participants on an oil and gas scam • Measure: Would they agree to accept additional communications (portfolio) about an oil and gas investment? • Con criminal used “foot-in-the-door” plus every influence tactic he knew to accomplish this goal

49. Seminar Results

50. Seminar Results • Although blind to treatment, our con criminal could identify those who went to the seminar because they were asking so many questions. • Con criminal was very frustrated by the questions and even got angry at one of our seminar-attendees and hung up • Self-report data also showed participants rated the seminar as excellent overall and in all components (6 or 7 on a 7pt scale)