How could wealthy investors be so blind?
Let us say you are a billionaire venture capitalist and you are approached by a guy named John P. Rogers. His last venture, a group of chiropractic clinics in Minnesota, collapsed in a blaze of lawsuits. He had been arrested twice for domestic issues and was once booked on suspicion of cocaine use.
Let us say he wanted millions of dollars for a new venture related to “biometric authentication.” Would you give it to him?
Well, apparently Ron Burkle did. Along with Gordon Getty and a host of other wealthy Californians. According to The San Francisco Chronicle, Mr. Rogers raised $340m (€247m) from investors. Today, his company–called Pay By Touch–is bankrupt and the millions are gone–squandered, investors contend in lawsuits, in an extraordinary spending spree that burned up venture capital at a rate of $8 million a month.
Then there is yesterday’s case of Bernard Madoff, the amiable, well-respected securities titan and investment adviser. Prosecutors say he bilked investors–many of them wealthy individuals–out of billions of dollars.
There were red flags flying all over the firm in recent years, from the unnaturally smooth returns to Madoff’s auditors, who worked from a 13-foot by 18-foot office in Rockland County, NY Some investors saw the potential for fraud and declined to invest. But many other rich investors–from the Florida country clubs of Palm Beach and Boca Raton to the ski slopes of Aspen, Colo.–entrusted Madoff with large amounts of their wealth.
How could the rich be so easily fooled?
By Robert Frank
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