Ben Carlson of Ritholtz Wealth Management Ben Carlson of Ritholtz Wealth Management.

One of the most bizarre financial scams in history pivots on a quack doctor and the body part of a goat — anatomy you’d hesitate to chat about with someone you just met. But Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, writes all about this shocking fraud in his new book, “Don’t Fall for It: A Short History of Financial Scams” (Wiley-January 2020).

When it comes to getting sucked in, “people want to believe that if something seems too good to be true, it’s not too good to be true for them because they feel they deserve it,” Carlson tells ThinkAdvisor in an interview.

The popular blogger, at A Wealth of Common Sense, and podcaster — who co-hosts “Animal Spirits” with Michael Batnick, Ritholtz’s research director — had twin goals in penning the book: to entertain and, by detailing scads of scandalous scams, to show readers how to avoid being conned.

In the interview, the chartered financial analyst, who has written for Fortune and whose previous books include “Organizational Alpha,” discusses notorious fraudsters’ nefarious schemes, including that flimflam medical man’s duplicity requiring goats. A film of the charlatan’s life starring Matt Damon is reportedly in discussion.

Carlson, 38, holds that people who are informed about investing are scammed more often than those who know nothing about it.

In the interview, he also provides an explanation for just how Bernie Madoff lulled his approximately 37,000 victims into a false sense of financial security.

Further, the author zeros in on the biggest of six warning signs indicating that fraud’s afoot and, in a sad twist, explores how Johnny Depp, sporting an extravagant lifestyle, essentially defrauded himself.

Before joining Ritholtz, the CFA was an investment analyst with Van Andel Institute and Aileron Ltd.

ThinkAdvisor recently interviewed Carlson, on the phone from his office in Grand Rapids, Michigan. He opined that there will always be folks who lack “the willpower” to say no to a seductive pitch.

Here are highlights of our conversation:

THINKADVISOR: Is the time ripe for financial scams?

BEN CARLSON: Yes. With the bull market running for a long time now, people are taking more risk, particularly with interest rates as low as they’ve been in generations and people who are retiring needing a certain asset or return level to meet goals. Baby boomers coming to retirement in droves will be prime targets for scams because they’ve got some money. A lot of them will need to take risks. Some will take more risk than they probably should and get themselves into hot water.

You write about environments in which “fraud flourishes.” One is when the banking industry “gets involved.” Please elaborate.

That was obvious during the financial crisis. But one thing people are trying to figure out now is why there isn’t as much euphoria in the bull market as in the past.

What do they suppose is the reason? 

People are investing in index funds and [other] low-cost funds, and active managers have fallen behind. So Wall Street hasn’t really participated in the bull market [enough] to put their foot on the gas. Wall Street can really fan the flames, but they haven’t done it this time around.

Fraud flourishes too, you write, when “capital becomes blind.” For example, Elvis Presley’s father, Vernon, let his guard down when he put his son’s rarely used private plane up for sale.

Right. Con artist Fred Pro swooped down and made it sound like he was paying Vernon Presley to take the plane off his hands. But he and his crew ended up taking it to New York for a “test drive” and never returned. The checks they sent Vernon Presley were found to be forged. That’s when he went to the FBI, who told him, “They promised things they couldn’t deliver, but you never looked into it.” He hadn’t done any background checks on the people who were conning him.

What surprised you most in researching this book?

That people can always get duped. It doesn’t matter what we learn because there will always be [some] people who’ll latch onto these stories [pitches]. A certain subset of the population doesn’t have the willpower to say no to someone who’s really good at selling you.

What was the scam you found to be the most interesting?

Dr. John Brinkley’s. He implanted goat testicles in men’s scrotums with the promise that this would make their wives become pregnant, after the couples had been trying unsuccessfully for pregnancy for a long time. This was in the 1920s — the wild, wild west before there were legitimate standards for doctors. It sounds like they may make a movie about this guy starring Matt Damon.

Speaking of movie stars, Johnny Depp virtually defrauded himself, you write. How so?

He was spending so much money and not caring about what the ramifications could be. He’d made three-quarters of a billion dollars during the course of his career but was living paycheck to paycheck. It’s hard to believe that you could make $20 million-plus on a movie and have to do another one just to keep up your lifestyle. He was spending so much on himself and his family — buying private islands in the Bahamas and a chateau in France.

Did all this ever come to a head?

Yes, when he sued his management company for $25 million, alleging that they’d mismanaged his money for almost 20 years. They countersued, and everything was settled out of court. Depp charged that it was all their fault but later admitted that he’d spent recklessly.

Sounds like it was an addiction.

Yes. In the past, he talked about his other addictions. I think his spending lifestyle was one, too.

Then there’s the unfortunate case of psychologist Stephen Greenspan, who wrote the book, “The Annals of Gullibility: Why We Get Duped and How to Avoid It.” He himself got duped by Bernie Madoff. Please explain that one.

Written by the foremost expert on gullibility, the book came out the exact same month that the Madoff scandal broke. Greenspan had been relying on financial professionals as to whether to invest with Madoff. But even these professionals — who are supposedly looking out for your best interest — didn’t do their requisite homework.

Please elaborate.

Greenspan had an advisor friend who vouched for Madoff, saying his returns were amazing. He basically talked him into it. Another friend had told him: “This doesn’t sound right. Don’t do it.” He did it anyway, going through a financial advisor who invested [via] a feeder fund. So though Greenspan went about it in a roundabout way, he still didn’t do the necessary homework.

You point out that Madoff preyed on people’s fears and aversion to loss. How so?

With the typical Ponzi scheme, you’re promised unbelievable returns within a very short time. But the Madoff fraud was about consistency — the returns barely showed any down quarters. That way, he stayed a little under the radar. He didn’t overpromise people that they were going to earn 50% a year; he promised yearly returns of about 10% to 12%. Never seeing their money go down lulled people into a false sense of security that they were being taken care of.

There are “six signs of financial fraud: When the money manager has custody of your assets; when there’s an aura of exclusivity in the pitch; when the strategy is too complicated to understand; and when the story is too good to be true,” you write. What’s the most glaring red flag?

The biggest one in terms of financial fraud is the custody of assets. That’s where people missed the boat with the Madoff scandal. Their assets weren’t held at a third-party bank or custodian. Madoff had control of the assets and was also making up the statements.

“When you make a ton of money, especially at a young age, there are bound to be vultures from the financial industry who are circling to take advantage of that newfound wealth,” so you write. Please explain.

The wealthy get taken advantage of more than anyone, and that’s probably because they have a target on their back.

Victims of fraud are often more informed about investing than others, you say. Why?

It boils down to overconfidence. There are two types of people that are taken advantage of: the ignorant who don’t understand [finance] and people who have some knowledge but not enough in terms of self-awareness — so they can become overconfident.

What else contributes to that overconfidence?

There’s a belief that if you’re successful in one realm of life, this will transfer into another. But when it comes to money, that’s definitely not the case. A lot of doctors and dentists, for example, have been taken advantage of because they’re so intelligent, educated and confident in one area that they assume this will transfer into [investing]. But the markets don’t work like [the field of] medicine.

What do you consider particularly strange when it comes to financial fraud?

At the turn of the 20th century and during the roaring ‘20s, many people who were defrauded became attached to the people who defrauded them. It was almost like the Stockholm syndrome, where, even after they’d been taken advantage of, they still respected the [fraudsters] a little.

How could they?

These personalities were so good at telling people what they wanted to hear that they couldn’t see through all the stuff they were doing to them. There are even stories of people who were defrauded and turned around and did it to other people maybe because they learned a thing or two.

— Related on ThinkAdvisor: