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Know Your Liar

Clearly it’s helpful to know more about such people so you don’t get lied to cheated on and stolen from. But before we talk about the dark triad I want to tell you another story.

What did Madoff do and how did he do it?

In November 2008 Bernie Madoff was on top of the world, head of a family run investment business, Bernard Madoff Investment Securities LLC, he had clients all over the world including movie stars like Keira Sedgwick, Kevin Bacon, former talk show host Larry King and even former baseball great Sandy Koufax.

His firm had pioneered the use of software for stock trading, he later served on the NASDAQ board of governors and served on the Board of Directors for the Securities Industry Association. This was a man who’d been at the center of Wall Street for decades.

But, on June 29, 2009 Madoff was sentenced to 150 years in prison for running what has become one of the biggest financial frauds in US history. What did Madoff do and how did he do it? And perhaps most relevant for our purposes in this article why did he do it.

It turns out that made off was running what has become known as a Ponzi scheme. The scheme is named after a gentleman Charles Ponzi when the 1920s attracted investors with a promised high rate of return: 50% and propped up that lied by paying his earliest investors with money from the new investors.

The scheme worked up until Ponzi ran out of new investors. In his version of the Ponzi scheme Bernie Madoff falsified investment records so the indicated dramatic returns in actuality he was doing what Ponzi did, paying old investors with new investors money, spending original deposits to fund an extravagant personal lifestyle.

At the time of his indictment Madoff had an investment portfolio that, on paper, and in his account statements of those investors said was worth $64.8 billion. To put this in perspective this is larger than the gross domestic product of quite a few countries, a bit less than Ecuador but more than Luxembourg for example.

Charm and Influence and a Callous Disregard for Others

So, on paper, Madoff with running a small country. But how much real money was in the accounts? According to Irving Picard the trustee appointed by the court to liquidate the accounts and payback investors whatever he could, the amount of money invested and made us fun was $36 billion, only a little more than half of what the record said.

So, as a start Madoff lied to many people about how much money they actually had in their investment accounts. Now, on top of that about half of what actually went into the fund was simply gone, that’s $18 billion spent on houses, apartments, boats, art and some other things that Picard could not even trace.

Who did Madoff lied to? To whose money did he spend?  New York magazine profiled the victims and they included famous people like Steven Spielberg and Kevin Bacon, but the list also included regular people who lost their entire life savings.

Phyllis Molchatsky, for example, worked a long career as a manager and put away money whenever she could eventually putting it all into the fund run by Madoff on paper, she neared retirement, she had $3.8 million. Once the scandal broke she had nothing, her whole life savings was gone.

Madoff is a great example of someone with a personality that combines charm and influence with a callous disregard for others. Among many different types of personality characteristics there are three that are particularly central to this type of behavior: machiavellianism, narcissism, and psychopathy.