Downside of trust: vulnerability to frauds

House of Cards - Flickr photo by tjflex2

Both Bernie Madoff and now Monroe Beachy (a 77-year old Amish man) were helped in perpetrating their fraud by utilizing high levels of trust within the Jewish and Amish communities respectively.  [Unlike the Madoff and Beachy examples were the perpetrators came from within the Jewish and Amish religions respectively, various people have posed as Mormons to perpetrate fraud within the LDS community, which is also very trusting.]

The Washington Post article asserts that Beachy raised $33 million over the last quarter century from Amish investors. Along the way, “Beachy became treasurer of the Amish Helping Fund, a nonprofit that takes in money from investors and makes real estate loans ‘in an effort to preserve the Amish way of life,’ the group said in a court filing. Beachy put some money in the Amish Helping Fund, which entrusted him with an even larger sum of $2.6 million.”

Beachy further undermined his standing in the Amish community by violating their norms of social capital: working things out among themselves rather than bringing in courts. “Much of the sour taste in Sugarcreek over the scandal has resulted because Beachy took the matter to bankruptcy court, contrary to religious precepts, instead of resolving it within the community. In piles of form letters, investors have asked the court to let them address Beachy’s debts in their own way because ‘participation as a creditor is abhorrent to deeply held spiritual principles.’ ”

I recently wrote on the American Grace blog about the evidence that the religious are more vulnerable to being scammed since they are deemed as more trustworthy and are also more trusting.  Read it here.

See “In an Amish village, the SEC alleges a Madoff-like fraud” (Washington Post, 2/17/11, by David S. Hilzenrath)

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