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Special investigation: What is it about WA that makes us so susceptible to get-rich quick schemes?

It was not a venue used to being the focus of a multi-million-dollar financial scandal. But last Sunday, that is what Harvey’s modest Amana Inn — sitting just off the South West Highway — became. A meeting point for a multitude of normal, hardworking people — from Harvey, Bunbury, Busselton, Australind, Perth and elsewhere. All coming to terms with the same brutal facts. That the earnings from those years of hard work — tens of thousands, hundreds of thousands, in some cases millions — were gone. They all knew who they had given their money to. The same man. Their trusted accountant. Their friend. They had all been promised much the same thing. Returns the banks wouldn’t give you. Your money working for you. A brighter, secure future. They all knew that the returns they had seen had long since dried up. That the cheques had started bouncing. That he had stopped answering their calls. They all now realised those big promises were worth as much as the rudimentary contracts they had signed — nothing. And the bone-deep impact of that betrayal — emotionally, financially, physically — was etched across dozens of worried faces. “I have never seen such devastated, heartbroken people in my life,” one of the attendees told The Sunday Times. “Quite a few people walked out, other people were in tears. Some people wanted to get a lawyer, some didn’t. “We all just wanted answers to all the questions we have.” The biggest one of those — for all those people — is where has all their money gone? The short answer to that is no one really knows. China was one rumour, Hong Kong was another. But out of the multiple similar stories being told last week, it now appears a big slice of that river of cash being paid into the account of this trusted accountant was used to pay other investors. Otherwise known as a Ponzi scheme. Most of those in the room last Sunday had only vaguely heard of such a scheme before. But the financial crimes division detectives in attendance, and now investigating these latest allegations, know exactly what they are dealing with. Because WA has seen it all before. Over and over again. Just this year, Chris Marco — involved with a collapsed investment scheme worth $240 million. Supposed betting whiz-kid Chris Brown — alleged to have induced more than $100 million. Bret Silvey — $140 million invested, with fraud charges now pending relating to $60 million of that. And before that, in 2017, Veronica MacPherson — whose group of companies collapsed owing $285 million, with $120 million of that ploughed in by about 2000 investors. In 2012, Rockingham mortgage broker Mark Booty. In 2010, Mormon mortgage broker Catherine Thompson. Even Kevin Peek, the guitarist from the British rock group Sky — who died of cancer after being accused of ripping off investors to the tune of $8 million. So while those gathered in Harvey last weekend were all asking how could it happen to me, another question also emerged. Why does it keep happening here? Professor Mervyn Lewis saw up close the devastation a Ponzi scheme can wreak, when his home town of Stirling in the Adelaide Hills fell victim to the lies of Allan McFarlane. More than $40 million was invested with McFarlane — an accountant — by his neighbours and his fellow churchgoers. On the day McFarlane died in 2008, when his car crashed head-on into a semi-trailer, he still owed $22 million. And Professor Lewis — who subsequently wrote a book called Understanding Ponzi Schemes — said while the similarities between that scheme and WA’s latest example were striking, they were not surprising. “A Ponzi scheme is one of the simplest, yet most effective financial frauds to engineer, and a lot of them share similar traits,” Professor Lewis said. “The affinity fraud is common. There is the element of exclusivity or secrecy, so you are made to feel lucky to be included but never given all the details.” As it was in the case of the infamous Bernie Madoff — who fathered the mother of all Ponzi schemes by targeting the Jewish community of which he was a part, in order to gouge a whopping $US64.8 billion. “There is a believable story, which is circulated by word of mouth,” said Professor Lewis, the professor of banking and finance at the University of South Australia. “And when you do hear that other people are investing, it is much easier to believe that the scheme has to be OK. “There is also a shared bond, so the victim has every reason to trust and believe that someone from your background or group would never cheat you.” Victims, he said, often came from the same religious group, or the same tight-knit community. Like a small country town. Or a big one. And, of course, there has to be money. And people willing to part with it. Dr Jennifer Wilson, a psychologist who specialises in fraud and white-collar crime, said economic boom times can be a big boon for those looking to launch a big con. “Economic conditions do wax and wane, but obviously the availability of funds are good — for those with them, and those who want them,” Dr Wilson said. “If someone has $500,000 in a bank account, they may well be looking for somewhere to invest it. “And vigilance around where someone invests might be reduced, if there is money around and people are doing well.” People, for instance, who might live in a State which last year had the best performing economy in the world. Other factors also play in. Professor Lewis said personal superannuation funds — and the dependence of investing them well to generate income — will always tempt potential Ponzi schemers. Dr Wilson said low interest rates will leave people looking for another way for their money to make money. And she also said intrinsic cultural traits will have a real influence. Like, for instance, if you lived in a State which built itself — and prided itself — on an entrepreneurial, gold-rush spirit. Or a city with a history of business titans — like Alan Bond — making more money than God. “That element of entrepreneurship would absolutely feed into an investor’s thinking — and it would also feed into a schemer’s thinking,” Dr Wilson said. “There are different aspects to that thinking — some ethical, some not so ethical. “There would be people that think they had a really good business idea. And then there would be others who see this as an awfully good way to make an awful lot of money.” Those people with big plans and few ethics are often charming, clever, manipulative, gregarious — and ruthless. And because they are your friend — or you think they are — those ties can be exploited mercilessly. “It is not their fault they have got money, and it is not their fault that they look around to try and make it work for them,” Dr Watson said. “There is nothing wrong with wanting that, in fact it it is encouraged. “It is not the victim’s fault.” Professor Lewis said the notion that victims of Ponzi schemes were greedy, and deserved what they got, was just plain wrong. “The mistake made by investors in Ponzi schemes is in trusting the wrong person — and the reasons for that may to a large degree lie in the personalities of the fraudsters themselves and the nature of their relationship to their victims,” Professor Lewis said. John, who asked to use a pseudonym, did not even know for sure he was a victim until last week. By contrast, he had had a relationship with his friend for decades — considered him one of his best friends in fact. They were distantly related through their shared European heritage. He had been his accountant. He had done his tax returns, he had helped him with Centrelink. He had sat with John’s elderly mother, spoken her language, drunk her coffee. So when his friend urged him to invest his life savings with him, rather than leave it in the bank, John was sure he had nothing to worry about. “He was doing my tax, and told me you won’t be getting any money back this year. So put in some money with me — that’s how it all started,” he said. The investments started relatively modestly. But the pressure came to put in more, so John did. He was promised the contracts were legit — even though they didn’t have a letterhead on them. A letterhead would cost another $1000 he was told. He eventually ended up giving his friend more than $800,000 — most of his superannuation, and the proceeds from the sale of his house. He got a few small returns. Then the cheques started bouncing, and the excuses grew more and more outlandish. All John’s money now appears to have disappeared. Now in his 60s, John may lose his apartment. If he does, he will have to move back in with his aged mum. “I have known him for I don’t know how many years,” he said. “I still cannot get my head around it.” John was one of those pained people at that meeting in Harvey last Sunday. His story was replicated scores of times. The victims ranged in age, sex, and profession. The Sunday Times understands at least one of them is a high-profile former sportsman turned businessman. The numbers involved were staggering. At least $12 million from those in the room willing to share. Much more again from those who couldn’t face sharing their pain, or couldn’t face coming at all. For John, it was some small comfort to know he was not the only one suffering. But the amount of suffering around him was almost too much to bear. “When I saw all the other people in that room, I just got a shiver — because they all knew him,” John said. “But none of us know where the money is.”

The West Australian exclusiveSpecial investigation: What is it about WA that makes us so susceptible to get-rich quick schemes?

exclusive
Special investigation: What is it about WA that makes us so susceptible to get-rich quick schemes?