Weapons of Fraud: How con criminals scam the public and what we can do about it Anthony Pratkanis University of California.

Weapons of Fraud: How con criminals scam the

public and what we can do about it

Anthony PratkanisUniversity of California

How do Americans lose $40 billion in telemarketing fraud and $100 billon a year in fraud and what can be done about it?

Some common scams include: 1-in-5 prize tactic Canadian lottery tickets Gold coin investments Phony Internet investments Charity fraud Oil and gas scams

Repeat victimization through reload

Myth vs. Reality Myth: Fraud victims are stupid, naïve,

gullible, greedy, mentally deficient, elderly, etc. Fundamental attribution error Ultimate attribution error (stereotypes of seniors) Self-serving bias of the criminal

Reality: The weapon in a fraud crime is social influence; the con criminal establishes a powerful situation that induces compliance

How do we know what is myth and what is reality? Our sources of knowledge

Multiple AARP & FINRA surveys of victims (plus control)

Call Center experiments and experience Analysis of 320 undercover fraud tapes Trained over 2,500 fraud fighters Warned over quarter million potential

victims Science of social influence

Research Team AARP (Doug Shadel) National Telemarketing Victim Call Center

(Melodye Kleinman plus Volunteers) FBI A. T. & T Wireless Department of Justice US Post Office California Bureau of Corporations Network of Fraud Fighters FINRA

Victim surveys find no evidence for Myth of Weak Victim In general, AARP surveys have looked for a

victim profile and has yet to find one. Victims come in all shapes and sizes – some

are active in their community and leaders whereas fit more stereotypic notions

Willie Sutton robbed banks because that is where the money is; con criminals rob seniors because that is where the nest eggs are.

Emerging evidence shows that seniors are taken less often (just the target of more pitches)

Survey of lottery & investment victims: No victim personality profile Trust Conformity External vs. Internal Locus of Control** Susceptibility to hypnotic suggestion Willingness to give false confession Need for cognition Reliance on intuition Desire for consistency Impulsivity to buy

Victims are More Likely to Have Experienced a Negative Life Event Survey asked about 25 standard life stress events

such as: Problem with troublesome neighbors or co-workers Death of a spouse or partner Developed a condition that limits your physical activity Difficulties in relationship with a spouse or loved one Recently moved or changed residences Negative change in financial status Change in social activities for the worse

Hypothesis came from the cultic literature, which finds that negative life events are a predictor of joining a cult

Investment fraud victims more likely to have a negative event

5.897.73

0

13

26

Non-victim Investment Victim

Average # of negative life events experienced

Non-victimInvestment Victim

Financial literacy of investment fraud victims and non-victim investors Asked participants eight financial literacy questions:

The APR is the most important thing to look for when comparing credit card offers. True/False

Over a 40-year period, which do you think gave the highest return? Bonds, Stocks, Bank savings account, IRA, No answer

With compound interest, you earn interest on interest in addition to your principle. True/False

When an investor diversifies his or her investment, does the risk of losing money decrease, increase or stay the same? Decrease

Opposite to myth: Victims are more financial literate than non-victim investors.

41 4858

32

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20

40

60

80

100

Non-victim Likely ActiveInvestor non-

victim

Invest Victim Lottery Victim

% Correct on Financial Literacy Scale

Reality: The Weapon in fraud crimes is Social Influence Phantom fixation Social Consensus Altercasting (Agent of Authority, friend,

helper/humanitarian, expert/insider) Scarcity Norm of reciprocity Commitment & Consistency Door-in-the-face Plus many others

Scam pitches are tailored to the “hot buttons” of targets The con criminal profiles the potential victim through in-

take interviews, list exchanges, and records psychological information about the victim on lead-sheets.

The con criminal tailors the pitch to meet the psychological profile of the victim.

Tailoring influence attempts (using the information to create phantoms, similarities, consistency traps, obstacles to the scam, etc.)

Tailoring the scam to the victim: High internal controls were more likely to fail prey

to investment fraud High external controls were more likely to fail prey

to lottery scam (Such results are consistent with social

psychological findings on individual differences and influence)

The 1-in-5 prize tactic Students told at the end of an experiment:

You have been randomly selected by our computer to receive one of these prizes: a TV, compact-disk player, multicolor university mug, VCR, or $50 mall gift certificate.

To claim your prize, you need to write essays for 2 hours

Control: Asked to stay and write essays.

1-in-5 Prize Tactic results Across 2 experiments:

20% compliance in the control treatment 100% compliance in experimental treatment

Powerful effect (Self-reported victim rates are between 11% to 31% in surveys)

Anyone can fall prey Multiply determined: phantom fixation,

norm of reciprocity, positive affect, etc.

How is this crime prevented? Given: The weapon in fraud

crimes is social influence. Then: How is the crime

prevented? Research question:

Can social influence be used to fight undue influence?

If so, how?

Our Approach: The Call Center Research Imagine you have 5-10 minutes to talk

with a potential victim. What would you say?

Santa Monica’s Reverse Boiler Room: Call victims whose names have been seized in FBI raids and warn them.

Does it work? If so, what works best and why? Develop interventions scripts for use at

other centers

The Research Approach NTVCC Senior Center volunteers call

potential victims using an intervention script.

Potential victims are from seized mooch lists (very active lists; common to find someone who just lost money)

Professional telemarketers call shortly afterwards with a sting pitch to assess victimization

Experiment 1: Investment Fraud We contacted 119 at-risks individuals

whose names were obtained from a call-list of a fraudulent investment firm.

Received an intervention of: Control (What is your favorite TV show?) Prevention: Forewarned

Within 5 days received a sting message from novice or professional telemarketer

Forewarned Message Calling from LA and working with the FBI Told their phone number had been found

in a raid of fraudulent telemarketers Dialogued about their recent experiences

(to gather info for law enforcement) and discussed how to deal with fraud

Provided general info about fraud crimes Provided specific info about investment

fraud Told never to invest over the phone

The sting Delivered by novice or professional

telemarketers Developed in cooperation with a

retired fraud criminal to mimic his “in-take” sting to secure initial compliance

Employed well-known influence tactics such as foot-in-the-door, norm of reciprocity, altercasting, and scarcity

The specific sting I am John (Jill) from Royal American

Rarities Did you get the mailer offering a free

Sacagawea Golden Dollar? (no mailer sent) Good thing I called – last day of the offer For qualified investors such as yourself, we

are offering a free Sacagawea Golden Dollar, with no obligation, just for reviewing our investment package

Can I mail you the free coin today?

Ethical Safeguards & Debriefing FBI on-site to monitor the procedures Researchers monitored overall

participant reactions Debriefing:

Letter (with a Sacagawea Dollar) explained the dangers in responding to such offers

Materials and brochures describing the nature of fraud crimes and what can be done about it.

Toll-free number for those who wanted to discuss any aspect of fraud crimes.

Exp 1: Results

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100

EXPERT NOVICE

ControlForewarned

Summary of Findings First demonstration of an effective

deterrent to this crime Forewarning works Skill of the fraud criminal makes a

difference – skill at using the weapons of influence

Exp 2: Charity Fraud Will the “forewarned” message

generalize to charity fraud? Can it be strengthened by more

specific information about the crime?

This experiment conducted as a result of Sept. 11

Charity fraud methods Contacted 55 at-risk individuals from

a “criminally-qualified” list Received an intervention of:

Control (What is your favorite TV show?) Prevention: Forewarned with questions

Within 3 days received a sting message from a professional telemarketer

Same debriefing procedures

Charity Prevention Script Similar to previous “forewarned with

fear” script with these additions: Warning about people calling using

Sept. 11 pitch Ask for a registration number Ask how much goes to the charity If they can’t answer these two

questions, don’t agree to give them anything

Charity Sting John (Jill) from Citizens for a United

America raising money for NYC relief

Anonymous philanthropists giving matching money up to $50 million

Pledge now and receive an American flag pin

Exp. 2: Results

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ControlForewarned

Summary of Findings Forewarning worked again Worked with a charity as opposed to an

investment fraud Few in Forewarned treatment asked the

two questions (just hung up) Specific instructions were more

impactful Lower compliance rate overall may be

due to the more demanding request and general media warnings

Next question: Can compliance be reduced further?

Teaching volunteers to use these tactics in their communications with possible victims: Self-generated persuasion Vivid appeals

Exp 3: Self-generated persuasion and vividness scripts

We contacted 100 potential victims to tests 2 new scripts

New scripts: self-generated persuasion and vividness plus control

Procedures were the same as in Experiment 1 with the Sacagawea sting

Self-generated persuasion Same as forewarned script with these

additions Can you help us by tell us what to say to

victims? What would you tell someone like yourself who

is about to fall prey to this crime? What would you tell them on how to develop a

plan for getting off the phone? What would you tell them on how to determine

if the call is fraudulent? What would you tell them to convince them not

to do business with such a person?

Vividness appeal Same as forewarned script with

these additions: Imagine a person at your door with a

dark ski mask. Would you let them in?

Its no different when a stranger calls.

Experiment 3: Results

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Control

Self-generatedpersuasionVividness

Summary of results Self-generated persuasion reduced

victimization Vividness increased victimization Sacagawea lost her luster Volunteers found it difficult to

administer the self-generated script and easiest to administer the vividness script

The Bottom line of Our Call Center Research Reverse boiler rooms such as the

NTVCC Senior Center are an effective tool for the prevention of economic fraud crimes!

Some prevention messages are better than others

Prevention messages that work! Forewarning Specific information about the

crime along with specific steps to avoid that crime

Self-generated persuasion (although hard to administer)

Prevention message that doesn’t work Do NOT use:

Vivid appeals that increase the potential victim’s defensiveness

Do NOT raise anxiety without providing a strong coping mechanism

Getting to “yes” does not equal getting to “no” Different Influence Tactics for “No”

Many influence tactics are irrelevant (scarcity, phantom fixation) for “no”

Some may boomerang (vividness) Others are useful, but can’t carry the day

(authority cues, information campaigns) Successful “no” tactics involve

teaching and practicing coping responses

Research Application: Western Union Settlement As a result of an agreement with State

Attorneys General, Western Union has funded $8.2 million worth of prevention messages from a nationwide network of reverse call centers.

FINRA Investment Fraud Seminar FINRA has created a multi-million dollar

campaign to teach a social norm: Before you invest, ask and check the broker’s license and the product’s registration number Print and TV PSA campaign Taught via 2 hour seminars teaching about

the crime, social influence, and prevention skills

This campaign was designed using our fraud research and the science of social influence

Specific Goal The goal of this campaign is to turn investors

from “passive” recipients of influence attempts to active, critical investors.

Question-asking: Establish a social norm to question; change the investor from a passive recipient of influence to one who actively questions and counter-argues the pitch.

Checking: Establish a social norm of verifying professional license and product registration with authorities prior to investing.

Influence resistance skills: Develop a knowledge of the influence tactics used in fraud along with skills for identifying their use and for resisting these appeals.

Outsmarting Investment Fraud: Seminar Three Sections

Fraud Risk (Nature of investment fraud and personal vulnerability)

Influence Tactics used in Fraud Prevention (Ask and Check)

Incorporates moderated presentation, videos, and learning activities & exercises

Full version runs 90 minutes; adapted to range from 30-90 minutes in different settings

Outsmarting Investment Fraud: Seminar

Group exercises Investor Fraud Risk Quiz

Explores individual behaviors, such as asking/checking, attending free seminars, etc., resulting in a personalized risk score (green, yellow, red).

Based on research; used to overcome illusion of invulnerability

Influence-spotting practice Role play exercises

Teach & practice “ask and check” behavior

Outsmarting Investment Fraud: Seminar Video/DVD Modules

Risky Business video teaches about investment fraud using interviews with victims and con criminals.

Provides an overview of investment fraud Weapons of Fraud video demonstrates common

influence tactics and relates them to investment fraud Builds influence-identification skills

Smart Shopping Network video tests knowledge of influence in a humorous manner.

Preventing Investment Fraud video includes interviews with victims, con criminals, and state securities regulators and a sequence on the right way and the wrong way to respond to a pitch

Models how to deal with fraud and teaches “ask and check”

Seminar Evaluation: Behavior Change Respondents were randomly assigned to a

first seminar (N= 117) or to a second seminar delivered one week later (N = 158)

After the first seminar but before the second, a retired con criminal pitched seminar participants on an oil and gas scam Measure: Would they agree to accept additional

communications (portfolio) about an oil and gas investment?

Con criminal used “foot-in-the-door” plus every influence tactic he knew to accomplish this goal

Seminar Results

Seminar Results Although blind to treatment, our con

criminal could identify those who went to the seminar because they were asking so many questions. Con criminal was very frustrated by the

questions and even got angry at one of our seminar-attendees and hung up

Self-report data also showed participants rated the seminar as excellent overall and in all components (6 or 7 on a 7pt scale)

Closing thoughts about fraud research

The science and the human side of fraud fighting.