Jerusalem – Israeli Journalist Goes Undercover To Highlight How Easy It’s to Pull Off a Madoff Scam With Chareidim

Jerusalem – After all the Ponzi schemes which have been exposed in the past few months, Israeli newspapers Sha’ah Tova’s journalist decided to find out how easily the chareidi society can be convinced to part with its money.

Every year there are new exposes of gullible chareidim who fell into one or another fake scheme and lost all their money, most of them avreichim who understand nothing about the investment world. After promising the gullible chareidi fantastic yields, the “expert” usually disappears with the invested money as if the ground swallowed them, usually to another continent. In another scenario, the swindler appears as “businessmen” who with enthusiastic hand movements, guarantees he will bring the investor a rosy future when his business takes off, which it never does.

The victim, who is usually captivated with the idea of making quick easy money, convinces himself that this is the big break he was waiting for. He then persuades his friends, relatives and other people to join him in this “safe”, incredible investment. A few months later, in this script whose end everyone knows, the businessmen disappears, the phone is disconnected, and all the investors get notices “sorry, I made a mistake”… Everyone is sure that they’re too smart to fall into the trap… until they do.

I wanted to see, in the aftermath of the Madoff fallout, how easy it was to fool people to sign up for a crazy investment scheme. I was sure that as soon as the public saw the exaggerated terms of the investment I was offering, they would pick up their legs and run.

To make a successful scam, you have to have distinguished sounding company names and serious-looking brochures. So I created a fictitious company called BHT, the chareidi investment fund of the SunnyMoney USA investment firm. (English letters sound more impressive.) To anyone who would ask, I would offer the explanation that SunnyMoney USA is an established, successful firm.

Now I had to make the rest of the cosmetics: invent a rabbinical committee that recommends investing money in the “guaranteed” BHT fund. I created a “Rabbinical Committee to Supervise Investments and Funds”, whose head was Rav Yosef Goldshmidt, the secretary was Rav Chaim Horntman, and the supervisor was Rav Daniel Brill (figments of our imagination). The Committee’s address at 19 Chiddushei Harim doesn’t even exist in Kiryat Sefer, and the phone numbers were disconnected, as a simple phone call would clarify.

I put together a warm letter of recommendation from the “rabbonim” attesting that they know the owners of BHT, and have checked their fund and recommend it as a non-risk investment. A warning is included not to invest in other funds without supervision due to the fact that a large number of them prove to be scams. Finally, the letter says that inquiries may be directed to the Committee between 9 a.m. and 1 p.m. In this way, I was safe from any nosy inquiries, since I was only going to set up my stall to sell the investments in the afternoon.

After the rabbonim’s letter of recommendation, I had a graphic artist draw up large, serious-looking posters advertising “A special Purim deal for investors. With a minimal investment, get maximum yields. A $25,000 investment with the potential of yielding $1,000 a month. Bank guarantees rated at A and AA. Join until Purim our “Guaranteed Investment” plan and receive a weekend for the entire family at an exclusive hotel in Israel, or electrical appliances for your home worth $1,500.” The stamp of the Rabbinical Commitment was prominently displayed. A brochure explained the plan’s details and also offered a second investment line of $40,000 which yields $2,000 a month. (I expected that the forty percent annual returns would have alerted everyone to the scam.)

Finally, I printed up a whole bunch of application forms for potential investors to sign up.

I headed for the Shteiblach in Bais Yisroel. On a half-broken table which I found on the second floor of the shul and shlepped down, I set up my stand. I taped the large posters to the wall behind the table and put the brochures and forms down. Within minutes I was surrounded by dozens of the avreichim and bochurim who had come to “chap” a mincha at the shteiblach.

Everyone began asking about the fund and its securities. At first I tried to speak to the point about the investment’s profitability and guarantee, but after a while, I lost touch and got confused. But if I sounded confused to myself, I didn’t to the guys around me who kept asking questions. As they read the serious-looking posters behind me, I saw many of them slowly being convinced.

Someone came up to my stall and took the brochure which contained details of the investment plan. To say the truth, when I read those papers myself, I didn’t understand all the gobbledygook in it. But from the large circle of people gathering around me, their serious reading of the brochure, and the serious questions asked of me, I realized that a few people were planning to join the plan.

A Yerushalmi chosid asked me, “Why did the firm offer this plan?” So I pointed to the rabbonim’s letter and showed him the lines where they call on the public to choose the fund which was created to help “bnei Torah.” After reading the lines, the man seemed satisfied. Now he asked me for details about the investment. I told him that at the moment, I don’t have the details about the investment, “but what is for certain” I emphasized, “is that it is an extremely safe investment.”

I didn’t believe he would be convinced, and I was seized with the urge to burst out into laughter which would have destroyed the whole show. I imagined him telling me in astonishment, “You don’t know what the investment is and you call it a safe investment? Whoever heard of such a thing?”

But to my surprise, he asked for an application form. He said he wanted to consult with his wife and see how he can get ahold of such a large sum, but in general, he thinks the plan is positive. I tried to see if he was snickering, but no, the man had really bought the idea.

Another man standing at the side whispered to me, “Have you heard of the Madoff affair which exploded a short while ago?” I nodded like a well informed person. Then he whispered to me again, “How can I know that BHT’s plan is not chas v’sholom something similar to Madoff’s. You know,” he said apologetically, not wanting to hurt my feelings, “today you can’t believe anyone, even anshei shlomeinu.”

I tried to calm him down and explain with confidence that this plan is completely different. This time, there are rabbonim who are involved, and this time it comes from a “well known and established” company. I pointed to the poster behind me and saw that my words had their intended affect. After a few minutes, when another man asked me about the reliability of the investment fund, the man who had whispered to me told him confidently and persuasively that “everything is sherir, bari v’kayam.”

I never knew I was so convincing… or maybe the posters and the special deals were so convincing. Whatever it was, loads of chutznik and Israeli bochurim from the nearby yeshivos, avreichim from the neighborhood and just regular Jews kept gathering around my table to seriously consider the plan. No one thought it was a joke.

Two American bochurim took some papers and began to discuss with each other if the fund was worthwhile. I couldn’t follow all their conversation which was conducted in Yiddish spiced with English, but from the side I saw that they had “bought” the scam.

Suddenly a man came up to me and began to bellow, “Shame on you! Dozens of avreichim give you their money for free, and what do you give? A percent and a half, two percent? While funds are supposed to give much more….” The men around him tried to hush him, “Don’t shout,” they told him. “Look at the plan details. The percent is very high! No one in the market offers this much!”

Frustrated at being unable to convince the people around him, the man picked himself up and left while muttering against the rich who try to squeeze money from bnei Torah.

The public began to fill the application forms, and I had to take out pages from those I had prepared “just in case.” Bochurim and avreichim kept asking for more forms and kept filling them out. It was as easy as pie.

Two older Yerushalmis approached me with grave looks on their face. I had this uneasy feeling and feared problems would begin. “At the very worst,” I told myself, “I’ll tell them about the bluff and blame it on Purim.”

It turned out, I didn’t need that. The two talked as if they were proficient in the market and the economy, but their words were empty. One of them asked who the rabbonim were. He didn’t know who they were, and to tell the truth, neither did I. A few suspicious types tried to call the Rabbinical Committee, and when they saw the line wasn’t connected, I explained the rabbonim only take phone calls in the morning. As Chazal say, “One who wants to lie, brings proof from far off.”

The second man gravely asked why wouldn’t the investor who owns the fund, simply take a mortgage that covers everything and finish with the story. It took me a few seconds to understand that he himself didn’t know what he was talking about. I replied in the same coin, “Look, my friend, the owners of this fund already took several mortgages based on a guarantee on other funds, which are connected to several other famous and well known businessmen…”

The man nodded his head like an insider, and I felt confident to make another sortie: “In this investment fund, BHT, he prefers to use the mortgage option. The fact that he receives money from various private people, gives him room to finance credit.”

I felt like a master of finance. I had never used so many terms that had nothing to do with each other in one answer.

The man looked at me and asked again, “But why does he pay such a high percentage of interest?”

Encouraged that my previous answer had passed the test, I felt emboldened to continue with my nonsensical replies, “He sets the level of interest according to special instructions from the rabbonim, who asked him to make a special effort due to the difficult situation which chareidi Jews are in. In this way, there will be higher profits from the interest.”

The two Jews debated the meaning of my words, and I hoped that eventually they’ll realize the discussion was ludicrous and I was a swindler or a lunatic.

There were a few who picked up it was a prank from the first moment, but they were few. A sharp-witted Ponevezh avreich looked me up and down, stood at a distance, and asked himself, “Where is the bluff here?” He was looking for a smile on my face, or a hint that it was a Purim joke. He was one among only a handful. The majority preferred to believe that the posters were real, after all, “It’s written, isn’t it?” they probably told themselves.

A beggar with a ragged hat smiled at me and said, “You think that people have money? You apparently don’t know our community. By us, people are starving for bread. They don’t have money to invest. Go to Rechavia, go to the neighborhoods of the rich. Maybe there you’ll find someone who will listen to you.”

In my heart, I wanted to thank him for his advice. What a shame, that there, where people have money to waste on luxuries, almost no one would be persuaded to put their money on such foolishness, while here, where people need money just for their daily basic expenses, to provide for large families and marry children, here they are more easily fooled.

“A huge yosher koach, Reb Yid,” a chosid called out to me, who declined to fill out a form. He said he wasn’t filling out a form because right now he doesn’t have money to invest, but he is anyway pleased with the offer. “Ashreichem that you’re helping bnei Torah and avreichim,” he said warmly and shook my hand.

The gabbai came out and asked me to take apart my stall, since they only let charity collectors solicit near the shul. I took off the posters, gathered in the flyers, packed up and left…

Within 5 minutes, they were all thrown into a nearby garbage container and I was left with the disquieting feeling that something is wrong if so many adults and even bnei Torah in our community can be so easily fooled.

Don’t we say that the Torah is the machkimas pesi? Aren’t Jews known for being smart? How come such scams are so easily pulled off?