Celebrity Fraud: What You Can Learn from Kevin Bacon, Uma Thurman, and Others

CATEGORIES: Investment Viewpoints

Celebrity Fraud What You Can Learn From Kevin Bacon and Uma Thurman

For better or for worse, we Americans have a fixation on the lifestyles of celebrities. Whether we learn anything useful from our pop culture icons in the areas of fashion or home decorating is a matter of individual taste. But one thing that can have instructional value for how we lead our lives is to take note of the financial scams that plague wealthy and too-trusting celebs. After all we are much more likely to remember the details of a financial scandal if we learn about it from a headline that screams “Black Eyed Peas Sue Former Business Manager, Demand Financial Records”. The famous singing group’s financial advisor, it appears, was in the habit of cheating the group members out of millions of dollars by failing to file state and local taxes for many years. What useful life lessons can we learn from Financial Mishaps of the Rich and Famous?

Celebrities Are Human, Too

The lifestyle of a famous celebrity can seem so far removed from our own that it’s easy to forget that when all is said and done they are human, too, and subject to the same human weaknesses and predilections as anybody. When it comes to investing, one really important thing to keep in mind is that human emotion plays a big role—bigger than is commonly thought. And when it comes to the very wealthy, we have a tendency to suspect that the fabulous amounts of wealth must have been accompanied by fabulous smarts. Wrong! A quick trip down memory lane will set that delusion straight. Was it smart in the Holland of the seventeenth century to put a value on a single tulip bulb greater than the cost of an entire house in central Amsterdam? Did the wealthy English barons and lords who ponied up for shares in the South Sea Bubble scam a century later exercise rational judgment and discerning appraisal in willingly parting with their money for the charms of a snake oil salesman? No, they fell prey to what celebrated chronicler Charles Macaulay called the “delusions of crowds”—the loss of critical thinking that so often accompanies large-scale fads and manias.

Exclusivity: The Great Investment Aphrodisiac

One common thread that links financial scams from Dutch tulips to Bernard Madoff is the deep-seated psychological need many people have for the perception of exclusive access—that they have entrée to a world off-limits to most. That’s what Madoff sold to his victims. Do we know why Kevin Bacon and Kyra Sedgwick, among others, got caught up in the Madoff scam and lost millions? No, but we can fathom a guess. Madoff, an avuncular and calming presence by most accounts, created the illusion that his investors were part of a special and exclusive club that would have access to predictably high returns in good years and bad. The people who were already in the Madoff club were the kind of people those looking in from the outside wanted to associate with—rich, famous, pillars of good (there were dozens of prominent charities and hospital foundations who lost fortunes alongside Bacon and Sedgwick). The story was plausible enough to cause those who could have certainly known better to let their guard down. The tears would follow as surely as night follows day.

My Advisor, My Friend

Another emotion to which humans fall prey is placing inordinate amounts of faith into someone we trust.  That happened in the Madoff case and it also happened in another celebrity scam, this one involving the money manager Kenneth Starr and dragging in, among others, Uma Thurman and Neil Simon. This wasn’t an elaborate scheme like the Madoff affair—it was simply the chronic skimming off of funds intended for investments to fund the manager’s own lavish lifestyle. Scam artists like Starr prosper when their clients are so trusting that they don’t require any periodic reporting and are wealthy enough not to be keeping an eagle eye on their actual bank balances.

Two Common Sense Rules for Avoiding Misery

The sad thing about these financial scams wealthy celebrities fall into is that they are so eminently avoidable with a bit of common sense. Rule number one is brazenly simple: if something looks too good to be true then it is too good to be true. Madoff’s fund promised returns that were, year in and year out, too good to be true. His accountant was not a well-known firm like Ernst & Young, but a single elderly woman in Long Island. Fund reports were manufactured in-house, not from a third-party custodial agent like Fidelity or Schwab. The warning signs were there, but people want to believe what they want to believe, so the warning signs were ignored.

Rule number two is just as simple: Do your homework. Read your bank statements and monthly reports. If you don’t understand something, ask. If the answer you get sounds unduly complicated or fishy, ask a third party. There is no shortage of honest investment professionals who could help one get to the bottom of a questionable investment. Getting a second opinion is never a bad idea. And with the wealth of information that is accessible via the Internet, it is often possible to identify potential red flags before they wreak havoc on your assets.

Tell us…What do you think is the most shocking celebrity scam?

 

For free, unbiased investment advice that will help you achieve your long term financial goals, try Jemstep.

 

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About the Author

Katrina Lamb is a CFA for Jemstep. She has over 25 years experience in economics, finance, international development and management strategy, with a strong focus on global markets. She provides a voice of clarity, logic, and reason in an environment characterized by high uncertainty.

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9 thoughts on “Celebrity Fraud: What You Can Learn from Kevin Bacon, Uma Thurman, and Others

  1. Human or not .. these many ‘stars’ taken in my scam artists, use their money to fight against America, supporting the Socialist Muslim who is living in OUR White House. I don’t feel sorry for any of them.

  2. The biggest celebrity scam is the long line of Hollywood glitterati supporting Obama’s plan to turn the US into a welfare state adn a second-rate power.

  3. all i know is that the economic illiterates in hollywood voted for the economic illiterate in the white house. birds of a feather…

  4. This is a decent article, may father who was an adviser told me.
    . Avoid checking on your stocks every day. Making wise stock
    market investments not only requires company research, it also requires you to maintain a good degree of emotional distance.

    By nature, the stock market moves up and down.
    If you let yourself get caught up in every rise and fall, you will soon become emotionally exhausted.

    Additionally, investing for the long run will bring more rewards than short-term strategies
    or day trading, unless you are a very experienced stock trader.

  5. Great article. If I might also add. If you are
    an active trader, make sure that you have ways to access your account even if you are not near your computer or
    the site is down. Most online trading companies give you the option of calling or faxing trades.
    Remember that there may be additional fees associated with these alternate trading methods, however.

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