[In]Securities Guest Blog: The Royal Scam by Aegis Frumento Esq

August 6, 2020


The Royal Scam

It's a cliché that prostitution is the oldest profession. I think the 18th Century Irish poet Henry Brooke came closer to the truth when he wrote

Of all trades and arts in repute or possession,
Humbugging is held the most ancient profession.

Humbugging -- scamming -- is as old as the invention of lying. Its Divine origin is evident in Genesis, where God defrauds Adam and Eve into thinking they were masters of the world.

But there is a problem with calling scamming a "profession." There's a certain connotation of knowledge and skill that comes with being a professional. The plots of crime dramas are driven by Professor Moriarty types, but in real life, "criminal mastermind" tends to be an oxymoron. If real world fraudsters are geniuses, then you might as well declare idiocy to be form of intellect.

No, what distinguishes real world fraud is not brilliance, but stupidity. If not in the performance, than in the aftermath.

How, if not stupid, can one describe the Florida man (of course) who scammed the government out of $4 million in COVID relief funds -- and then bought a $350,000 Lamborghini? And whatever you call Florida man, perhaps we should call the Texan who did much the same thing "modest." After all he only got $1.6 million, and so he bought a more reasonably priced Lamborghini (just $210,000). But he bought a pickup truck too -- he's a Texan, after all! See http://www.brokeandbroker.com/5354/ppp-lamborghini-porsche/.  According to his lawyer, Florida man is "a legitimate business owner who, like millions of Americans, suffered financially during the pandemic." Nothing like a hot Lambo to ease such suffering.

Perhaps the notion of "criminal mastermind" is most credible when we think of computer hackers. We get these images of coders typing at blistering speed on keyboards, trying to outwit self-reconfiguring firewalls to gain "access" to some secret network. It seems that a kind of stalemate exists between cybersecurity specialists who work to keep systems secure and cybercriminals who try to gain access purely by outsmarting the machine. At least, you don't hear much about major successful hacks that involve pure technology.

Most of the hacks you do hear about are successful because they use "social engineering." That too sounds like an oxymoron, or another plan from Elizabeth Warren to tinker with us. But it is really coder's psychobabble for techniques that exploit the weakest part of any IT system, the wetware between the ears of the persons who interact with it. Social engineering attacks are nothing more than ways to trick human beings into letting you in the door -- that is to say, fraud. See https://www.tripwire.com/state-of-security/security-awareness/5-social-engineering-attacks-to-watch-out-for/. So now I'm back in familiar territory.

This week a Florida (again?!) teenager was arrested and charged in the hack of Twitter that gave him control of over 100 celebrity Twitter accounts. While no doubt real computer skills were used in the process, success required "social engineering." It seems that one or more Twitter employees were tricked, or seduced, into giving the hacker access to various admin tools. https://www.vice.com/en_us/article/jgxd3d/twitter-insider-access-panel-account-hacks-biden-uber-bezos. The Wall Street Journal reported that the hacker pretended to be a co-worker from the Twitter IT department who needed access to do his job. https://www.wsj.com/articles/the-teenager-behind-the-twitter-hack-and-how-he-did-it-11596563449.

Frauds and other crimes of social engineering occur because we are a gullible species. We'll believe anything. This is our weakness. But it is also our strength.

This month's issue of Scientific American reports the latest thinking on why homo sapiens outlasted all other human species and went on to dominate (but not master) the world. Believe it or not, our cousins, the Neanderthals, were both stronger and smarter than we were, based on fossil and anthropological evidence. However, we were friendlier. We have "a particular type of affability called cooperative communication. We are experts at working together with other people, even strangers. We can communicate with someone we have never met about a shared goal and work together to accomplish it." In order to do so, we evolved something that other primates don't share -- we inherently trust others with whom we identify. That trust is what "social engineers" -- and salesmen too -- exploit to get us to do what they want.

That's why we fall for scams, big and small. If someone from IT calls me and asks my help to fix some accounts, why would I doubt him? And if he tells me I look great, or am really smart, well, forget about it. And so some poor sap of a Twitter employee handed over the keys to Barack Obama's and Kanye West's Twitter account to a Florida teenager.

Our gullibility, combined with our curiosity and our need for "meaning" also makes us susceptible to believe all sorts of conspiratorial nonsense. Put religion to the side as a special case. Let's consider instead a secular belief system like Q-Anon. Q-Anon espouses the existence of some vast conspiracy. "Vast conspiracy" is another oxymoron. No conspiracy can ever be "vast." Conspiracies require intelligence, organizational structure, active participants, and secrecy. Never will you find all of those in one place for very long. So, the more complex the conspiracy, the more people in on it, and the longer it goes on, the more likely it is to become public knowledge.

So I had to laugh when I read a review of Stuart Stevens' just published It Was All A Lie. Stevens was a top Republican strategist, having worked to elect Republicans since the Reagan years. A never-Trumper, he's had an epiphany over the past several years. "There is nothing strange or unexpected about Donald Trump," he writes. "He is the logical conclusion of what the Republican Party has become over the past 50 years or so. . . .  Trump isn't an aberration of the Republican Party; he is the Republican Party in a purified form." Stevens blames himself (and other Republicans like him) for thinking the GOP could engage for decades in the deliberate strategy to court plutocrats and aggrieved whites and not become the party of plutocrats and aggrieved whites. So Stevens purports to blow the lid on the vast conspiracy of the GOP to win elections by blaming minority populations for all our ills.

But he's writing mostly for his own mea culpa; he's not telling me anything I didn't already know.

As for Q-Anon, it spouts a vast conspiracy of the left, whose secrets are being spilled by "Q", a worker in the "deep state" who knows where all the skeletons are. https://www.businessinsider.com/what-is-qanon-explaining-the-far-right-conspiracy-theory-2020-7. No one knows who Q is. But I do. Q was one of my favorite characters on Star Trek: The Next Generation. Q was an advanced alien with god-like omniscience and omnipotence. Q was always bemused by Picard's and his crew's search for knowledge, and would occasionally send them on wild goose chases. Q is a scammer royale. But the glory of the royal scam is the army of gullible humans always ready to be taken in.


Aegis J. Frumento

380 Lexington Avenue
New York, NY 10168

Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters.  Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.

Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.

He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.

NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.