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The greatest irony in the fraud perpetration business is that those of us who perpetrate fraud are far more gullible than the victims of our schemes. In my experience, no one who has ever perpetrated a material fraud has not first factored a core principle into their thinking. In fact, only those exclusive members of the fraud perpetration club know this principle, and it is a four-letter word: cure. We, while in the midst of our criminal activity, do not like to view ourselves as crooks. We also are not naïve enough to believe that we can continue lying and defrauding investors ad infinitum and not get caught.

So we convince ourselves of an even bigger fraud than the one we are perpetrating. The lies we are telling investors, bankers, auditors, or stockholders are justified because they are a means to an end and not an end in themselves. We have a cure that only we know about that will rescue us from our misdeeds by creating enough income to pay back everyone who has invested with us.

For example, the cure for dishonest brokers or traders who have carefully concealed their losses is "that one good trading day" that will result in enough profits to cover the losses they have been hiding. The cure for me at ZZZZ Best was slightly different. My goal was to keep lying to Wall Street, the auditors, the bankers, and the stockholders until my six million shares of ZZZZ Best stock became free-trading. Once they became free-trading, I planned on selling one or two million shares, raising eighteen to thirty million dollars, paying off the mob and all the other investors, and going legit.

Thus the cure accomplishes two critical purposes. First, it helps rationalize illegal behavior based on the fact that it is only temporary. Second, it convinces us that there is redemption, a light at the end of the fraud tunnel, and we simply need to hold on until we can reach that day when all will be made right. That we believe this lie is evidence enough of our gullibility. No case better illustrates perpetrators' gullibility and the principle of the cure than the one involving Ernest F. Cossey and James Garro. Cossey owned a company called TLC Investments and Trade Company. According to SEC documents he raised $156 million from over twenty-six hundred investors to allegedly purchase distressed real estate, fix it up, and sell it at a profit. However, the SEC alleged that TLC Investments and Trade Company was nothing more than a Ponzi scheme where new investor money was used to pay back old investors.

Cossey realized that time, the enemy of all Ponzi schemes, was his fraud's mortal enemy. He had offered investors in his real estate venture large returns that he was having trouble continuing to pay. Enter James Garro, who himself was running a prime bank scheme offering people an international government bond program that, according to the court-appointed receiver in the TLC Investments and Trade Company case, "would pay returns significantly in excess of those available to other investors in similar instruments."

Cossey needed a cure, something that would rescue him from the cash he needed to pay back his investors in TLC Investments and Trade Company. James Garro told Cossey that if he gave him twenty million dollars, he would receive back forty million dollars in a matter of weeks. Cossey should have known better, but when people are desperate …

Cossey knew that these kinds of returns (100%) were not possible as evidenced by the fact that the returns he was offering investors in his deal were not real. No one knew that fact better than he did. Yet because Cossey wanted to believe that a quick cure would rescue him, he gave Garro twenty million dollars in hopes of getting forty million dollars back to pay off his investors in TLC Investments and Trade Company. It is no surprise that Cossey never received the forty million and the court-appointed receiver who took over TLC Investments and Trade Company sued Garro for the twenty million dollars.

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December (Web-only) 2004, Vol. 48