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Evading suspicion through political networking

‘Social influence’ can hinder fraud investigations

Sam Bankman-Fried, Elizabeth Holmes and Bernard Madoff. What do they have in common? They apparently used their outsized social influence in their professional networks to illegally expand their bank accounts and prolong their crimes. Fraud fighters can’t also be duped by their wily ways.

Sam Bankman-Fried got by with a little help from his “friends.” Actually, a lot of help. According to The New York Times, his cryptocurrency company, FTX, its executives and its philanthropic division spent hundreds of millions of dollars in “political and charitable contributions, consulting fees, investments in media outlets and even real estate.”

A network of “political action committees, nonprofits and consulting firms funded by FTX or its executives worked to court politicians, regulators and others …” The objective? To make Bankman-Fried the authoritative voice of crypto. (See “Inside Sam Bankman-Fried’s Quest to Win Friends and Influence People,” by Kenneth P. Vogel, Emily Flitter and David Yaffe-Bellany, The New York Times, Nov. 22, 2022.) And for a while, it worked. Bankman-Fried’s high-placed connections vaulted him into the crypto stratosphere.

But now his friends have vanished. FTX has collapsed, Bankman-Fried’s net worth of $26 billion is reduced to zero, and he sits — at press time — in a federal jail in Brooklyn, awaiting trial on defrauding investors in his business, illegally diverting crypto from customers and enriching himself. Prosecutors are saying they’ll use testimony from his “trusted inner circle” of former executives to prove his crimes. (See “Testimony from Sam Bankman-Fried’s trusted inner circle will be used to convict him, prosecutors say,” by Larry Neumeister, AP, U.S. News, Aug. 14, 2023.)

Bankman-Fried, and so many high-profile fraudsters, such as Theranos’ Elizabeth Holmes and Ponzi king Bernie Madoff, reached their pinnacles with savvy political networking. But does that high-flying networking with prominent influentials trigger risks associated with the social psychological concept known as social influence? Does social influence diminish our investigations’ due diligence because of whom we’re scrutinizing?

Ultimately, the consequences of the risks associated with social influence may unnecessarily extend the longevity of fraud schemes because of the enhanced credibility of fraud offenders, which allows them to evade suspicion while committing crimes in plain view. Let’s first analyze another master of social influence.

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