Cons Targeting Jews: First Madoff, Now Stanford

It took a long time for anyone to point out an obvious phenomenon about the $60 billion Bernard Madoff Ponzi scheme, the largest in history. It was that Madoff victimized thousands upon thousands of his fellow American Jews. By the time that phenomenon was recognized, it was too late for Americans to properly digest the intellectual nutrients it offered. The story was over.

But now it turns out that another Madoff-like Ponzi operation, this one the world's second largest, also laid financial waste to Jews. This clearly is no one-off phenomenon.

As a story, the Stanford Financial Group of banks and "investment" houses got much shorter shrift than Madoff's crimes, and so far no one has publicly connected it to a specific demographic of victim. But the Stanford Ponzi, started by former Texas health club owner R. Allen Stanford, hammered the 40,000 Jews of Mexico City to the tune of a half billion dollars, and to a lesser extent hit the smaller Jewish community of Caracas, Venezuela.

In February, the Securities and Exchange Commission charged Stanford with operating a "massive" fraud. All told, regulators believe Stanford attracted an estimated $8 billion from about 30,000 victims in Latin America, Europe, and the U.S. for purportedly safe investments like certificate of deposits (CD), albeit with a high return. About $6 billion is believed to be missing. Stanford, once on the Forbes 500 list, is now in federal custody facing 21 counts of conspiracy, fraud, bribery, and obstruction of justice. He insists he is innocent.

In Mexico, no one in the tightly entwined Jewish community is very eager to talk about it. But according to off-the-record interviews I've been conducting with Jewish leaders and members since July, Jewish schools and charities are devastated and struggling to stay open. Retirees lost everything. Once comfortable widows are suddenly broke and desperate. Young married couples lost wedding money. College education funds are gone. Inheritances passed down from beloved grandparents -- gone. Huge capital losses are being felt in every corner of the community. Everyone either lost their own money or knows one or more people who did.

How did it happen, especially since Stanford was not Jewish and actually wore his Christianity on his sleeve? And is there -- finally -- a cautionary lesson to be learned by Jews and non-Jews alike who may have missed the lesson offered by the Madoff scandal?

Stanford, a southern Baptist who loved to project his religiosity in business, did what he did in Mexico by hiring a Mexican Jew with deep roots in the community to open and then run his operations there. That Stanford executive's name is David Nanes. Nanes hired Jewish account executives from the community. This crew, by dint of that rather closed community's interlocked kinship ties, burrowed under the cultural firewall straight to Jewish money.

Sofie Freiman, head of a Jewish charitable institution called Kadima which helps 250 developmentally disabled adults and children in Mexico City, explained that Nanes and his people exploited Jewish family trust bonds -- and solid, though bogus, returns -- to persuade her and her board to hand over most of Kadima's endowment funds.

It's all gone now, leaving plans to expand programs and the facility moribund. Kadima is struggling badly now. But that's not what hurts the most, Freiman told me:

You would never think in your life, if you’re a widow, that a nice Jewish boy is going to fool you in a scam, because you know his mother and you never think he’s going to take advantage. This is where it’s most painful, that it was done by Jews.

No anti-Semitism is evident here, no more so than with Madoff. No, what happened here has to do with love of community.

To understand why this should matter to the non-Jewish world, it's crucial to get that Mexican Jews, like Jewish minority communities scattered throughout the global diaspora, tend to share almost evolutionary trust in one another born from centuries of organized persecution and genocide in adopted lands. Over the eons in different nations, Jewish people have become almost genetically inculcated with the idea that, in inevitable times of trouble, help will ever only come from other Jews. An animal instinct for survival, if you will, born of shared culture, identity, religion, and external threat over time.

Stanford's hiring a Mexican Jew to head the Mexico division's sales of bogus, high-interest CDs was akin to a scientist placing a single strain of bacteria in a gel-filled petri dish. It spread extremely fast with no natural predators.

Nanes was born, married, and had children in the community. His roots there ran deep.

While it's unclear whether Stanford thought to choose Nanes for his Mexico City Jewish connection, Nanes certainly knew that was where some money was to be had in an economically checkered country. Those who bought in and profited spread the word to loved ones they sincerely hoped could share in the profit.

Nanes and his Jewish sales force heavily advertised Stanford products in community publications.

He also dished out Stanford money as a corporate sponsor to every significant Jewish cultural event, said Renee Shabot, director of Tribuna, an organization that acts as a liaison between the Jewish community and the non-Jewish world. Stanford sponsored sports teams, arts, and Kadima's huge annual fundraiser:

“People got used to seeing the name, seeing their faces and so they trusted them,” Shabot said.

Nanes, who is laying low somewhere in the Houston area, doesn't deny that he went after Jewish clientele but he insists he believed at the time the products he was hawking were legitimate.

According to Nanes' Houston lawyer, Charles Parker, Stanford hired the 41-year-old MBA about ten years ago to take charge of opening up Mexico -- and more recently, South America -- to sales of financial products.  Neither U.S. nor Mexican authorities have accused Nanes of any wrongdoing, although serious alleged misdeeds are detailed at length in the San Antonio class action lawsuit and in a new book published in Mexico called The Paper Empire by Mexican journalist Gabriel Bauducco.

Parker said his client "never suspected anything was wrong," adding that Nanes and his wife "lost several million dollars, his parents even more."

Believing that Stanford products were legitimate, Nanes naturally decided to market them to the Jewish community because “that’s who he knew. That was the wealthiest community,” Parker said. It made sense for Nanes to recruit other Jews from the communities as sales officers because they also had extensive local connections there too, Parker said.

“And word spread, and people were happy,” Parker continued. “They got their return and passed it on to others. Everybody was pretty happy until everything went to hell in a hand basket.”

To be sure, many more non-Jews than Jews lost money in the Stanford theft. All told, regulators believe Stanford’s CD sales operations sucked in billions from about 30,000 victims in Latin America, Europe, and the U.S.

But more than half of all the estimated 4,000 victims in Mexico were Jews who lost some half a billion dollars. That kind of number packs an outsized wallop for such a small, defined community, according to San Antonio lawyer Ed Snyder.

Snyder is one of several Texas and New York attorneys representing well over 1,500 Mexican and Venezuelan victims in various lawsuits against Stanford, a number that is growing fast.

Snyder recounted how he first became aware of this one victimized demographic. On his first trip to sign up Mexican clients in February, he was surprised to encounter furious Hasidic Jews wearing yarmulkes and other religious attire, speaking Yiddish before switching to Spanish. Subsequent trips to sign up clients and to hear their stories more than confirmed Snyder’s initial impression:

“My perception is that the Jewish community in Mexico City, for various reasons, has been heavily impacted by the Stanford disaster,” Snyder said. “I think what you have here is a situation where that community was specifically targeted.”

A similar story is unfurling in Venezuela, where an even more insular Jewish community of 14,000 reports similar misfortunes from investing in Stanford, also the result of the company’s strategy to hire trusted Jewish salespeople from the community.

Chief Rabbi Penchas Brener, who represents Caracas’ largest synagogue, acknowledged that he lost $50,000 to Stanford from the endowment of an important local foundation he heads. That’s a substantial sum in a country where per capita income is less than a third of that in the U.S.

“I don’t know how hard it hit the community, but I know it hit,” Brener told me in August.

Brener said he felt almost no wariness about reaching out to one of Stanford’s “account executives,” a local Jewish man whose family he’d known for decades, to invest his foundation’s $50,000 reserve account. “I didn’t pay too much attention to the credentials,” Brener said. “They were Venezuelan Jews. They worked for a bank. He didn’t have to convince me; I called him. This was made easier, so to speak, by the fact that he was Jewish.”

So why care if you're not Jewish? Because a few years ago, while Madoff and Stanford were still raking in their victims’ nest eggs, the U.S. Securities and Exchange Commission released a fact sheet warning titled “Affinity Fraud: How To Avoid Investment Scams That Target Groups.”

In it, the SEC warned that Ponzi and pyramid scheme fraudsters had been exploiting the ethnic, religious, and other bonds they shared to gain the confidence of their victims. Koreans had ripped off fellow Koreans, African American hucksters hit black churches, and elderly con artists have ripped off fellow retirees.

It could happen to anyone who counts themselves as belonging somewhere.

That makes what happened to Jews in the Madoff ripoff -- and especially now with the Stanford Ponzi scheme -- a pretty teachable moment.