International Law

The Rabbi Who Lost $100 Million

We are finally getting some facts, but not necessarily material facts, about the WexTrust ponzi scheme.

Ianthe Jeanne Duggan, writing at the WSJ, about the WexTrust Ponzi, has identified the Rabbi that gave authority or blessing to the scheme:

"Rabbi Chaim Silver of the B'nai Israel Congregation in Norfolk, Va., says members have called him often with a question about a congregant: "Can I trust Joseph Shereshevsky? I am planning to invest a lot of money with him."

vosizneias.com

Joseph Shereshevsky (left) speaks to partner Steven Byers at an event in 2006.

The rabbi assured them: "He is the kindest, most generous, trustworthy man."

Rabbi Silver and a number of Orthodox Jews were shocked by Monday's arrest of Mr. Shereshevsky and a business partner at WexTrust Capital, a Chicago-based private-equity firm. Federal prosecutors in New York charged them with raising more than $250 million through a Ponzi scheme -- mainly from Orthodox Jews.

But, Ww are only told the barest story about how Joseph Shereshevsky was able to obtain this testimonial, after all he was a convicted fraud criminal.

We are given examples of Joseph Shereshevsky's good works, but we are not told for whom he did them.

Why does this matter?

Last May 2007, I wrote an article about why churches  were targeted for affinity frauds, and laid out three general psychological principles at play.

Churches, mosques, and temples all have one weakness:

"Although the leaders provide spiritual leadership, they are unlikely also to have the necessary practical skepticism needed for the investment industry.

Enough people in congregation will defer their decision making to what the "most spiritual" leader is recommending that they do. This is known as the principle of social choice - most people will assume, incorrectly, that someone, anyone, has checked "Sam" out.

A painful reminder of this group myopia can be gleaned from reading the various books on Alan Eagleson's involvement with the NHL Hockey Player's association. Eagleson only had to obtain the friendship of several of the top NHL players in order to control the entire group. Mean spirited and vicious, Eagleson would challenge any attack on his authority by demanding to know what the "f**k you ever did in the league?"

As a spiritual leader, you have to be aware of your own limitations.  Rabbi Chaim Silver should have added to his recommendation, but "what the heck do I know about evaluating real estate limited partnerships"?

Full post as published by Misleading Advertising Law on August 15, 2008 (boomark / email).