Many of the greatest frauds in history are stunningly obvious with the benefit of hindsight. A recent article on the conviction of pharmaceutical executive Martin Shkreli points out this very fact, placing blame on the victims’ decision to chase financial returns they may not have even believed could be legally gained – instead believing that the fraud wouldn’t collapse before they made out handsomely.
In many cases, plenty of investors do just fine in these fraudulent schemes, effectively taking from those who join the scheme after them. Many of Shkreli’s investors earned handsome returns, as did many of the investors in Bernie Madoff’s famous pyramid scheme. How many of these investors suspected they were investing in a fraudulent scheme, and how many truly believed that the person “selling” these frauds could vastly outperform other financial firms year after year? We’ll never know, but it’s safe to assume there are people who fall into both of these categories.
While robbing Peter to pay Paul isn’t as common in government as it is in the financial markets, there’s plenty of cases where a healthy level of skepticism would have made it obvious that the government was being defrauded in other ways. Often, citizens or government officials ignore suspicions of government officials because it’s far easier than the alternative.
One example is the Atlanta public schools test fraud, where multiple teachers sat in a windowless room, changing students’ test answers to inflate their scores. The teachers won awards and earned healthy bonuses, the parents saw their children getting better results, and the community leaders had one less criticism to defend against. Everyone was willing to turn a blind eye to the obvious questions. Why is nearly every erasure on students’ test sheets changing an answer from incorrect to correct, and why are there so many of them? More generally, how do test results drastically improve after being stagnant for years?
Another example of obvious corruption – William Jefferson, a US Representative for Louisiana who is famous for being found with over $90,000 in his freezer. After sentencing, the US Attorney prosecuting him said that he engaged in "the most extensive and pervasive pattern of corruption in the history of Congress," continuously arranging bribes and setting up fake companies in family members’ names. Despite being videotaped in 2005 receiving an envelope with over $100,000 by an FBI plant posing as a corrupt businessman, he was re-elected in 2006 before ultimately losing re-election in 2008 and subsequently being convicted.
As investigative agencies reach out to agency employees and encourage them to report suspicious behavior, these stories illustrate an important lesson – if something seems too good to be true, it probably is. If it looks too odd to be ethical behavior, it's probably not ethical behavior. And if you ignore it for long enough, it won’t go away – it will only get worse for everyone involved.
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