The Confidence Game

by Maria Konnikova

  His investors finally started to turn. Elizabeth Timmons, who’d given a thousand-dollar bond for his bail, asked to be released from it; she wanted no responsibility for his appearance. Bergstrom, his first ever victim, sued him for return of the $150 he’d eventually deposited.

  On February 8, Miller, the real one this time, was apprehended in Montreal by Captain James Reynolds. On Tuesday evening, around seven, he had been walking down the street with another man when Reynolds spied him in the crowd. “Hello, Miller. I’m Captain Reynolds of New York,” he said as he walked up to the fugitive. Miller doffed his hat. “Why, how are you, Captain?” he replied. They shook hands, Miller smiled, and the captain informed him of his impending travel plans back to the States—preferably with Miller at his side. By eight, the two were speeding on a train back across the border. Just before two in the afternoon the following day, Reynolds and Miller arrived at Grand Central Terminal.

  “Well, Miller, we are in New York now,” Reynolds told him. “I will have to place you under arrest.” Miller smiled. “Certainly. I understand.”

  Misfortune, it seems, did little to make him less brazen. “Anyone with any common sense would know that I was not [in Canada],” he told a reporter who managed to sneak his way into the jail alongside a lawyer once Miller was safely in custody. “Since I have been connected with this enterprise I have been pounded like a football by the police, the lawyers, and the reporters.” He was the real victim. He’d done nothing but make money for thousands of people.

  At just past four in the afternoon, William Miller arrived at the Brooklyn Municipal Building. He looked as dapper as ever, complete with his usual derby hat, gray covert coat, and black suit of cheviot wool. There, a crowd awaited. Head hung, Miller made his way up the steps, dwarfed by Reynolds at his side. The crowd closed in behind him, following closely on his heels. The courtroom, meanwhile, had filled well past capacity, each seat taken, the aisles crammed with onlookers. As Miller stood before the court, Judge Hurd read back his indictment: two counts of grand larceny in the first degree, and one in the second.

  There was no syndicate. There were no shares. Miller hadn’t invested in the stock market. He wasn’t even a member of the stock exchange. Actually, that’s not entirely true. He did invest once. As the Franklin Syndicate took off, Miller seems to have bought some of his own lies and invested $1,000 on some shares he was certain would go up. Wasn’t he the one with the inner edge, after all, the genius of Wall Street? At the end of the week, the investment had indeed changed significantly in value. It was worth $5.36.

  Miller’s was one of the earliest and most successful of what we now call Ponzi schemes in history—only, back then, Charles Ponzi would have still been a seventeen-year-old kid. Take from Peter to give to Paul. All well and good while you have a steady supply of capital. Not so good if that supply dries up. He’d netted what today would be worth over $25 million. The whole scheme was “fraudulent and felonious,” the court documents read; Miller’s intent, to “cheat and defraud.” He’d committed grand larceny and “crime of false pretense.”

  “Not guilty,” came Miller’s plea.

  As the courtroom cleared, Miller was brought to a small cage next door. For the next hour, he sat quietly on a chair in the corner, reading the paper, joking with his guards. Just past six, he was returned to jail, Cell 6, Tier B, Raymond Street.

  On April 30, Miller was sentenced to ten years in Sing Sing. It was the maximum penalty possible by law. Miller was crushed. His lawyer had begged for clemency. The judge stood firm. “It is a grave question whether an enterprise like the one this man carried on ought to be suppressed by the severest punishment under the law. I am of the opinion that it should.”

  Yes, Judge Jenks Herschberg said, the victims were “ignorant and unthinking.” Who could believe in someone nicknamed “520 percent” for his unparalleled rate of return? It practically screamed fraud. But Miller’s sins were vast, and he had to pay.

  The man who stood in front of the courtroom in June 1903 was no longer the dapper gentleman who had lured thousands of victims into parting with millions. Bent and broken from long illness, a cough racking his body—just the other week he’d suffered a near fatal hemorrhage in his cell—it was all Miller could do to remain upright during his three days’ testimony. He was testifying now against his partner, his lawyer, Colonel Robert Ammon. In exchange, he hoped for an early release.

  As he geared up for his final appearance, crossing the so-called Bridge of Sighs, Miller collapsed, the only thing keeping him from the void, the grip of two prison guards on his forearms. “Any bitterness I may have felt against Mr. Ammon has been counteracted by my knowledge of what it means to suffer in prison,” he concluded his testimony. “I am here to tell the truth, regardless of whether it convicts or acquits Mr. Ammon.”

  On Friday, February 10, 1905, Miller was pardoned for his cooperation. Ammon replaced him in the cells of Sing Sing.

  For the next decade, Miller lived quietly in Rockville Centre, working as a grocer under the name “Williams Schmidt,” the last name borrowed from his brother-in-law. His notoriety remained hidden until he and Schmidt quarreled. Miller had him arrested for assault, and in retaliation, Schmidt outed him to neighbors and press. “I had to have an alias,” Miller later said, “or else I never would have been able to earn an honest living. Nobody would have trusted Miller, but as Schmidt I got along fairly well.”

  Meanwhile, Miller’s scheme lived on, albeit in new hands. One, the Washington Syndicate Company, even promised the same weekly 10 percent return. Hadn’t investors been deterred by Miller? an inveterate reporter asked the new manager. “Don’t you, as a businessman, know that it is impossible for anybody to make 10 percent a week regularly on money in Wall Street or anywhere else?”

  “I don’t know any such thing,” he replied. “I’ve heard of men making a hundred percent a day in Wall Street, and I’ve seen it figured out how it can be done, but I couldn’t do it myself because I don’t know anything about stocks. I guess Mr. Lamont knows what he’s doing.”

  And what of the fact that the enterprise was the exact same scheme as Miller’s had been? “Well, it isn’t just the same,” came the reply. “But what if it was? Nobody knows that Miller won’t come back and go on with the business. I’ve heard today that people are offering fifty cents on the dollar for Miller’s certificates of deposit, so I guess some believe in him yet in spite of the newspapers.”

  * * *

  Optimistic biases are among the strongest we experience. And so, just as the convincer is irresistible to the mark, so, too, can it prove the downfall of the confidence artist. The lure of success is simply that powerful. Many con artists operate for years, decades even. Miller rose and fell quickly, true. But Miller’s partner-at-heart Bernie Madoff operated his Peter-to-Paul game for over a decade by the most conservative estimates. And our old friend Fred Demara conned his way through the fifties, sixties, and seventies, until being forced by circumstance to go straight. The longer a grifter operates, in some sense, the more likely he is to overshoot.

  By the time we hear of a scheme, it may appear incredible. We find it difficult to believe that someone could honestly hope to get away with it. But the logic of the convincer sweeps up many a grifter. It took a long time to get so brazen. Miller’s example makes the case perfectly. “This scheme, in its infancy, was quite moderate in extent, but grew by what it fed upon,” wrote Judge Goodrich in a dissenting opinion on Miller’s appeal. Ten dollars isn’t brazen; $1.2 million is. Jonah Lehrer, the journalist who had two books recalled for containing fabrications and willful factual misrepresentations, was finally brought down by falsifying not just anything but quotes from Bob Dylan. Dylan is still alive, and Dylan fans are a loyal bunch, hanging on the master’s every word. When the lies were uncovered, people’s reaction was disbelief: how could someone be so brazen? The answer is exactly the same as in Miller’s case. Lehrer didn’t start by fabricating Dylan. He started with
a ten-dollar equivalent. But for years, no one caught on. By the time of the Dylan fiasco, he’d likely fancied himself invincible. The confidence artists can grow as complacent and overconfident as those they deceive: I can keep going forever. I’m good, and things are good, and so it will stay. Catch me if you can. And sometimes this mentality is exactly what does catch them. Had they only stayed more modest, perhaps we’d be none the wiser.

  Miller wasn’t quite destitute during his Long Island days, but he came fairly close. How? Where had the money gone? Much of it was never recovered, and the investors were never fully paid back. (According to author Mitchell Zuckoff, his investors were able to get back, on average, twenty-eight cents on the dollar.)

  Miller had grown so confident that he’d fallen for a little trick of confidence of his own. Before leaving for Canada, he had signed over all of the proceeds of the syndicate to his lawyer, Robert Ammon, including some $200,000 in bonds—a total, as he would later tell the court, of $255,000. Trust me, Ammon had told Miller; because of attorney-client privilege, the money would be safe. He’d take care of everything.

  Miller had only ever gotten $5,000 back; $5,000 more had gone, according to Ammon, to “fixing” a few problematic people; and $5,000 had gone toward bribing a jury. And for “guarding” the funds, Ammon also agreed to look after Miller’s wife, still in Brooklyn: he gave her a princely allowance of five dollars a week.

  It starts with one word. One quote. One scene. One massaged fact. One altered data point. Did anyone notice? No one? Then let’s keep going. Soon the ruse takes on a life of its own and you’re fabricating whole fictional worlds as you bring ever more dupes into the fray. You’re not a psychopath. You’re probably not even a pathological liar. You’re just a grifter who got a bit too enamored of his own scheme, and too certain of his own success, to believe he can ever fail.

  And when you’re caught? You still can’t quite believe it—just as Miller’s victims, to the end, refused to believe they would never see their money again. It’s just too, well, unbelievable—the convincer has played its role only too well. There’s too much at stake. Things had been going so well. It must be a mistake—not the end. And just as the crowds insisted on Miller’s honesty, so the con artist caught in his own web insists on his. You protest your innocence until the point where to keep on protesting would signal a final break with reality.

  For profit isn’t all about money. It’s about gaining an edge. Sometimes a financial edge, yes, but also a cognitive edge, a reputational edge, a personal edge. And when we see that edge in our grasp, we hold on to it, and we don’t ever want to let it go.

  CHAPTER 7

  THE BREAKDOWN

  And the burnt Fool’s bandaged finger goes wabbling back to the Fire.

  —RUDYARD KIPLING

  James Franklin Norfleet—Frank—sank back into the plush chair in the lobby of the Adolphus Hotel. It was early November, and it had been a long few days. He needed the rest. He’d been staying at the St. George, arriving just two days prior in order to sell off one of his farms. Stocky and compact, just five foot five in his bare feet, his blue eyes wide-set on a broad face, a “frosty bark of a voice” punctuated by frequent bursts of laughter that belied his handiness with bulls, horses, and firearms alike—“fast on the draw and a deadly sharpshooter,” as one acquaintance put it—Frank was a rancher, Texas born and bred. He owned a big swath of land up near Hale County, just north of Lubbock, and was in Dallas to sell over two thousand acres of his land in exchange for the cash to buy a much larger parcel—ten thousand acres immediately across the way—from its owner, Captain Dick Slaughter.

  Norfleet was fifty-four years old, and business was good. On his way to Dallas, he’d sold a load of mules. Here, he hoped to sell the land, too. That would get him where he wanted. He hated debts, credit, all of it. He was a cash man, and soon he’d have enough to close the deal. It couldn’t come soon enough. He was feeling lonely, and home pulled at him. He did hate the big city.

  It was at the St. George that, just a few days earlier, Frank had met R. Miller, a mule buyer from Hill County, just outside Dallas (and no relation to the Franklin Syndicate). He’d seen many a mule and grain car from West Texas, Miller told Frank, but had never been there himself. What was it like? Norfleet described the flatlands, the sandy patches and the playas, the loamy soil, the way the ranch rambled on into the distance. He mentioned, too, that he was looking to sell a tract of his land up there.

  “Norfleet, I may help you,” Miller exclaimed. It was Frank’s lucky day. A friend of Miller’s, W. B. Spencer, was actually a purchasing agent with the Green Immigration Land Company of Minneapolis. He was just that day closing on a patch of land—also two thousand acres, as luck would have it—in Williamson County. But it looked like the deal could fall through. “It is just possible he might be interested in your place as well,” Miller concluded.

  After a fortuitous introduction and a few false starts, Miller’s intuition panned out: Spencer was eager to buy Norfleet’s land. Norfleet was thrilled. He’d liked Spencer from the first—mid-thirties, dressed in a simple business suit, elegant but not too flashy. Just the sort of straight shooter he fancied himself to be—and liked, in turn, to deal with. So taken was he with his new acquaintance and business partner that he readily agreed to share Spencer’s hotel room rather than stay on in his own: when Spencer told Norfleet he was staying in a double room at the nearby Jefferson, foolishly stuck with a needlessly large accommodation after the friend he was to share it with had been detained at the last moment, it seemed a natural decision. The reasonable and frugal thing to do—Norfleet was always careful about money; you didn’t get to where he was if you weren’t. And besides, he really liked Spencer. He welcomed the chance to get to know him better. Plus, it was a buffer against the city loneliness.

  Later that day, the two men made their way to the Adolphus Hotel to meet with Spencer’s boss and see if they couldn’t come to an understanding about the land. It was there that Norfleet was sitting as he leaned contentedly into the chair.

  Something disturbed his back. A stray magazine left behind by a careless reader, he thought, and shuffled forward to remove it. But it wasn’t a magazine at all. It was a wallet. It was fat, filled with cash—over $200, in fact, no mean sum at all—and alongside it, a copy of a shockingly large bond, for $100,000. In the front, there was a Masonic membership card. J. B. Stetson, it read. The rest of the contents seemed to confirm that this was Stetson’s wallet. There was the membership card for the United Brokers. And on the bond, a promise of guaranteed performance by the same Stetson. Norfleet was an honest man. He set about trying to return the property, whoever Stetson might turn out to be.

  He tried the front desk. Indeed, there was a Mr. Stetson registered, and he happened to be in his room at the moment. Norfleet and Spencer made their way up. Frank knocked on the door. “Excuse me,” he asked as the door opened a slit. “Have you lost anything?”

  “No,” came the curt reply. The door slammed in Norfleet’s astounded face. He turned to go back to the elevator.

  As he and Spencer reached the end of the hallway, a voice cried out after them. “Gentlemen! Gentlemen!” it said. “I have just discovered that I have lost a very, very valuable pocketbook.” The men returned. Stetson invited them in.

  First, he wanted to apologize. He had mistaken them for reporters. The bloody bastards had been hounding him all afternoon. But he was beyond ecstatic to make their acquaintance. The cash was good to get back, sure, but the real prize was his Masonic membership card. He was so very happy to have it once more safely in his pocket. Norfleet understood. He was a fellow Mason.

  So glad was Stetson to be reunited with his property that he offered both men a hundred-dollar reward. Spencer eagerly pocketed the cash, to Norfleet’s surprise. Norfleet politely refused. Sure, it was a lot of money, but he was only doing his duty. The pleasure of seeing Stetson’s relief was reward enough. But Stetson insisted; he wanted to show his g
ratitude. You know what he would do? He would take the hundred dollars and invest it on the rancher’s behalf. It was his profession, he made huge returns, and normally his investment advice came at a high price. But in this case, he would make an exception. He had just received a tip, and he could act quickly. Would Norfleet take any winnings from his investment? Norfleet agreed. It seemed a good compromise. Stetson left to place some calls and make some bets.

  Spencer lounged behind Stetson’s vacated desk. Norfleet paced the room and took stock of their surroundings. Several impressive-looking wardrobes, overflowing with fine garments and shoes. A solid desk, stacked with papers and stock reports, cryptograms and keys—Stetson had explained earlier that much of the information he received was sensitive and confidential; he and his company had developed a stealthier way to communicate. They were very lucky, Spencer offered, unprompted. They’d chanced on an acquaintance with a very powerful man indeed.

  Shortly, Stetson returned. He handed Norfleet a pile of bills. Eight hundred dollars. His winnings, he said, from a successful foray into the markets. This time, Norfleet took the money. And why not? It was a return from a well-placed investment by a new friend. He was on his way out the door, cash in hand, when Stetson made a motion to stop him. Hand on his shoulder, he inquired whether Norfleet might consider returning the following morning. He was expecting some news from the cotton markets and would love to continue their acquaintance and perhaps make a small proposition. After all, Norfleet had saved his investment and reputation. Norfleet acquiesced.