It’s official: Rudy Kurniawan is off to spend the next 10 years at a federal prison in southern California.
Who, you ask, is Rudy Kurniawan? And what, precisely, does he have to do with issues of how to think about your personal finances? Well, listen to this.
Rudy Kurniawan was a wine forger: he brewed up batches of wine in his kitchen, stuck it in bottles to which he applied carefully-forged labels – and sold the bottles as impossibly rare vintages to collectors whose ranks included billionaires such as Charles Koch. He worked methodically to build his reputation in the rarefied world of collectors of fine wines, acquiring a reputation for having a “nose” – and later, an uncanny knack for laying hands on large quantities of even the world’s rarest wines.
With the benefit of 20/20 hindsight – or even a smidgen of common sense – many of these individuals should have used their vaunted “noses” to detect that something was a little off, that this was all a little too easy. At a 2003 tasting chronicled by New York magazine chronicles, he rolled out no fewer than a dozen different vintages of incredibly rare Bordeaux vintages, all bearing the Chateau Petrus label – and all in magnums. How could any young man, still in his 20s, however talented and affluent, be able to lay his hands on so many bottles of one of the world’s most coveted wines, that his guests (themselves veteran aficionados) had never seen gathered in one place at the same time before?
Of course, it was all a facade. When the FBI raided Kurniawan’s home in March 2012, his magic wine cellar turned out to be a magic assembly line: a place for him to rebottle ordinary Napa plonk, stick a fancy cork into it, add one of his forged labels and pass it off – to those billionaire collectors – as something truly extraordinary. The scary thing is, like many frauds, that for many years it worked.
So you don’t plan to buy any fancy wines for your non-existent wine cellar any time soon and don’t need any tips on making sure the vintages that you bid on at auction are genuine. That’s fine. But Kurniawan’s saga is just another reminder, albeit a particularly colorful one, of the dangers of what I think of as our “will to believe” – the reason why billionaires are as easily fooled as middle-class teachers or lawyers when it comes to investments.
As Kurniawan’s case shows, even the wealthiest and savviest of us can end up being snookered in the right circumstances. All it takes is for the fraudster in question to understand what our area of vulnerability is, and lean on it gently. In the case of the wine fraud, Kurniawan leaned on the collectors’ eagerness to taste these legendary vintages; to have multiple once-in-a-lifetime experiences of the kind that they believe their wealth entitled them to. They closed their eyes to the realities that these rare wines were, in reality, very scarce.
There’s a saying in the market: when we hear hoofbeats, we think horses are approaching – not that we’re about to encounter a stampede of zebras or even unicorns. Fraud looks like a real deal, so it’s always unexpected. So when those rare wine junkies met Mr Kurniawan and his magic cellar, they were willing to give him the benefit of the doubt rather than think he was the progenitor of an elaborate fraud.
Ask anyone who was caught up in Bernie Madoff’s fraudulent investment scheme whether they ever suspected – even if they questioned the oddly regular pattern of his investment returns – that he was running a giant Ponzi scheme, and odds are that you’ll be told no. It all seemed improbable.
Clearly, the most dangerous, costly and financially destructive schemes are those of this kind, where an individual sets out intending to take advantage of a group of people. Their exterior is designed to appeal to them: Kurniawan wore Hermes suits and Patek Philippe watches. Their credentials are in order: Madoff had been a chairman of Nasdaq. They listen carefully and cater to the egos of the people they are targeting. Above all, they benefitted from the how difficult it is to understand the minutiae of the markets of which they took advantage.
Even if you’re not off to visit your wine dealer in quest of some Petrus, there are plenty of other, more mundane cases where the decisions you make about your finances on a daily basis can be swayed by this kind of “will to believe”.
A glaring one, all too vivid in my memory, is the case of all those miss-old mortgages before the financial crisis – the kind that later turned toxic, and that now are leading to billion-dollar fines for the banks that sold them. I’m not suggesting that the homeowners who signed on the dotted line could have averted catastrophe.
On the other hand, being more wary and suspicious of transactions that looked too good to be true – ultra-low teaser rates, mortgages loans that didn’t ask you to document your income, or that didn’t require you to make a downpayment – probably are great examples of people’s willingness to believe, even when something in the back of your mind is telling you it’s probably too good to be true.
There are plenty of other examples of this. Investigators are scrutinizing the way that lenders have approached the subprime car loan market: an increasingly attractive way for banks to make money these days. I confess I wonder about those investors in the bond market who are willing to believe that the 30-year-bond market won’t end just yet; that it somehow will keep ticking over until they, personally, no longer need it to help them with their portfolios.
The world is full of stuff that we shouldn’t be skeptical about – friendship, love, human kindness. It also is replete with examples of those who take advantage of the reluctance of others to question and their willingness to trust, especially when the subject at hand is what seems to them the tricky and dauntingly complex world of their personal finance. When your money is at stake, it’s always worthwhile asking yourself “who benefits if I follow this person’s advice?” and ponder the answer, seriously. Skepticism isn’t a character flaw.
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