Another notorious swindler – why we fall for conmen

American actor Zachary Horwitz swindled at least $650 million (R9.8 billion) from his more than 250 victims in a huge Ponzi scheme to finance his lavish lifestyle, including the purchase of his $6 million (R90.7 million) Beverlywood residence, luxury cars, and travel by private jet.

On 14 February this year, United States District Judge Mark Scarsi sentenced the Los Angeles-based 35-year-old Jewish actor to 20 years in federal prison.

In addition, Horwitz, who played the protagonist in the 2020 film Last Moment of Clarity, was ordered to pay $230 361 884 (R3.4 billion) in restitution to his victims.

Horwitz, better known by his stage name Zach Avery, grew up in Florida and Indiana. After moving to Los Angeles in 2012, he befriended two of the Hallivis brothers, one a director and the other a producer, who helped him to break into the film industry. Together, they co-founded 1inMM Productions, which produced low-end horror and science-fiction movies.

During the five years leading up to his arrest in April 2021, Horwitz raised millions of dollars from investors, many of whom were personal friends, by convincing them with what the United States justice department described as “bogus claims” about using investor money to acquire licensing rights to films which online streaming platforms like Netflix and Home Box Office had allegedly agreed to distribute abroad.

“Defendant Zachary Horwitz portrayed himself as a Hollywood success story,” prosecutors argued in a sentencing memorandum. “As his victims came to learn, he wasn’t a successful businessman or Hollywood insider. He just played one in real life.”

Clinical psychologist Dr Hanan Bushkin, the owner of the Anxiety and Trauma Clinic, says successful swindlers such as Horwitz elicit an immense amount of trust in others, and people fall for those they trust. “Swindlers’ modus operandi is to drop somebody’s guard, make them feel vulnerable and emotionally connected, enabling them to take pretty much everything they can from that person,” he says.

The SA Jewish Report asked Michael Treherne, portfolio manager at Vestact Asset Management, how people can avoid being deceived and manipulated by swindlers.

“Some schemes are sophisticated and hard to spot until after the fact,” says Treherne, who previously spoke on Bruce Whitfield’s The Money Show about the lessons South Africans can learn from the late American financier, Bernie Madoff, who orchestrated the largest Ponzi scheme in history.

“In the Zachary Horwitz case, some of his close friends were duped too, showing how hard these things are to spot. If it’s too good to be true, it probably is. For context, Buffett is one of the greatest investors around and he ‘only’ managed an average return of just more than 20% a year.”

Generally, swindlers prey on individuals who have a particular need, says Bushkin. “The women in Tinder Swindler had a need for connection, love, and attention. In the case of Horwitz, his victims were attracted to or needed money. They saw the carrot at the end of the journey, that being a lot of money and maybe a higher return than the bank would give them. The longer the carrot is dangled in front of them, the more emotionally connected they are going to be to you.”

Bushkin uses the analogy of food to illustrate this. “If I have just had a seven-course meal and I’m not hungry, I’m satiated. When you come and offer me food, I don’t need food. My connection to you is not going to be based on that need being fulfilled.

“If, on the other hand, I’m hungry, I haven’t eaten for a week, and you dangle a piece of bread in front of me, I’m immediately emotionally drawn to you. The bread becomes my focus, and now you can pretty much get whatever you want from me.”

If you realise you have been or are being swindled, you should speak to the Financial Sector Conduct Authority (FSCA), says Treherne. “Also, probably try to get your money back before everyone else in the fraud realises the same thing. Once a fraud crashes, the money is normally stuck until all the court cases have been completed. Even those who get money out near the end normally have to give some of it back.”

A big red flag for Treherne is when someone gives guaranteed returns that are significantly higher than bank interest rates. “Having very consistent, high, and stable returns would be another red flag,” he says. “Normally, high-return investments come with higher risk, which normally means some level of return volatility.”

Additionally, investors should check if the firm they are investing in is registered with the FSCA. “This doesn’t guarantee it’s legitimate though,” he says, “It just shows the firm is happy to be on the regulator’s radar, which will reduce your risk.”

Treherne says the amount of money people recover in Ponzi schemes depends on how much of the original money has already been spent. “Also, where does the money sit?” he asks. “In some schemes, the money sits offshore, out of touch of the regulator, making it difficult to retrieve it. In the case of Madoff, most people got only their original investment back. That includes people who had been investing for years. That was a big hit because on paper, thanks to ‘growth’, they thought they had substantially more money.”

The moment the person discovers they have been tricked, that it has all been a lie, “there’s an incredible sense of betrayal”, says Bushkin. “It’s traumatic, not only because the relationship is suddenly revealed to be false. What they thought was real is no longer reality. They have to go through a phase in which they have to accept that the person who swindled them isn’t the person they thought they knew, but a conman.”

The person then goes through a grieving process, which Bushkin describes as “learning to accept that your reality wasn’t true and eventually coming to terms with your current reality. Then there is a secondary process, learning to trust again. Once bitten, twice shy. What we see in a lot of these so-called victims is they don’t allow themselves to open up to new relationships, trusting other people, and becoming vulnerable. They put up a wall preventing them from connecting with others. That’s an incredible travesty. They miss out on real opportunities to connect to genuine people in their world.”

Bushkin uses the example of someone being badly bitten by a Rottweiler. “They aren’t just going to fear that Rottweiler, they’re going to fear all dogs,” he says.

He believes Ponzi schemes are as prevalent in South Africa as they are in the rest of the world. “The need for money, a sense of belonging, and love is no different wherever you are,” he says. “Human beings are human beings. The only difference between a first-world country and a third-world country is perhaps the modus operandi. But we all have access to cell phones and apps, so we’re nearing the technological methods you would find in a first-world country.”