Lavan & The Financial Fraudsters Amongst Us

The recent parshiot introduced Lavan, a rather unsavory figure in the Torah. He is the brother of Rivka and father of Rachel and Leah. Though he welcomed his nephew, Yaakov, into his home, he always appeared to have ulterior motives. Multiple times in the Torah Lavan engages in deception and underhandedness. This includes:

Lavan meeting Eliezer: Eliezer, Avraham’s servant, arrived in the city of Nahor and met Rivka. After confirming through a series of signs that she was the right woman, he gifted her jewelry, and she brought him home to meet her mishpacha. Lavan noticed the jewelry and welcomed Eliezer warmly. Lavan’s hospitality was influenced by the wealth Eliezer presented, reflecting his opportunistic nature.

Lavan tricking Yaakov in marriage: Lavan offered Yaakov to work for seven years in exchange for marrying Rachel. However, on the wedding night, Lavan deceived Yaakov by substituting Leah.

Lavan, Yaakov, and the sheep: During Yaakov’s time with Lavan, his wages were constantly changed as Lavan continued to alter the terms of their agreement. Despite these changes, Yaakov prospered, since Hashem blessed his efforts, leading to significant growth in his flocks.

Manipulative Behavior: Lavan tried to manipulate situations to maintain control and retain benefits. For example, when Yaakov wanted to leave with his family, Lavan attempted to persuade him to stay by promising better wages and blessings despite his track record of not acting fairly.

I find Lavan to be a familiar figure. I see the likes of him in the financial services industry all the time. While I truly believe that most people in the investment business conduct themselves with high ethical standards and are motivated to help investors achieve their financial goals, there are a few bad apples out there that are usually the loudest and most skilled salespeople.

As I frequently tell my clients, one of the biggest obstacles to financial success is avoiding mistakes. This includes steering clear of folks who are deceptive and not forthright. Here are a few red flags to recognize to help you avoid these Lavans of the investment industry:

High returns with no risk: Risk and return are inextricably linked. If you want to make a lot of money, you need to take a high level of risk. There is no silver bullet that can circumvent this investment axiom. If anyone promises you a high return with no risks, run the other way. They are either an ignoramus or a fraud, and you’d be better off avoiding them.

Exciting investment: Contrary to what many people believe, the level of exhilaration experienced with successful investing should more closely resemble watching paint dry than a day at the racetrack. View anyone who approaches you with an exciting opportunity cautiously since excitement generally runs against sound investing principals. A boring process will help keep investors out of trouble and simultaneously let compound interest work its magic over many years. This dull process is the surest way to achieve long-term financial success.

Overly complicated: Successful investing should be simple to understand. This is true for folks who are just starting out and for multibillionaires. This may sound counterintuitive, especially for folks who have developed a meaningful level of financial and professional success, but it’s the truth. A plain vanilla portfolio filled with stocks, bonds, and cash is all that anyone needs to achieve their financial goals. If you don’t understand what is being pitched to you, trust your gut and walk away. It’s not that you’re not smart enough to understand it. It’s more likely that the other party is selling you a bogus strategy that won’t work out. Complexity sells, but to quote Leonardo Da Vinci: “Simplicity is the ultimate sophistication.”

Great deal: I can’t count how many people have lost money on a “deal” they got access to by some benevolent friend or family member. Participating in an investment because it’s the deal of the century is usually a bad decision. An investment should be pitched on fundamentals and an understanding of how you will make money, not because you have access to something that others don’t have.

Without fail, every month clients will reach out to me to discuss an opportunity they have through a “friends and family discount.” The scenario is usually that their buddy from a past life, a macher in shul, or a guy that your brother-in-law knows, is raising money for a real estate project in mid-America. They were given the zechus of participating with the same terms as the organizer’s friends and family. Wow! What an opportunity! Right? Wrong! The end of this story is usually the same. They either never get their money back or the return is substantially less than what was originally pitched to them.

Do yourself a favor and don’t go after the latest deal. It will just lead to frustration, heartache, and the loss of funds.

Name dropping: I have never, in all my years in the money management business, discussed who I work with or even who I speak to. While there is no HIPAA policy in the investment industry, keeping my conversations and relationships private has always seemed like the right approach. Money is a private matter and not the business of the rest of the community. Over the years, potential clients have expressed interest in working with me on the stipulation that I send them a list of clients as a reference. I never do this, even if it means losing business.

However, the first thing an investment industry Lavan will do is name drop all the people they do business with, have done business with, or may do business with. This strategy works in convincing people to part with their money since other big shots have participated in a particular investment. This may be the biggest red flag of them all. Trying to convince you to do business because of what other people are doing is a good way to distract you from the merits (or lack thereof) of the actual investment. Steer clear of name droppers!

The most interesting thing about Lavan is that his family consisted of many high caliber people. His sister and daughters make up three of our four Matriarchs. His mechutan is Yitzchak and his grandkids are the 12 tribes of Bnei Yisrael! A yichus like that would impress even the most esteemed rabbanim. The lesson is clear. A fraudster may come from a well-respected family and appear decent and respectable on the outside. Oftentimes, that’s how these charlatans gain the trust of potential investors. Lavan’s deceptiveness, cunning, and impressive progeny are a good warning to all investors that outward appearance should not be the whole story when evaluating an investment opportunity.