The mesmeric charms of Kautilya Nandan Pruthi

Britain's Bernie Madoff, Kautilya Nandan Pruthi, beguiled his famous vitims out of millions. So why is 'affinity fraud' - swindling people who trust you - proving so contagious?

Never trust a man in a cravat' runs the adage. It's a shame Pruthi's victims didn't heed it, says the Daily Mail. Many could scarcely believe their luck when they were invited to join one of the country's most lucrative investment clubs, offering returns of up to 13% a month.

It seemed above board as several celebrities had signed up. Nobody suspected they were to lose their shirts in Britain's biggest-ever Ponzi scheme. Last week, the perpetrator of the £115m scam, Kautilya Nandan Pruthi, was jailed for 14 years.

With his flowing locks and dramatic wardrobe, police describe the Indian-born businessman as "a flashy operator". Yet even experienced investors including several former Merrill Lynch bankers were taken in by his "loquacious charms", says The Independent.

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As Pruthi's own defence counsel said in court, he could be "mesmeric". "You can't imagine the plausibility of this man," one victim (a former Whitehall mandarin) told the paper. "He arrived in a big, shiny Bentley, and oozed composure and confidence.

He was also terribly dapper" smart shoes, a nice suit, and the ubiquitous cravat. He dropped the names of high-profile clients "It was like he was doing you a favour letting you into his clique". Pruthi told investors that his firm, Business Consulting International, was an upmarket lender offering high-rate bridging loans to import and export firms.

In fact, says the Daily Telegraph, it was a classic Ponzi: he simply returned some of the cash they invested every month baiting the trap for them to reinvest and recommend his fund to family and friends. Word of mouth was crucial (see below).

Pruthi, who began taking deposits from investors in 2005, knew the value of first impressions, decking out his Knightsbridge offices like a classy fund management outfit and boasting of being one of London's richest men. As the cash rolled in, funding sumptuous houses, cars and a private jet (which crashed in 2008, killing five people), the lie seemed ever more plausible.

Little is known about Pruthi's early life in India. He told some people he'd left school at 15 to become an entrepreneur; others that he'd studied for an MBA, says the Daily Mail. But the global scale of his fraud encompassing Dubai, Thailand, Australia, Singapore and Spain suggests he travelled widely. "He spun a spider's web of corruption, stretching around the world," said prosecutors.

Before coming to Britain ten years ago, the US jailed himfor a smaller fraud. That conviction "went undetected" by the British authorities. When he was arrested in 2009, "victims found it hard to accept they'd been conned", says the Daily Mail. Some wrote to their MPs "to complain that police were ruining their investments". "A cold-hearted criminal driven by greed, with an unquenchable desire to steal and spend," concluded the City of London police about Britain's Bernie Madoff.

Lean economic times tend to boost "affinity fraud"

It's no coincidence that things began to go wrong for Kautilya Pruthi in 2009, when missed payments to some investors sparked an investigation of his operations, says The Economist. "As investors in Bernie Madoff's funds found out to their cost, frauds are more prone to exposure in a weak economy when it becomes clear who has been swimming naked."

Following the jailing of financier Allen Stanford last week for a $7bn Ponzi scheme, the FBI is probing 1,000 cases of investment fraud "a multitude of Madoffs". "Affinity fraud" (swindling people who trust you) is the fastest-growing fraud of all, drawing in everyone, from congregations at the mercy of crooked pastors to tight-knit professional and social groups. "Once the scammer gains their trust, his scam spreads like small-pox."

Why now? Lean economic times "make get-rich-quick schemes more tempting", and desperation breeds gullibility. Fraudsters benefit from "mistrust of mainstream finance". Several of Pruthi's 800 victims threw in their lot with him in 2007-2008 because the banks looked risky.

Pruthi's chief weapon was persuasion, says The Daily Telegraph. Having lured two accountants , John Anderson and Ken Peacock, to invest in his scheme, he had them acting as "aggregators": selling the scheme under their own names at parties and sports clubs.

They unwittingly snared everyone from a Manfred Mann band member, to actress Frances de la Tour as well as the singer/actor Jerome Flynn and cricketer Darren Gough, who both reputedly lost nearly £1m apiece. Other investors included members of the Ratu Bagus cult (a religious sect based in Surrey and Wales), introduced by Flynn.

The judge concluded that both Peacock and Anderson who were acquitted of charges of fraud and have received psychiatric counselling were as much the victims of Pruthi as other investors: "They trusted him completely".