Advertisement

What The Sting teaches you about investment scams

Matthew Partridge looks at what investors can learn from The Sting, a 1973 film inspired by real-life swindlers.

921_MW_P36_profile_bottom_cut
EFAFD7

The Sting was a 1973 film inspired by real-life swindlers Fred and Charley Gondorff. Set in 1936, it tells the story of Johnny Hooker (Robert Redford), a small-time conman. After he and his partners, Luther Coleman and Joe Erie, steal money from a crime syndicate's courier, Luther is murdered on the orders of crime boss Doyle Lonnegan (Robert Shaw). Seeking revenge, Hooker partners with experienced grifter Henry Gondorff (Paul Newman). Together they come up with a scam, based around a fake off-track betting parlour, aimed at ensaring Lonnegan.

The key moment

Hooker claims to Lonnegan that he can access inside information about the results of horseraces, though he doesn't immediately reveal how he does so. This information will supposedly enable Lonnegan to place bets on the races at Hooker's boss' betting parlour, in the certainty that they will pay off. Sure enough, Lonnegan's trial bet comes through, as does another. Convinced that he is on to a winner, Lonnegan places $500,000 ($9m at current prices) on another one of Hooker's "tips", only to learn that he has "misunderstood" the instructions, causing him to lose the entire sum.

Lessons for investors

Like Hooker's and Gondorff's scam in The Sting, many fraudulent investment schemes have several "red flags" in common. Unrealistic promises of high returns for little or no risk are a classic hallmark. Scams also like to keep investors in the dark to stop them asking awkward questions about how their schemes work. What's more, since most fraudsters are serial offenders they will often have a track record of involvement in dubious schemes or complaints against them. Many fraudsters also hint that they are getting an unfair edge, such as insider information, in their pitch. Not only does it make their claims look more credible, but it also deters victims from going to the authorities. As Lonnegan says: "What wasIsupposed to do callhimforcheating better thanme?"

Advertisement
Advertisement

Recommended

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020
Three mistakes to avoid when investing on Aim
Small cap stocks

Three mistakes to avoid when investing on Aim

Investing in Aim shares can produce spectacular returns. But as Michael Taylor of Shifting Shares explains, you have to have your wits about you.
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020
How safe are your dividends?
Income investing

How safe are your dividends?

Dividend investing can be a great strategy. But how can you avoid the stocks that are liable to cut your income? Phil Oakley explains.
4 Aug 2020

Most Popular

BP has slashed its dividend – and markets love it
Income investing

BP has slashed its dividend – and markets love it

BP has bowed to the inevitable and cut its dividend in half – and its share price promptly rose. John Stepek explains what it means for shareholders …
4 Aug 2020
Listed companies are dying out, and that could have serious consequences
Stockmarkets

Listed companies are dying out, and that could have serious consequences

Private equity is taking over from public stockmarkets as the biggest provider of capital to companies. That’s bad for investors and bad for society a…
3 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020