Forensic work

[John Hjorth]

Has any of my fellow CoBF board members been involved in forensic work? -Personally, I have.

 

I know there are lawyers and other [, retired or not] auditors [both by profession] active here on CoBF.

 

- - - o 0 o - - -

 

It's just such a fascinating game. In such cases one is [most likely] dealing with psycopaths. It - according to my experience - almost always - ends up as a game - that can be considered some kind of weird combination of Chess and Poker.

[LC]

Yes it is a sizeable part of my job, but I would say it is not as psychological as it seems. Evidence must lead the way, but understanding the emotions/psychology of the people involved can help direct you where to look. Definitely an interesting activity!

[LongHaul]

Hi,

I am interested on the types of forensic work both of you have done.  I have a deep interest in frauds and how to spot them both in public markets and in everyday life.

[LC]

For myself it is related to financial model development/validation/implementation/ongoing usage. Happy to answer any q's you may have.

[LC]

One thing to note is fraud is VERY difficult to uncover (and even more difficult to prove) without a tip-off or help from inside the organization. Your odds increase over long periods of time (i.e. will the cash flows emerge or were they illusory?) but even this is not a given.

 

My experience has put most fraudulent activities in one of two camps:

 

-Institutional: This is a combination of wrong incentives, lax regulation, and multiple layers of disassociated responsibility. Easier to spot because nobody is really trying to "hide it", they are just at a mature point of pushing the envelope (i.e. finally crossing the line). When I do forensic work, it is mostly in this this area. And it is better work: Nobody is actively hiding anything, you have institutional support, and at the end of the day you are improving whatever area you are looking into.

 

-Individual: More of a true "fraud", this is the SAC Capital, interest rate collusion, Bernie Madoff, etc. of the world. Very difficult to spot but easier to get a gut feeling. Most people are good at sensing if something is too good to be true or if someone rubs you the wrong way. But much more difficult to prove because these guys are actively hiding something, AND they are experts in the field (probably moreso then you) AND have insulated themselves as much as possible from any hard evidence if they are smart (which they usually are). You will be stifled at every turn, they will play dirty, etc.

 

Most of my work has been on the first case. Very rarely does the second come up and I do not really like working on those cases.

 

In the public markets? Forget trying to find fraud unless you are a big investor and can get real information. Otherwise, only the big televised cases will be available (the Enrons, Valeants, Ocwens, etc.) and you're still making an educated guess. Most fraud in public markets comes from one division of a huge company which outside minority investors have little or zero visibility into. The only way (again in my experience) to find this out is to become a customer or become a supplier (or both) and try to figure out what goes into the sausage factory vs. what comes out.

 

IMHO your time is better spent looking for good businesses and avoiding the ones which appear too good to be true.

[rb]

IMHO your time is better spent looking for good businesses and avoiding the ones which appear too good to be true.

Wise words!

[LongHaul]

Very interesting LC.  Feel free to write more about this.  How to psychopaths come into play?

 

 

[LC]

I'm not sure about psychopaths, maybe John can chime in with his experience. I suppose it takes a certain type to deceive so many people for so long. You would have to be very smart, very motivated, and amoral.

 

We had a case (and i'm being purposely vague here to avoid any confidentiality issues), where one aspect of a long, regulated process was anonymously reported to be fraudulent. After a pretty lengthy investigation the conclusion was essentially the following: either (1) nothing is wrong, or (2) the person/people engaging in this fraud are extremely intelligent to successfully cover their tracks on a daily basis over at least 2 years, despite it providing no gain to themselves (in fact any cover-up would probably cause more work), and with the potential to be discovered by other processes down the road and ruin their careers. This is usually how these cases end.

[rb]

Just to add a bit of semantics here. When looking at frauds you're looking at sociopaths not psychopaths. They're just like psychopaths but without the murdering and other violent aspects. And yes, they are completely amoral and have an inability to feel empathy. They're wired that way. Also empirically they're highly intelligent and have great interpersonal skills (though it's not sure why). That is the perfect cocktail for a fraudster.

 

I've met a few of these people in my life. One of them I know intimately. It's really scary when you make the connection and realize what they are. You definitely don't want to do business with them.

[meiroy]

Just to add a bit of semantics here. When looking at frauds you're looking at sociopaths not psychopaths. They're just like psychopaths but without the murdering and other violent aspects. And yes, they are completely amoral and have an inability to feel empathy. They're wired that way. Also empirically they're highly intelligent and have great interpersonal skills (though it's not sure why). That is the perfect cocktail for a fraudster.

 

I've met a few of these people in my life. One of them I know intimately. It's really scary when you make the connection and realize what they are. You definitely don't want to do business with them.

 

You are describing functional psychopaths.

 

You might want to read:

 

https://www.amazon.com/Wisdom-Psychopaths-Saints-Killers-Success/dp/0374533989/ref=sr_1_1?ie=UTF8&qid=1522210040&sr=8-1&keywords=wisdom+of+psychopaths

 

The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success

 

TL;DR plenty of "heroes", neuro-surgeons, "leaders" including presidents, lawyers, etc. are functional psychopaths.

 

It would also explain why they have "great interpersonal skills".

 

[rb]

What you call "functioning psychopaths" are most likely sociopaths - psychopathy is actually a subset of sociopathy and almost by definition psychopaths are non-functioning sociopaths. Sociopaths are actually not that rare. It's estimated that they make about 5% of population. So odds are that everyone knows some.  By the numbers for example , there are definitely sociopaths that are members of this board.

 

It's also no secret that sociopaths make up a disproportionate section of successful people. These would include heroes, neuro-surgeons, leaders, presidents, lawyers, and business leaders. That's because their wiring make them suited for that. In fact they are sometimes refered to as a superior human. That's because they don't have to deal with those pesky emotions of having to feel bad when they do horrible things.

 

In regards to the book that you reference I have absolutely no desire to learn to emulate sociopaths. I find it baffling that anyone would. I am comfortable being an inferior human, lesser of, than these people and still be me.

[meiroy]

What you call "functioning psychopaths" are most likely sociopaths - psychopathy is actually a subset of sociopathy and almost by definition psychopaths are non-functioning sociopaths. Sociopaths are actually not that rare. It's estimated that they make about 5% of population. So odds are that everyone knows some.  By the numbers for example , there are definitely sociopaths that are members of this board.

 

It's also no secret that sociopaths make up a disproportionate section of successful people. These would include heroes, neuro-surgeons, leaders, presidents, lawyers, and business leaders. That's because their wiring make them suited for that. In fact they are sometimes refered to as a superior human. That's because they don't have to deal with those pesky emotions of having to feel bad when they do horrible things.

 

In regards to the book that you reference I have absolutely no desire to learn to emulate sociopaths. I find it baffling that anyone would. I am comfortable being an inferior human, lesser of, than these people and still be me.

 

It's not what I call it, it's as the book defines it.  I thought it was a brilliant book as it sure sheds a lot of light on our society.

 

Anyhow, one can easily Google about the differences between the two and Antisocial Personality Disorder.

 

 

 

[John Hjorth]

Great discussion, thanks! I apologize for louzy phrasing in my starting post [about the use of term "psycopath" - I actually agree to a wide extent with rb here].

 

I'll chim in later - I'm too busy today. [long & entertaining story to come!]

[Cigarbutt]

No clear link to investing although there may be one.

 

Since this thread has momentum, here goes.

 

Disclosure: had a major interest in neuro-psychology 30 years ago. Did not make it as a career but always used the underpinnings as a tool to move forward in life.

 

Does that make me a sociopath/psychopath? I guess it depends on your definition of moving forward in life.

 

Some thoughts:

 

-All of us have personality traits that are deviant and it’s just that the manifestation of those traits may not be sufficient to meet the criteria in the DSM “bible”, which is simply an evolving set of definitions.

 

-Psychopaths and sociopaths are mostly ill-defined cultural concepts that have been influenced by the movie industry but are variants along the spectrum of the antisocial personality disorder.

 

-Maybe ways to differentiate are 1-psychopaths would tend to be more intelligent or cognitively organized and 2-psychopaths may have even less introspection/self-awareness/empathy skills that “normally” prevent one from dissociating to the nefarious aspects of actions.

 

-Not up to date on recent fundamental research but I think that the conditions are essentially genetic, are incredibly difficult to “treat” and form a significant fraction of the prison population. I remember that very sensitive/specific items as risk factors were early in life cruelty to animals and vandalism.

 

-On-line diagnosis is a perilous exercise but some trends may be suggestive. :)

 

For those who have an interest in this topic (you may have to wonder why ::)), I suggest the following book, which I refer to directly (1988 edition) as it has been released for non-profit “educational” use:

http://www.cix.co.uk/~klockstone/sanity_1.pdf

The Mask of Sanity.

 

There may be a link to value investing after all as the opening quote, when translated means: “Not all that glitters is gold”.

 

[SharperDingaan]

Most people are 'sociopaths' at least some of the time, but it's not their 'normal' state.

Most recognize that the only 'healthy' way to lay off a large portion of your workforce, is to be somewhat sociopathic about it.

 

Sociopaths also don't have to be both amoral, and have zero empathy.

A great many people are extremely good at evading 'authority' simply because they disagree with the 'authority' (anarchists); yet give generously at fund raising events. Yes it's a business 'expense', but the fact is - they didn't have to contribute.

 

The above range from tax practioners through to drug/arms merchants, the intelligence community, despots, hackers and sanction breakers; the vast majority of which are state sponsored. Obviously if you get to meet one of these people - it's an interesting conversation.

 

SD

 

 

[maybe4less]

What you call "functioning psychopaths" are most likely sociopaths - psychopathy is actually a subset of sociopathy and almost by definition psychopaths are non-functioning sociopaths. Sociopaths are actually not that rare. It's estimated that they make about 5% of population. So odds are that everyone knows some.  By the numbers for example , there are definitely sociopaths that are members of this board.

 

It's also no secret that sociopaths make up a disproportionate section of successful people. These would include heroes, neuro-surgeons, leaders, presidents, lawyers, and business leaders. That's because their wiring make them suited for that. In fact they are sometimes refered to as a superior human. That's because they don't have to deal with those pesky emotions of having to feel bad when they do horrible things.

 

In regards to the book that you reference I have absolutely no desire to learn to emulate sociopaths. I find it baffling that anyone would. I am comfortable being an inferior human, lesser of, than these people and still be me.

 

Former neuroscientist here with friends who study psychopaths: FWIW, they tell me that sociopath is not a technical term. They only refer to psychopaths.