Just two days after a copy of his new book, “Annals of Gullibility,” arrived at his south Jefferson County home in December, Stephen Greenspan received shocking news.
The 67-year-old University of Colorado psychiatry professor had fallen for the biggest Ponzi scheme of all time. A third of his retirement savings had been invested with Bernard Madoff.
Even in his disbelief, Greenspan recognized the irony. The subtitle of his book practically screamed it: “Why We Get Duped and How to Avoid It.”
“I had been scammed,” Greenspan said. “In a way it was funny, though I didn’t think so at the time.”
Greenspan had better reason than many Madoff victims to keep quiet about his misfortune. But he did the opposite. He wrote a lengthy essay on gullibility, financial scams and irrational risk-taking in which he revealed his costly mistake.
The science journal Skeptic ran the piece on its website in late December, and The Wall Street Journal picked it up for its Jan. 3 Weekend Journal cover story.
Since then Greenspan, who lives with his wife and one of two sons amid the red rocks and scrub oak of Deer Creek Canyon, has become something of an authority on Madoff victims.
The British Broadcasting Service, National Public Radio, “60 Minutes” and History Channel, among others, have interviewed him for insight into the Madoff case.
Greenspan isn’t too hard on himself, though he admits he paid a high price for his lack of financial knowledge and rigor. Madoff’s was a sophisticated scheme that was difficult to see through. He views his experience as validation of the idea behind the book, that anyone can be fooled, he said.
“My hope is that these stories will contribute to an understanding of a puzzling phenomenon, namely why people, sometimes of high intelligence and education, are duped,” he wrote in his book’s introduction.
Greenspan’s situation “could happen to anyone,” said Michael Williams, finance professor at the University of Denver’s Daniels College of Business.
“He relied on other people’s recommendations, and all of us do that, and generally that’s a good way,” Williams said. “Work with a particular company that you’re familiar with that has an office presence.”
“Of course, Madoff had all of those things, but Madoff was the exception rather than the rule,” Williams said.
Greenspan’s book covers the history of gullibility, detailing its presence in literature and folklore — Pinocchio is more a lesson in gullibility than dishonesty, Greenspan said — religion, war, politics and relationships. Financial scams and Ponzi schemes get only a few pages’ treatment. Greenspan hopes to mine that vein in another book.
The book’s final chapter covers prevention. Among the recommendations: Avoid acting impulsively and know your limitations. He might add to that now: Don’t delegate important decisions.
Two years ago, Greenspan invested 30 percent of his retirement savings with Rye Investment Management, a division of the Tremont Group hedge fund. The sum was more than $250,000.
Like many other Madoff investors, he first learned of the opportunity from relatives, in his case in Florida, who earned steady double-digit returns on their investments.
Greenspan approached a financial planner and family friend with ties to Rye who agreed to let him into the exclusive fund. Madoff managed Rye’s investments, but Greenspan doesn’t recall his name coming up. He was told his investment grew 25 percent in two years, he said.
His newfound publicity helped sales of Greenspan’s book and prompted interest from literary agents for a second, he said. It also has given him personal insight into his unique area of expertise. He is a professor emeritus of educational psychology at the University of Connecticut. He’s been at CU-Boulder for about 10 years.
“I wish I had this money back and that this hadn’t happened to so many people,” he said. “But in professional terms and in terms of my knowledge of the topic, it’s been good for me.”
Staff writer Ann Schrader contributed to this report.
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
Don’t get duped
Experts say there are warning signs for financial scams.
• Be suspicious of promises of high returns and low risk. If it sounds too good to be true, it probably is.
• Beware of investment programs that report steady overall returns year after year despite fluctuations in the underlying investments.
• Investment firms should answer to auditors, not the other way.
• Investments that can’t be explained or subjected to outside verification are more likely to end badly.
• Beware of investment pitches based on religious, civic, ethnic or other affiliations. Promoters who try to borrow credibility from a group often do so because they lack it on their own.
• Resist investment pitches that play to exclusivity, greed or urgency.
Sources: Michael Williams, University of Denver Daniels College of Business; Fred Joseph, Colorado securities commissioner
