PODCAST
2023 Ketchum Prize: The Ultimate Fraud Fighter
American consumers and investors are losing billions of dollars each year to financial fraud. It's a devastating problem for which almost no one is completely immune. But the 2023 FINRA Foundation Ketchum Prize recipient has dedicated his life to understanding what makes someone susceptible to fraud—and pioneering ways to fight it. On this episode, we hear from Dr. Doug Shadel to hear about his research and years of working as one of America's most active fraud fighters.
Resources mentioned in this episode:
2023 Ketchum Prize Announcement
Stanford Financial Fraud Research Center
FINRA Investor Education Foundation
Listen and subscribe to our podcast on Apple Podcasts, Google Podcasts, Spotify or wherever you listen to your podcasts. Below is a transcript of the episode. Transcripts are generated using a combination of speech recognition software and human editors and may contain errors. Please check the corresponding audio before quoting in print.
FULL TRANSCRIPT
00:00 - 00:27
Kaitlyn Kiernan: American consumers and investors are losing billions of dollars each year to financial fraud. It's a devastating problem for which almost no one is completely immune. But the 2023 FINRA Foundation Ketchum Prize recipient has dedicated his life to understanding what makes someone susceptible to fraud—and pioneering ways to fight it. On this episode, we hear from Dr. Doug Shadel to hear about his research and years of working as one of America's most active fraud fighters.
00:27 – 00:35
Intro Music
00:35 - 00:51
Kaitlyn Kiernan: Welcome to FINRA Unscripted. I'm your host, Kaitlyn Kiernan. I'm pleased to welcome to the show a very special guest today. With us is the 2023 recipient of the Ketchum Prize, Dr. Doug Shadel. Doug, welcome to the show and congrats on the award.
00:51 - 00:53
Doug Shadel: Thank you very much. It's a pleasure to be here.
00:54 - 01:25
Kaitlyn Kiernan: So, we have had the past four Ketchum Prize winners on the show. So, Doug, you are our fifth. And these episodes are always among my favorites because I like to have the opportunity to step away from compliance topics and focus really in on the work being done to advance investor protection, financial capability and financial inclusion through research and advocacy in the U.S. So, thanks for being with us today. Just to kick us off, can you start by introducing yourself and sharing a bit about your career?
01:25 - 05:18
Doug Shadel: I started out many years ago in the Washington State Attorney General's office. I was the fraud investigator for about 10 years, starting out in Olympia, Washington, in a small street-front consumer protection office. I was the only person there for a year and a half, taking calls and complaints—everything under the sun from landlord tenant problems to just everything. I'd just graduated from college. It was my first job. It was really a great experience and I started investigating all different kinds of scams in that office as we got more staff. And I became very frustrated very quickly with the fact that no matter how much effort we put into chasing these “scammy” mortgage brokers or whatever they were, we could never really catch them. And if we did catch them, we were really just chasing them out of the state or driving them into bankruptcy.
And I remember one case in particular that was the beginning of the end of my career as an investigator. It was a mortgage broker in Vancouver, Washington. And I spent a year chasing this guy. I was down there living in a hotel room. He was basically selling fraudulent deed of trust investments to elderly people. He took over an existing, legitimate real estate business and turned it into a crooked operation. He had a crooked appraiser who would appraise the property for twice its value. Then he would stack deeds of trust with straw companies, which is sort of a classic thing now. But back then we didn't really know what was going on. I'd never seen anything like it. Spent a year chasing this guy. We got the goods on him. We filed a lawsuit and two weeks later he moved to Portland, started another company. And eventually we gave the whole case and about 80,000 documents to the Department of Justice, and they indicted him. But it was five years later, and he'd done a lot of damage. So, at that point, I went to the Attorney General and said, "I'd really like to do this consumer education thing. I'd like to get to people before the scammers get to them." And in 1989, the Attorney General appointed me as a special assistant to spend the next four years doing that, going around creating programs, working with law enforcement like the state crime prevention officers and so forth, and giving just a lot of talks.
I was on the road all the time and it was very gratifying. I did that for four years. My boss ran for governor and lost, and I found myself out of a job. And right at that moment, as fortune would have it, AARP was expanding its field operation and was creating a regional office in Seattle, and I'd been working with them. And one of the themes—if I can pinpoint in my career—it was understanding early on that fraud fighting is a team sport. You can't do it by yourself. You have to partner with other organizations. And at that point I hadn't met FINRA yet. That comes later. But AARP was a natural partner because we saw so many of the victims. That case I just described; the average victim was 75. And that started us on our whole thing about older people and fraud. And I worked for AARP then, in the regional office. And in 2003, I became the State Director for AARP Washington and spent 20 years there. And it was during this early period of time that I met FINRA because we had been doing some research that overlapped with what they were interested in starting to do. And I spent the next decade partnering with many people, but notably FINRA, and the Investor Protection Foundation, because they were willing to fund things that were outside of the box I would say, programmatically and just pure research. And we had a really fruitful relationship. And that kind of brings us to now. I retired from AARP in December of last year after 30 years total. And now I'm just consulting here and there.
05:18 - 05:22
Kaitlyn Kiernan: You just can't leave the game of trying to protect investors.
05:22 - 05:25
Doug Shadel: It's hard to leave the fraud fighting world entirely.
05:26 - 05:45
Kaitlyn Kiernan: Well, that sounds like a really interesting career, and I think great for consumers and investors everywhere that you moved from the reactive investigator role into that proactive fraud fighting role. You've had this long career of research and advocacy, and what are you most proud of, would you say, from your career?
05:46 - 14:00
Doug Shadel: I interviewed early on so many, "victims" who didn't look like victims or they didn't look like my perception of a victim. They were college professors and senior partners at law firms, and some were high school graduates who lost money to the lottery. They were all over the map. And so, one early question that we focused on is, what makes people vulnerable, and can you profile victims? On the theory that if you could profile victims, you could focus your prevention on those people who are most vulnerable. The old way of doing things in terms of prevention is we'd come up with a brochure and we'd print gazillions of copies of the same message. And metaphorically speaking, it would be like flying over a football stadium and dropping 60,000 brochures out of an airplane so that you can reach everyone at the football game, all 60,000 people, even though really only about 5,000 people are ever going to have this problem. And that's just not a very efficient way to do business. There's too many people—there's 350 million people in the United States.
So, early on, what we were trying to do with the profiling was selfish in a way because we wanted to be able to target the people who most needed it. And so, we did a number of those studies and found that there were some things that made some people more vulnerable than others. We start by saying, anybody can lose money to fraud, but there are some people who are more susceptible than others. And some of the first studies that we did with Anthony Pratkanis from the University of California and the Department of Justice and FINRA, who was right there from the beginning, we had lists of victims, actual independently verified victims of investment fraud and lottery fraud. Those were the two pools. And then we had a control group of just the general public who were not. We asked them a series of questions. And when we first started analyzing this data, comparing victims to non-victims, there didn't seem to be much difference. And it was confusing. And then we said, well, what if we separate it out then by victim type? Let's compare the lottery victims to the general public and let's compare the investment fraud victims to the general public. And there emerged a very clear difference because the lottery victims and the investment fraud victims had characteristics that were precisely divergent from each other.
The investment fraud victims were more likely to be in their late 50s or early 60s, highly educated, more financially literate than the general public, which became a real counterintuitive finding. The lottery victims were more like what you might guess are the "classic" victim, the elderly widow living alone who's over the age of 70, who has a high school education, that kind of thing. So, when we combine these two, they zeroed each other out in terms of their distinguishing characteristics. But when you separated them, what we realized is, oh, the type of scam you fall for makes it easier to understand the characteristics of these victims. We did many more studies after that, and so did many other people trying to solve this puzzle of what makes people vulnerable. One of the things that kept coming up is, are older people more vulnerable than the younger people? Because that had been out there for a long time. AARP clearly thought that. I clearly thought that. But it turns out it's not really true. If you looked across all different kinds of victimization, older people are not the most likely targets of all fraud. They're the most likely targets of some kinds of fraud. But actually, it's the 30- to 49-year-olds that—just by the numbers—are more likely to be taken.
The other big finding was it may not be so much whether you're old or young or tall or short. Maybe it's your psychological condition. Maybe it has to do with whether you're experiencing some kind of a negative life event. Maybe the situation in which you find yourself is what makes you vulnerable. And so, we tested that asking victims and non-victims, in the last 12 months, have you experienced any of these types of negative life events? And we had mixed results. But just two years ago we did this again. One of the findings was that victims reported twice as many negative life events or stressful life events just prior to encountering the scam compared to non-victims. And so, what started to emerge was the situation matters. I've interviewed 25 or 30 convicted scammers, and the way we reach them is we find out that they've been convicted of a crime, but they haven't been sentenced yet. And so, we contact their attorney, and we say, hey, I'm from AARP and we do this fraud prevention stuff. We'd like to interview your client. And maybe if you help us out, the judge will give you a lower sentence. We get them right before they go into federal prison.
And when you interview these scammers and you ask them, what is the central strategy when you approach a victim, they all say the same thing—get the victim under “the ether.” Well, this is the first I had heard of this word. This was years ago. What is ether? Ether is a heightened emotional state where you're no longer thinking rationally, but you're reacting emotionally. And you want to get someone under the ether because it's much easier to manipulate them. Well, how do they do that? That got us into all the persuasion stuff. And Pratkanis had written books about persuasion. Robert Cialdini had written books about persuasion, and Pratkanis and I ended up writing a book about it, where we integrated these theories of persuasion into how the scammers work. And it turns out that one of the projects that FINRA funded was we got a hold of 500 undercover recordings that were made by law enforcement, and it was the Ohio AG's office, Erin Leahy.
I'm naming these people because it's important to emphasize the team nature of this or the collaborative nature of this. Erin was an investigator. She's now an assistant AG. But during the nineties what they would do is they would get a victim in Ohio, typically an older person, who's getting bombarded with these calls. And they said, can you forward your line to our investigator so that she can take the calls? And Erin would pretend to be her grandmother, and she posed as a victim and made 500 tapes of all kinds of scams calling in to these victims. We took those transcripts and transcribed them and then analyzed them to see if there were persuasion tactics that were used across all different kinds of scams. A lot of this just was all in the service of, how can we be more effective at prevention? So, you get a profile of a victim, you know who to reach and who you don't have to reach. But then what are you reaching them with? And we started saying, okay, well, a huge number of these use what we call phantom riches, which is the promise of financial gain. You've won the million-dollar prize. That's one tactic. Another tactic is scarcity. You're the only winner or time is running out.
So, we took these and one of the things I'm most proud of, and FINRA actually funded this, is we hired a comedian named Pat Cashman, who was a local Seattle celebrity, and we did a fake home shopping channel. It was called the Smart Shopping Channel, in which he was selling the Miracle Wedge or the Miracle Shim and used all the tactics that they use. And if you go into the home shopping channel, you'll see all these tactics—scarcity, there's a clock with the time running out, he's saying, “Oh my God, this is going to save you all this money.” All the tactics we wanted to convey to people. We showed that video everywhere and it was funny. Crime is a heavy topic and you're more likely to get people's attention if you're funny and entertaining. And I think it really was both. So, I use that a lot. I know FINRA did too.
14:01 - 14:28
Kaitlyn Kiernan: I've seen that video and it is funny and a lighthearted way to recognize all those different persuasion tactics that they use. But it does kind of make sense that emotions and when you're not feeling the most resilient, that might be when you're more susceptible to fraud. But these findings on the role of stressful life events or emotions, how has it changed the way organizations like AARP and FINRA do their work to combat fraud?
14:29 - 16:45
Doug Shadel: One of the things I've learned in my research is, certain traits that might make you susceptible emotionally are very stable and hard to change. For example, impulsivity. We've done instruments that measure impulsivity, and there is some evidence that victims tend to be more impulsive personalities than non-victims. But you really can't change that in a person. It's a very stable trait. You're either impulsive or you're not. So, what we're banking on, though, is the awareness that that's what makes you vulnerable is key.
One of my pet peeves is for years, the most famous prevention tip I think there is, is "if it sounds too good to be true, it probably is." I don't like that prevention tip for three reasons. One, the great gift of the scam artist is to make that which seems too good to be true sound like it's true. They have the gift of gab. They have the persuasion. The second reason I don't like it is because it appeals to one's cognition. It presumes that at the moment you're being pitched, all of your faculties are there, you're not under the ether, you just read a law book or something, and you're able to discern what sounds too good to be true. And the third reason I don't like it, I've recently been doing some studies with a company called Nomorobo, where we have millions of transcripts because they block robocalls and record them and transcribe them. And I've been reviewing these, and one of the most common pitches right now is fear of loss. That was true back then, too, but it has overtaken everything else even more than promises of financial gain.
So, when you say if it sounds too good to be true, people are looking for that promise of gain. But more and more, what we're hearing is fear of loss. So, if it sounds too good to be true, you should add at the very least, or if it sounds too bad to be true, too scary to be true. We have to start with where people are and then work backwards from that as opposed to start with what we know to be these complicated scenarios and scams and then see if we can reach as many people as possible. That's why we do things like the Home Shopping Channel. For a while there, we also did candid camera clips.
16:46 - 17:05
Kaitlyn Kiernan: So, on the flip side of what makes someone more vulnerable to victimization, I know you've also done a lot of work exploring reducing victimization, including a joint three-year study with the Department of Justice and AARP. What did you find with that study and the idea of a reverse boiler room?
17:06 - 20:55
Doug Shadel: Back in the late nineties, I was working as the consumer protection representative for AARP's West Region, and we had 11 states. But very soon I realized that it was all happening in Los Angeles, in Orange County. I spent all my time down there. Why? Because all the boiler rooms were in Orange County and they had this thing called the BAT Task Force, which is a group of law enforcement, postal, FBI, everybody, AARP, Better Business Bureau, trying to combat this. And somebody got the great idea that, you know, when we go in and raid these boiler rooms, we take everything from the room, including the victim list, the client lists, the people they were about to call and victimize. What if we spend a whole day with cops, FBI agents, police, in a room calling those same people to warn them? A reverse boiler room.
The first one was in May of 1998, and it really caught on. It caught on because it was a big media phenomenon. The media is a really important ally in this work. If you've been a victim of a telemarketing scam, I guarantee you you're going to get called again. And that's what we would tell people. Your name appeared on one of these lists. That means you're going to be called again. We want to warn you about it. We did this for quite a while. There was a settlement about five years later where 48 attorney generals forced Western Union to give $8 million to do fraud prevention for their role in participating in some of these scams. They never agreed that they did it or whatever, but they did write a large check. And what we did with that check, it went to the AARP Foundation. As part of this negotiation, we said to them, this is the best way we know how to target information to those people who most need it. We've done some studies where we can profile at least investment fraud victims and lottery victims. Why don't you give us this money? It created six regional reverse boiler rooms. One of them was in Seattle, one was in Denver, West Virginia, and there were some others. And they will only call people who meet our profile.
So, we're doing the same thing the scammers are doing in some ways. We're targeting the information to those who need it the most, and it felt good. Somebody else is funding this, it feels good, but does it work? And that's when Stanford came into the picture about 2009, 2010. And again, thanks to FINRA, the FINRA Foundation, they helped fund a research center at Stanford—Financial Fraud Research Center. And the first project we did was to see whether these reverse boiler rooms worked. We've identified a list of a couple thousand lottery victims. We divided them into Group A and Group B. Group A, the call center called them with the typical prevention warning. Group B, we called them and asked them what their favorite television program was. I had found a guy in Texas who was a fraudulent oil and gas salesman, and he had recanted and found religion, literally, and he agreed to be our telemarketer. And so, three days later, both groups were called by him, and a month later. And what we found was there was a 50 percent reduction among the people who got the prevention message compared to the group that didn't get the prevention message. That was really big. And that study was published in 2014. It helped me persuade the powers that be at AARP that this call center business is really effective. That was the beginning of the AARP helpline, which today is taking 2,000 calls a week, largely from victims, giving them peer counseling, helping them connect to resources.
20:55 - 21:24
Kaitlyn Kiernan: It sounds like one of the takeaways from what you just said for our listeners who work for financial services firms who might have direct contact with their customers, is that sharing those warnings and sharing those messages about common frauds that they might be seeing—that matters. If you have interactions with your customer, just telling them, “we're aware of this happening,” there's a 50 percent chance it saves them from being scammed themselves. So, it sounds like that's one of the takeaways there.
21:24 - 22:57
Doug Shadel: Here's something that I found life changing in terms of understanding this. There was a guy named Steven Michaels early on who said, "when I get a victim on the phone, the first thing I try and do is find their emotional Achilles heel. I'm looking for something in their life that is going to put them under the ether, they're going to put themselves under the ether. Whether it's your son died in Vietnam, or you just lost a spouse or a pet or whatever it is, I'm going to profile them and look for that emotional Achilles heel." Well, who doesn't have an emotional Achilles heel? Who doesn't have something in their life that, if you focused on it, would get them emotional, would get them thinking about it. And that makes you vulnerable. It's the awareness, the self-awareness that anybody can fall prey to this. And the prevention message has morphed as a result of this. You asked how this changed what we do. We used to spend all of our time saying, whatever you do, don't give your credit card number out to people over the phone. Don't give your Social Security number. And that's still true. But in some ways, it's more important to not tell them anything about your personal life. And we do these surveys and ask people, how much information do you put on social media? Have you ever changed the privacy settings on your Facebook account? Forty percent say “no, I've never, what's a privacy setting?” There's so much personal information out there. And it's the personal information that the really skilled con men use against you.
22:58 - 23:33
Kaitlyn Kiernan: I've had friends learn about the passing of a loved one from an uncle posting something on social media, which is then something a con person could use to then scam that uncle using that knowledge of grief. So, you did mention that the AARP has a helpline, although you have retired from the AARP, one of your lasting legacies is the AARP Fraud Watch Network. How does the Fraud Watch Network help protect AARP's members, and how does it pull from all your research and expertise developed over the years?
23:33 - 25:30
Doug Shadel: The helpline is a big piece of what we do now. Like I said, you're taking 8,000 calls a month. That's a lot of calls. The AARP publications is another piece of this because AARP magazine and the Bulletin reach 38 million people. It's the largest circulation publication in the United States, and we spend a lot of time working with them. I wrote a column for five years and did a bunch of investigative pieces trying to just describe all of the different scams going on. So, there's that. What I'm doing now is going around giving talks with state offices and we try and structure that in such a way that they understand what ether is when they leave the room. It's getting so hard to find out who's real and who is not. With AI, we do a demonstration where I recorded my voice into a microphone, reading a paragraph, and then I had a software that did my voice where I just trained it to my voice. And then you play it and it's AI generated—half the room couldn't tell which was which. And that's just going to get harder and harder. I gave them a survey of 10 questions, and they were questions like, “do you have a call blocking software?” “How often do you update your antivirus?” “Do you have a locking mailbox?” Talk about old school stuff. Sixty percent didn't have a locking mailbox. “Have you gone paperless?” “Do you have bank monitoring?” Technology got us into this acceleration of the problem. I think technology can get us out of it. There are simple tools and apps you can use. The difficulty is for the older folks, it's just more technology, which they're already a little intimidated by. So, our challenge is not only to warn them about scams, but to get them to understand that technology is not this evil thing. And it's really not that hard. If you just focus on it for a while, you can understand it. And I think that will help protect all of us.
25:31 - 25:45
Kaitlyn Kiernan: Your Ketchum Prize nomination form called you the ultimate fraud fighter. What does it mean to you to be a fraud fighter? And do you have any tips for our listeners on how they can also become fraud fighters?
25:46 - 27:37
Doug Shadel: I've always had a passion for this work. Sometimes I wish I didn't have it, but it is the engine that drives me. I don't like people getting ripped off and that's all these guys are doing. Increasingly, I find myself telling audiences, you can get into a room of people who are interested in this topic, and I start by saying, “we know from experience that you here in this room are not the most likely victims of scams. You come to these educational seminars; you're constantly looking for more information. But if you're not likely to be the victim, every one of you knows someone who is likely or is vulnerable: a neighbor, a friend, a relative. So, our ask of you is you're now trained as fraud fighters. Go out and share this information with one of those people. That's our ask of you today.” And the sneaky little thing about that is it's partly just we do need the help of everybody.
But it's sneaky because there's this thing called the illusion of invulnerability. A lot of people don't think they'll ever be taken. So, instead of climbing up that mountain and saying, “no, you really will, you really will, you really will.” Just go around it and say, “don't worry about it. Learn this stuff not for yourself, but so that you can inoculate others.” And in so doing, the resistance might go down and “you know, you're right, I'm not going to fall for it, but somebody I know probably will, so I'm going to listen for them.” And so, fraud fighting becomes a self-inoculating activity. If you think of yourself as a fraud fighter, you're no longer looking at an input and of a message as, “gee, I wonder if I really did win $1 million.” You're looking for why it's a scam, and that's the fraud-fighter mindset. You don't think everybody's a crook. But start with “let's just make sure this isn't a scam before I go any further, I'm going to start with that. Instead of starting with ‘I'd like $1 million!’"
27:38 - 27:40
Kaitlyn Kiernan: So, a healthy degree of skepticism.
27:41 - 27:46
Doug Shadel: Yeah, that's a good way to put it. A healthy degree of skepticism will go a long way in this business.
27:47 - 27:56
Kaitlyn Kiernan: So, just to wrap up, what leaves you with the most hope for the future when it comes to trying to protect consumers and investors from fraud?
27:57 - 28:36
Doug Shadel: I have really been encouraged by the number of universities’ research departments. One of the fastest growing jobs in America is computer security, cybersecurity. The bad news is the problem's gotten so big that everybody's paying attention to it. The good news is everybody's paying attention to it. And there were a lot of years there, where, when we would talk about scams and frauds, if you'd go to a prosecutor, they'd laugh you out of the office. They'd say, “I'm talking about murderers and cocaine dealers here,” but this is a big enough threat now that everybody is paying attention to it. And that gives me hope for a solution.
28:37 - 28:48
Kaitlyn Kiernan: Well, thank you, Doug, for joining us on the podcast today, and congratulations again on becoming the 2023 Ketchum Prize recipient.
28:48 - 28:48
Doug Shadel: Thank you.
28:48 - 29:11
Kaitlyn Kiernan: That's it for today's episode. Listeners, if you don't already, be sure to subscribe to FINRA Unscripted wherever you listen to podcasts to stay up to date on all of our latest. If you have any comments on today's episode or ideas for future episodes, you can email us at [email protected]. Today's episode was produced by me, Kaitlyn Kiernan, engineered by John Williams and coordinated by Hannah Krobock. Until next time.
29:11 – 29:16
Outro Music
29:16 - 29:43
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