Fraud Prevention and Passwords – sometimes the best offense is the easiest defense!

May 31, 2010

As a business ethics and fraud prevention speaker and author, I find that, nearly every week, someone connected with me has their account hacked and the messages that are sent – well let’s put it this way – they aren’t what they would send.  Adult Friend Finder, Viagra, Canadian drug stores – you name it – the hackers seem to be enamored with using someone else’s Facebook account or email to promote their product or service using your good name.

As an Apple computer user the following was shared related to the common hacking problem that many face.  Take a read and let’s understand the benefit of simple information that can protect your account and your Facebook friends!

Reader Deb Ward is the victim of an increasingly common scam. She writes:

I have a MobileMe account that I believe was hacked. First a message was sent to everyone in my .mac email address book that I was in the UK, held up at gun point, stranded, and to please send money. Then, the hacker was able to get into my .mac account and have my emails forwarded to a Yahoo account! How can this happen? How do I protect my email accounts? And how do I protect the rest of the information on my computers?

While this kind of thing isn’t as common as advance fee fraud (typical of the Nigerian royalty wheeze that’s been around for years), it’s a scam that’s become popular in the past few months. It works this way:

The scammers obtain account addresses (not just from the MobileMe service but other providers as well such as Hotmail, Google, and AOL). They then use computer scripts to generate passwords—using words commonly found in the dictionary—and work through these passwords in the hope of finding one that lets them in. When a working password is found, they go about the nefarious business of grabbing your contacts from the host service and sending out the kind of message that your contacts received. Depending on the service, they can also have messages forwarded to a different account.

COMMENT: I can’t begin to tell you how many FB friends have fallen prey to this “London robbing” scam.  Facts are – when you receive a chat comment or email from a friend announcing their robbery – the initial damage is done.  Now if this come via Facebook chat – my recommendation is (1) keep the chat going.  Express your concern and keep a dialogue while (2) opening another browser and going to Facebook to report the activity.  I have found in doing that – that the folks at Facebook are quick to disable the account thereby eliminating the perpetrator from continuing to scam friends who might be shocked into monetary submission.

Your best hope is that those you associate with are smart enough to ignore this obvious bit of phoniness or, at the very least, check with you to be sure that the message is legitimate. On the other hand, those who do pungle up the dough can be counted as extra special (though pretty gullible) friends. Please treat them gently.

As for protection, Protection Tip Number One is to use a password that can’t be easily guessed. If it’s in the dictionary, it’s a bad password. If it’s in the dictionary and you’ve appended a couple of significant numbers after it—your birthday or age—it’s still a bad password. If it’s a pattern of characters on your keyboard—adgjl’, for example, it’s a bad password. If it’s eight characters or less, it’s possibly an okay password, but not a great one.

Protection Tip Number Two is to not use the same password for everything you do. If you unlock your e-mail, Apple ID, Amazon account, Mac administrator’s password, and bank account with that single password, imagine the havoc that results when it’s cracked.

COMMENT:  Excellent suggestion.  While I admit I like to keep the passwords simple for me to remember, it makes sense to have three or so that you use so that in the worst of circumstances one password does not open your entire world up to hackers!

There are a variety of strategies for creating and remembering passwords. People often substitute characters for letters—$ for S, @ for A, and ! for L. Others remove vowels—grtbllsffre1957, for a Jerry Lee Lewis fan, for example. Others still write random strings of nonsense, write down those strings, plunk the passwords into their Mac’s keychain, and lock the written passwords in a safe place should they need them. (These are people who have complete control over their computer—the one in their home, not in the office.)

Because I have a brain like a sieve, I use Agile Web Solutions’ $40 1Password. Not only can it keep track of all the passwords in your life, it can also generate them. Like so:

1Password’s password generator

When you come to a website you need a password for, select the password field, click and hold on the 1Password button that appears in your browser, and choose Strong Password Generator. In the sheet that appears the title of the site should appear along with its location. Use the Length slider to choose a length for your password (the longer the better) and click Fill. 1Password will fill in the password field with the password it just generated. It will later prompt you to save the login information for that site—your username and password. When you next visit, you can ask 1Password to fill in this information for you.

If you lack the inspiration to create a password for some other kind of account—your e-mail account, for example—1Password can help there too. Just launch the program, choose Go -> Generated Passwords, click the Plus (+) button at the bottom of the second column, and use a procedure similar to the one I just described to create a new password. 1Password will remember this one as well.

FINAL THOUGHTS:  If creating a simple but effective password can save your bank account, credit card information, Facebook account and email – then it makes sense to take the steps necessary to protect yourself.  After all the best defense is a good offense and creating an effective password is OFFENSIVE RULE #1.

Business ethics: Leadership lessons from the US Navy

October 27, 2009

steven romanoMore times than not, media reports tell us that government spending is rife with fraud and waste. While those stories deserve attention, it’s easy to lose sight of people in government who really are conscientious stewards of U.S. taxpayers’ money. Rear Admiral Steven J. Romano (right) is one of them. Romano is the commander and chief executive officer for the Navy Exchange Service Command in Virginia Beach, Va. He also overseas Navy Exchange System, or NEX, a Wal-Mart type store for military members. While most NEX associates are honest and trustworthy, there have been a number of fraud cases lately, and Romano is putting a stop to them.

I learned about all this recently when I was invited to speak to a group of U.S. Navy personnel in Norfolk, Va. The invitation came on the heels of a campaign, “Stop Fraud,” that Romano recently announced. I was impressed to learn the campaign is aimed at improving associate awareness and training, expanding process reviews, and using continuous process improvements to mitigate risks. That campaign, and Romano’s leadership in it, speaks volumes to the importance of leading with top down ethics. That’s a fundamental foundation for any organization.

So, here’s a question for you — and you don’t have to be in the Navy to think it over: As a business leader, would your employees say you’re leading with top down ethics? And what actions are you taking to demonstrate that?

Share your comments here.

The Mind of Madoff (Part 1) – What Would Motivate Such A Crime? Comments by Fraud Prevention Expert Chuck Gallagher

January 29, 2009

The largest Ponzi scheme in history seems to be unfolding before our eyes if what Bernie Madoff has said is true.  What some believed was a Wall Street power broker is now a prisoner in his own home.  Fifty billion dollars potentially lost with a huge string of investors who found out in late ’08 that the economic crisis was personal – very personal.

bernie-madoffThe proported manager of billions of dollars for individuals and foundations, Madoff to many was a brilliant investor who produced consistent returns and attracted a star studded client list.  After all, who would not want to place their investments with someone who seemed to have the inside track on how to produce results.  But with Bernie’s self admitted Ponzi scheme, who is the real Bernie Madoff and more importantly what would motivate such a crime?

According to a New York Times article written by Julie Creswell and Landon Thomas, Jr. the following is stated:

An easy answer is that Mr. Madoff was a charlatan of epic proportions, a greedy manipulator so hungry to accumulate wealth that he did not care whom he hurt to get what he wanted.

But some analysts say that a more complex and layered observation of his actions involves linking the world of white-collar finance to the world of serial criminals.

They wonder whether good old Bernie Madoff might have stolen simply for the fun of it, exploiting every relationship in his life for decades while studiously manipulating financial regulators.

“Some of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,” says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioral profiles.

The questions about who the real Bernie Madoff is and what motivated his crime will be the subject of many books and be studies for years.

Psychopath – now that seems a deep reach and a good question.  Listed in Scientific America is the following definition or description of psychopathic behavior.  I have included several paragraphs so that you can begin to judge for yourself just where the connection may be with Bernie Madoff.

First described systematically by Medical College of Georgia psychiatrist Hervey M. Cleckley in 1941, psychopathy consists of a specific set of personality traits and behaviors. Superficially charming, psychopaths tend to make a good first impression on others and often strike observers as remarkably normal. Yet they are self-centered, dishonest and undependable, and at times they engage in irresponsible behavior for no apparent reason other than the sheer fun of it. Largely devoid of guilt, empathy and love, they have casual and callous interpersonal and romantic relationships. Psychopaths routinely offer excuses for their reckless and often outrageous actions, placing blame on others instead. They rarely learn from their mistakes or benefit from negative feedback, and they have difficulty inhibiting their impulses.

Not surprisingly, psychopaths are overrepresented in prisons; studies indicate that about 25 percent of inmates meet diagnostic criteria for psychopathy. Nevertheless, research also suggests that a sizable number of psychopaths may be walking among us in everyday life. Some investigators have even speculated that “successful psychopaths”—those who attain prominent positions in society—may be overrepresented in certain occupations, such as politics, business and entertainment. Yet the scientific evidence for this intriguing conjecture is preliminary.

Most psychopaths are male, although the reasons for this sex difference are unknown. Psychopathy seems to be present in both Western and non-Western cultures, including those that have had minimal exposure to media portrayals of the condition. In a 1976 study anthropologist Jane M. Murphy, then at Harvard University, found that an isolated group of Yupik-speaking Inuits near the Bering Strait had a term (kunlangeta) they used to describe “a man who … repeatedly lies and cheats and steals things and … takes sexual advantage of many women—someone who does not pay attention to reprimands and who is always being brought to the elders for punishment.” When Murphy asked an Inuit what the group would typically do with a kunlangeta, he replied, “Somebody would have pushed him off the ice when nobody else was looking.”

Is this the description of Bernie Madoff?  When he began his career is this Bernie Madoff?  Those questions will be the subject of much public debate.  Yet, as I read the definition above, I can think of many people I know, including myself, who have – from time to time – exhabited some of those behaviors.  In fact another comment from the New York Times article says it so clearly:

“People like him become sort of like chameleons. They are very good at impression management,” Mr. McCrary says. “They manage the impression you receive of them. They know what people want, and they give it to them.”

By all means I am not trying to be funny here, but what Mr. McCrary says is to me the definition of a good salesman.  And a good salesman, Bernie Madoff was!

I suspect that his motivation was far more simple than what some are trying to characterize.   All of his upbringing would indicate a basically normal childhood with nothing presented that is out of the ordinary.   Starting his investment firm in the 1960’s trading penny stocks, Bernie Madoff – I believe – was making a way for himself as honestly as he knew how.  I doubt he had any thought or concept that he would create a ponzi scheme to defraud people.  I can almost picture that nothing like that was foremost in his mind.

Now some might be asking, well why do you think you know so much about a man you’ve never met?  Fair question.  The answer, because I’ve been in his shoes.  Not proud to say that, but my past will reveal that I, too, effected a ponzi scheme and like Bernie – when the card (from the house of cards was pulled) I, too, revealed my misdeeds and eventually went to prison.  They say it takes one to know one – well maybe that fits in this case.

Fraud – at least this kind of fraud – consists of three primary traits:  (1) need; (2) opportunity and (3) rationalization.  So when looking at the question of “what would have motivated such a crime” the first thing that is important is what was Bernie’s – need.  Need in this case is the key to his motivation.

What was his need?  Money?  I doubt it.  Rather, I think that Mr. Madoff’s need was emotional.  Reared as a child in a normal jewish home, I have no doubt that Bernie Madoff was a motivated – perhaps driven – individual set out on achieving success.  Getting involved in the securities business when he did allowed him to ride the crest of a wave of growth and success that this nation had not seen for decades.  And Bernie was at the forefront of dramatic change.

As an example of Bernie Madoff’s business positioning the following was said in the New York Times article:

During the mid-1970s, when changes in the rules allowed his firm and others like it to trade more expensive and more prestigious blue-chip stocks, Mr. Madoff began gaining market share from the Big Board.

“He was a man with a good idea who was also a terrific salesman,” says Charles V. Doherty, the former president of the Midwest Stock Exchange. “He was ahead of everyone.”

So what happened?  Imagine…fairly successful guy – gets to move in bigger and more powerful circles – making money for himself and those he is connected with – on the cutting edge of his career growth – likable – and a great salesman.  Then the market changes and he experiences what he has not felt in years – losses.   Clearly I can’t support the theory with documentation – that will be disclosed in years to come as part of this massive investigation.  But, if I were a betting man I would say that Bernie had an emotional problem with revealing that he was not the person he created the illusion he was.

Fraudsters, by nature, create illusions.  That statement seems obvious, but to the unsuspecting public is seems a revelation.  If a fraudster were to reveal the truth, no one would be defrauded.  The illusion is critical and the illusion is hard to break.  Once broken the fraudster is revealed as nothing more than a liar and a thief.   In 1990 I had to reveal that shadow side of myself to my wife, family, partners and clients and the cost was devastating.  In December of 2008 Bernie Madoff – when there was no way to perpetuate his fraud had to do the same.

I suspect that when Bernie’s results began to go south, he was incapable of admitting his weakness to his clients and friends.  He created the persona and was going to stick by it.  It was then that the ponzi scheme began to unfold.  Did he intend to defraud at first?  I don’t think so.  However, his need to maintain the illusion for his emotional well being kicked into gear the first aspect of the tranformation of Bernie Madoff into fraudster.  When “need” was established the house of cards began to be built.

The Times report says the following:

To some extent, analysts of criminal behavior say, defining Mr. Madoff is complicated by the wide variety of possible explanations for his scheme: a desire to accumulate vast wealth, a need to dominate others and a need to prove that he was smarter than everyone else. That was shown, they say, in an ability to dupe investors and regulators for years.

There is no one answer and yet the answer is simple.  For whatever the underlying reason, when the “need” is established and firmly in place the fraud will begin.

There will be more about Madoff to come…for now however, know this – in troubled economic times – the “need” becomes heightened and fraud is on the rise.  Perhaps it remains undetected, but it will be brought to the light – it always is.  Every choice has a consequence.  I am living proof of that statement and speak around the world about choices and consequences.  Perhaps my comments – heard by just one person – will be sufficient to help them make choices that yield positive results.  Bernie’s will leave him in prison for the rest of his life.


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Bernie Madoff – Confined by a Prison of His Own Making – Comments by Fraud Prevention Expert Chuck Gallagher

January 15, 2009

ABC News wrote about “Bullet Proof Bernie” – nice article but predictable – here’s a link.   It seems that whenever a crime is discovered there is the public outcry for justice.  From most every angle by most media outlets, there is a profuse desire to see Bernie Madoff suffer as others have suffered at his hand or by his doing.  It is a logical desire as it is driven by human emotion.

madoff1The article states in its beginning:

The federal government today took a second shot at attempting to argue in court that alleged $50 billion fraudster Bernard Madoff ought be put behind bars while it gets its case against him into shape for court, and a second federal judge deflected the attempt to revoke the current bail conditions.

Perhaps that is the story.  Perhaps it is as simple as an eye for an eye.  Perhaps it is all about the process.  Perhaps it is more?

While fascinated with were Bernie Madoff will be temporarily imprisoned, I suggest that his incarceration began sometime back – before any of us knew the scope and maginatude of his fraud –  and has been on going – just not the way the public would like to see – as evidenced by the media frenzy.    The article talks about Bernie’s entrance into the court room with a bullet proof vest worn over his clothing.  It further goes on to describe his current method of confinement:

He is currently confined, except for court appearances, to his Manhattan cooperative apartment. There is an armed security guard on duty at all times, video cameras recording visitors at both the front and rear entrances, and Madoff also wears an electronic security ankle bracelet that would instantly notify the U.S. Marshals or the FBI if he attempted to leave the premises without permission and an escort.

All of this interest in how Bernie Madoff will be punished is certainly interesting, but fails to address the much larger issue that allows such a crime to take place in the first place.  Two questions to ponder…

  • What would motivate an otherwise intelligent, competent person to choose to defraud his friends, close business associates and disappoint those closest to him? What was in the “Mind of Madoff” that could make such a crime possible?
  • More importantly, how could very bright, influential and astute investors be taking for so much so easily?  Was the sheer masterful illusion he created so powerful that it would take down the very powerful and influential of our country?

I believe that the “why” he did it and the “how” he did it is far more important than what happens now.  Agree?

On my Facebook wall the following was written:

Chuck – well Madoff remains in home confinment. Appropriate legally. He has created his prison and its much deeper than where the government might send him. 5:53pm
Betsy Rodgers Smith at 5:55pm January 14
Agreed….he has been in the prison of his own making for a very long time.
Chuck Gallagher at 6:00pm January 14
Yes. I’ve been there (on a much MUCH smaller scale and the pain was tremendous. Odd, but I understand where he is and yet see the pain felt by his victims. Likely he will die in prison – either figuratively or literally or both.
Jimmy Carter at 6:35pm January 14
I am certain that even the luxurious walls of a Manhatten apartment will tend to grow close given a sufficient amount of time.
Terence Washington at 7:53pm January 14
They’re still “luxurious” meanwhile the unemployment line grow longer and longer. All his brethren need to be shipped off to a small island populated with wolves,sharks, they can mingle with creatures of their own ilk.
Chuck Gallagher at 9:03am January 15
Interesting to see what responses folks feel. I had an entry on my blog that generated similar emotions. I often wondered if the person who was most critical found themselves in the shoes of the accused, would they have the same attitude for “wolves, sharks and weasels”?

By the way, Madoff is a prisoner in a nice place, but will – no doubt – be a prisoner (if he lives that long) is federal prison – and that is not so nice. I know – I’ve been there.

Terence Washington at 9:08am January 15
After reviewing my acerbic comments I would have to say I still stick by them. I mean, Madoff is the Master of his own Universe( in the scope of reality). Greed fed his universe, like it does so many people.

The bible says never judge “lest he be judged”, but I’ll never ever ever( cubed, squared,etc) be in a loathsome situated as Mr.Madoff–I’m way to level headed for that. His prison is his own, how he resides in or his mental anguish it is not my concern.

Chuck Gallagher at 1:17pm January 15
Fair enough…he does reside in a prison of his own doing. I wonder however if greed fed his universe or if it was fed by ego? By the way…thanks for the comments.
Ask youself this question – when you read or hear about Bernie Madoff – what emotion comes up for you.  Take the time to feel deeply.  It is far too easy to take the “I’d never do that path” than it is to explore the “whys” and “hows.”
While there will be much more to come – as this issue and case is far to complex for one writing – the real value will come in understanding the “Mind of Madoff.”   While I must be honest, I don’t know Bernie Madoff personally, I have been in his shoes.  Not proud of it, but I did  perpetrate a Ponzi scheme (for which I spent time in federal prison) so I know, from experience, what is in the mind of someone who commits such a fraud, and likewise, how easy it is to achieve. Today I help organizations prevent fraud and deal with ethical issues.  See here.
Madoff set a standard that will be written about for years.  The people he defrauded will suffer the consequences of his actions and their inactions.  As for Bernie’s future…  well he is already in prison – a prison of his own doing.  He will be cut off from life as we (who are free) know it.  That disconnection is more painful than you can imagine.  He will be reduced to a number and sent to federal prison where – he will likely die.  The bright young man who faced a bright future at 22 when he first started investing will leave this world, more than likely, the shell of a man who will be remembered for the illusion he created.
For all involved it is sad…

Madoff Ponzi Scheme – Fraud Prevention Expert Chuck Gallagher Comments – Stay Out of the PIT

December 19, 2008

Splashed all over the media in every form one can imagine is the news of the massive Ponzi scheme that Bernard Madoff was able to perpetrate over the scope of decades.  A staggering $50 billion is being reported and the numbers seem to always rise as first estimates (for some reason) seem to be conservative.  Perhaps it’s just we don’t want to believe it can be that bad!


From the Wall Street Journal to Bloomberg to Time – all are reporting about what happen and now asking how?  Of course, it is becoming a field day for lawyers (trying to protect their client’s interests) as well as politicians (attempting to fix lax regulatory blame).  And the reporters – well they have questions (as they should).

How could it have happened?  How could we have known?  And, most importantly – how could it have been prevented?

Those are all good questions.  But the best question is – how best to find the answer?

In order to unravel this massive financial and legal mess one needs to understand the components and pattern of fraud in order to prevent it in the future.

Fraud consists of three primary components: (1) Need; (2) Opportunity and (3) Rationalization.  All three must exist for a fraud of this magnitude to take place, live and grow over time.   Without doubt…all three existed with Madoff.  The trouble is we may not know the exact details of “why” for some time to come – if ever.

However, the most important of the three is the OPPORTUNITY SEGMENT.  Without “opportunity” the three legged stool wouldn’t support the weight of the fraud or crime.  That’s where falling into the PIT comes in. Of course, the question is – what is the PIT and what does it stand for?

The OPPORTUNITY segment of the fraud goes like this:  The fraudster (Madoff) makes a PROMISE (P) to an unsuspecting investor, creating an ILLUSION (I) – generally something the investor truly desires – which is supported by TRUST (T) – most of the time something the fraudster already has with the unsuspecting investor.  That is the “PIT” and once one falls in it, it becomes easier for others to join.  In Madoff’s case the PIT had become so large that the slippery slope in was easy and the company impressive.  My guess is that folks wanted in.

O.K. – great, so there’s a PIT.  But the real question is how to avoid the trap?

I must say that there is no shortage of people from all walks of life who are easily, quickly and willing to call Madoff all manner of names and express outrage.  The fact is – getting caught in the PIT is easy and simple.  Avoidiance is unnatural for most. Think about it, most frauds take place with people you know and/or trust.  Trust is the key factor.  So how does one avoid the PIT?

Simple Avoidance Steps:

(1) Understand – especially in a down economy when temptation for financial performance is on the rise – anything this is proposed which seems too good to be true – isn’t.

(2) Know what you’re investing in.  If you don’t understand the investment or it is an area that is foreign (in other words you could easily be manipulated) avoid the investment.

(3) Check out the investment through reliable means.  In other words approach the investment with a healthy skepticism.  Trust no one completely and due your due diligence.

Fraudsters abuse the trust others have in them in order to effect their fraud.  I did and so did Madoff.

For more information about my programs and consulting on business ethics and fraud prevention, contact me at or call me at 828.244.1400.  My commitment to my clients: To evaluate and identify areas for fraud and help weed them out.  Fraud can be prevented!