Behind Every Great Man is a Great Scam
Behind Every Great Man is a Great Scam
Napoleon Hill, Yield Street, BR Shetty, Elon Musk, Uber, and The Pee Tape
Napoleon Dynamite
It’s difficult to keep track of all the scams going on around us at any given moment - as the author of a newsletter about scams I find it difficult! - but sometimes it’s nice to sit down for a nice, long read about one of the forefathers of the movement. Let’s talk about Napoleon Hill, and this excellent Gizmodo piece by Matt Novak. There is much to unpack, but Hill can arguably be credited as a key figure in a certain genre of self-help culture:
Modern readers are probably familiar with the 2006 sensation The Secret, but the concepts in that book were essentially plagiarized from Napoleon Hill’s 1937 classic Think and Grow Rich, which has reportedly sold over 15 million copies to date. The big idea in both: The material universe is governed quite directly by our thoughts. If you simply visualize what you want out of life, those things and more will be delivered to you. Especially if those things involve money.
Hill lived a wild life, like many of the great con-men in American history - he had a long line of creditors, law enforcement officers, estranged ex-wives, and disgruntled customers looking for him all over the country. He started - and closed - countless businesses, due to poor management or legal intervention.
However, Hill’s true talent - the thing that elevated him from a mere huckster to a self-help legend - was his utter conviction that he deserved fame and fortune. It kept him going, through decades of setbacks. It helped him hatch scheme after scheme, seemingly oblivious to his past failures. There are so many frauds, so many crimes, so many cases of shocking behavior in his biography that I’ll leave much of the biographical work to Novak. Hill spent most of his early life crafting his own story - entirely fabulous and nearly entirely fabricated - as he stayed one step ahead of the police and out of jail. Let’s pick up his story when he first made it big.
In 1928, Hill emerged from a hiding - he’d been on the run from either the KKK or organized crime - and set out to publish his Law of Success series. He found a publisher in Connecticut named Andrew Pelton - a true believer in the prosperity self-help movement, a part of the New Thought movement of the late 19th century. The movement would also produce Mary Baker Eddy, founder of the Church of Christian Science. Essentially, they believed that “ideas and thoughts can have material actions upon the world”. If you think it, you can make it happen. Sound familiar?
Hill published his first Law of Success book - which even his biographers said was terrible - and it gained momentum, primarily because he had been clever enough to associate his disjointed ramblings with famous men like Thomas Edison and Alexander Graham Bell. Within a year, Hill started to make actual money from his book about making money. In modern context, I refer to this as the Rick Ross Theory of Self-Actualization - if you say you are rich enough times, you can become rich.
Rather than simply buying cars - which he also did - Hill decided to build himself a “Success School” which was a thinly veiled Utopian colony, devised to keep the money flowing in from marks who believed he could help them actualize riches.
Before this could take off, the Wall Street crash and Great Depression happened. Hill had to abandon his dreams of a Success Colony and began hopping around the country again, trying to start magazines and societies for people who wished to pay him money to learn his secrets. His only secret, at this time, was that he was essentially broke.
Knowing that the only time he’d ever made money legitimately was by writing a book, Hill set to work writing another. He was eventually able to convince his old publisher to release it, and in 1937 Think and Grow Rich hit the shelves. America was still struggling after the Depression, and people wanted escapism in any form. The book’s title certainly was alluring - all you needed to do was think. Easy!
The book was a wild success, though true to form, Hill and his fourth wife Rosa Lee spent it as fast as it came in. Faster, in fact, and within two years they were nearly broke, as the royalties began to subside. Hill was still touring the country and lecturing, but the couple needed more, so they concocted a scheme to generate national attention - and book sales - and declared they would adopt fifteen children and raise them. They didn’t, of course, but it was a hell of an idea. What they were doing, among other things, was getting involved in a cult in Long Island:
The Royal Fraternity of the Master Metaphysicians was founded by James B. Schafer and is largely forgotten today. Born around 1896, Schafer came from Michigan to New York sometime around 1930 and by the mid-30s had amassed a following through his speeches on the spiritual potential hidden in the material world. He explained to crowds of hundreds at Carnegie Hall each Sunday morning that the human mind had the ability to change everything around it. If you could simply imagine it, those thoughts could become real. By some estimates Schafer counted nearly 10,000 people amongst his followers by the end of the decade.
Hill may have been many things, but a charismatic cult leader was not one of them. So, instead, he got involved with a fellow New Thoughter and used the cult to sell books:
After all the national attention, writer E.J. Kahn Jr. paid a visit to the cult’s estate in 1940 and his account of the 24-hours he spent with the Master Metaphysicians was published in the March 16, 1940 issue of The New Yorker. Kahn mistakenly refers to the book “Think and Get Rich” as one of the cult’s most revered texts, “which was written by a member named Napoleon Hill and which many Metaphysicians regard as a sort of Gospel.”
The cult didn’t last much longer - Schafer was eventually charged with fraud and sentenced to 5 years in prison. While this was happening, Hill’s marriage to Rosa Lee was falling apart. When they’d first had success with the book, Hill had signed a prenuptial agreement putting everything in his wife’s name - presumably to hide it from ex-wives, creditors, and anyone else with a claim against him. This worked right up until the point she ran off with her divorce lawyer, selling off all the couple’s assets and leaving Hill with nothing.
Hill bounced around for awhile, eventually publishing a book with the fantastic title Mental Dynamite, which was sadly a flop. In the 1950s, he teamed up with an insurance salesman named W. Clement Stone, who became his benefactor for many years. They tried to launch a few magazines preaching the success gospel, but none of them really caught on. They wrote a book. Before their relationship soured in the early 1960s, Hill made his final contribution to the world of New Thought, and helped Norman Vincent Peale write The Power of Positive Thinking. Coincidentally, Peale was Donald Trump’s childhood pastor and Trump was enamored with both him and his writing.
Hill died in 1970. His name lives on in the Napoleon Hill Foundation, which controls his estate and has been the subject of many lawsuits since its inception. You can still buy Leadership Courses and other materials from the Foundation. His spirit lives on, however faintly, in DVD and CD sets sold on the Internet.
Again, I highly recommend reading the Gizmodo piece - it’s quite a story. Hill had, at one point, used the students at one of his “schools” to launch a letter-writing campaign to endorse him for elected office:
Hill’s unaccredited school in Chicago was set up to teach the “principles of success” and self-confidence. Perhaps too much self-confidence, as Hill urged his students to write numerous letters to newspapers in support of Napoleon Hill’s “race for a seat in the United States Congress.” Later, some would claim that Hill privately aspired to nothing less than the presidency of the United States.
Who could have predicted that, a hundred years later, a con man inspired by a book Hill helped write would scam his way into that very office? Time really is a flat circle.
In the end, the critical difference between a President Napoleon Hill and a President Donald Trump was a disappointed father and $413 million in tax fraud.
Yield to Oncoming Losses
I have written about “alternative” investment platforms recently. They purport to allow “normal” - non-rich - investors to get a piece of high-yielding investments like art, real estate, and, apparently cargo ships. Why cargo ships? You’d have to ask the people at YieldStreet, and in fact quite a few people are asking them about it, at the moment:
A handful of the site’s investments in old oceangoing vessels have fared particularly badly. In such a deal, investors might lend money to an entity that buys ships near the end of their useful life.
Essentially, the company was lending money to companies who would take decommissioned cargo ships to salvage yards in southeast Asia, where they are stripped for parts at a profit. You may have seen photos of the giant ship graveyards around the world.
Except, the company YieldStreet gave $89 million dollars to had other plans:
YieldStreet alleges in its lawsuit that the Lakhani family faked company filings to conceal that the ships were mortgaged to YieldStreet investors. That allowed it to sell 13 of the vessels to shipbreakers in Pakistan and Bangladesh and then pocket the money instead of paying it back to YieldStreet investors, the complaint says.
This all seems very finance-y, but essentially it was YieldStreet’s job to do the research into the deal, before it offered its investors the chance to be a part of it. They claimed they did - although, of course, they include many caveats about the risks of investing, etc - but it seems they did not, and now they have to run around the world hunting for their missing boats:
Only one ship has been located, and by going through a court in Malaysia, YieldStreet was able to have it seized before it was broken up for scrap.
So, it turns out investing in cargo ships wasn’t a great idea. How is the rest of their portfolio doing?
Some other YieldStreet investments have soured, according to documents seen by Bloomberg. Around $120 million of deals on the platform aren’t paying as expected—that’s about 12% of the total invested through YieldStreet.
How about those art investments?
Wealth manager Jeff Nauta encountered YieldStreet when sizing it up for his clients. He invested his own money in six deals, including an art portfolio that’s in default.
Ah, yes. Well. I often ask - practically every week, these days - is investing a scam? Maybe I am asking the wrong question. Is high-risk investing - like the folks at YieldStreet do - actually a way to move money from average people to international criminals and cargo boat launderers? Possibly yes!
One of the problems with handing a pot of cash to random people who claim they will invest it in exotic things you only barely understand is that, realistically, those people are only human, too. I don’t know who was in charge of vetting YieldStreet’s cargo ship investments, but they clearly did not do a great job. Considering they were trying to navigate a shadowy network of companies in the UAE, I’m sure it wasn’t an easy job. But! When your entire business model is reassuring investors you are making smart investments, and 12% of your portfolio is in default, that doesn’t seem great.
It seems to me that the only people making money on these investment portfolios are the managers and the lawyers they have to hire to sue all the companies who rip them off. Which…is a business model, but not the one being advertised.
Shetty Luck
As I wrote recently, it can be surprisingly hard to uncover financial fraud at publicly traded companies. Even though many of them are subjected to regular audits, large firms can have intricate webs of financial responsibilities, sometimes designed to trick accountants and regulators.
Or, sometimes, accounting fraud gets exposed by a tweet. It happened last year to a fellow named Bavaguth Raghuram “BR” Shetty, and his company NMC Health:
But on that day in August, when Muddy Waters tweeted that it would release a report about an accounting fiasco at a London-listed firm, [Carson] Block noticed an interesting development: the stock of NMC Health dropped. “We had tweeted in advance an innocuous comment about our intention to initiate a campaign the next day on an unnamed London listed firm. NMC happened to drop significantly on the tweet. That’s a pretty strong indication that the market knows something isn’t right at the company, so we took a look…
A firm known for blowing the whistle on accounting frauds in foreign-owned companies issued a warning that it was about to expose a company, and some other people mistakenly thought it was NMC Health and sold their shares, but it wasn’t NMC Health! However, the same short selling firm noticed the dip in NMC’s price, and decided to investigate. Then, four months later they uncovered…a large accounting fraud:
When Muddy Waters released a damning report four months later, on December 17, it set off a chain of events that has stunned UAE.
NMC Health, the first company Shetty started, stands accused of falsifying accounts and faces charges of fraud. A private investigation revealed it might have understated its debt by $4.5 billion in 2019. Shetty’s financial services firm Finablr, an LSE-listed enterprise that owns the remittance firm UAE Exchange, has discovered that $100 million worth of cheques were issued from the company without the board’s knowledge. Top executives at both firms have either resigned or been sacked. LSE has suspended trading in the stock of both the companies. NMC Health has been placed in administration. Shetty himself stepped down as director and joint non-executive chairman of NMC Health in February and is now facing criminal charges in Abu Dhabi allegedly for fraud and forgery.
Holy cow! That’s quite the cascade of events. The article goes on to give some backstory on Shetty, who - according to his own narrative, at least - grew his empire from humble beginnings as an Indian immigrant, building medical clinics and eventually a financial empire in the UAE. Whether his financial malfeasance was due to greed or simply trying to keep a massive organization solvent, he’s in a lot of trouble, and his companies will likely be unwound and sold off, as he faces criminal charges.
What gets me about this story is, whoever sold off a big chunk of NMC shares after reading the Muddy Waters tweet had to know about the financial fraud, so in an attempt to stem their losses from an NMC collapse they…caused the NMC collapse. Whoops.
Elon Musk
There are some people I find myself emotionally drawn to write about, and Elon Musk is one of those people. He’s so obviously a fraud, and yet boasts an unending chorus of defenders, all of them convinced he is a genius.
I will concede that he has been able to assemble some groups of very smart folks to develop his electric cars and space rockets, but I attribute very little of that to Musk’s actual intelligence. He became “tech famous” as one of the founders of PayPal, a company he anecdotally almost took down with his idiocy. Now he’s got a seemingly inexhaustible amount of cash, and he uses it to work his employees to the bone on his vanity projects, while he mostly sits around and tweets all day.
Anyhow, Elon Musk is back in the news yet again because he has decided to violate California’s pandemic restrictions and re-open his car factory.
He’s also blackmailing his employees to show up to work, threatening them with firing or forcing them to take unpaid sick leave if they don’t want to return. He’s also suing the state of California - a strong arm legal tactic favored by certain presidents of the United States. Like his past violations of the law, I doubt much will happen to Musk. It’s unfortunate, because if there were ever a time for authorities to make an example of a business owner who is endangering the health and safety of its employees, it’s right now.
What I wanted to write about this week was this passage in an op-ed in the LA Times about Musk’s antics, because it reminded me of an important point about Tesla:
Meanwhile, Tesla is still failing to make a profit from manufacturing cars. Although the company has booked a profit in each of the last three quarters, through March 31, the profit has largely been due to Tesla’s sale of regulatory credits to other companies striving to meet low-emission regulations.
Revenue from those credits came to $354 million in the quarter ended March 31, when the company reported an overall profit of $68 million.
That’s right - they don’t actually make any money selling cars. Tesla is a profitable company because Musk can take the tax credits the company receives for making electric vehicles and sell them to polluting companies for a massive profit. Think about that for a second - the guy whose entire car business is built on subsidies from the government that dwarf the money he makes selling cars is now fighting with the authorities for the right to make his unprofitable cars by risking the lives of his staff. People think this guy is a genius, and I will say that he’s certainly mastered manipulating public sentiment and the media to conceal the fact that he’s essentially made his fortune off government welfare. It’s just the kind of welfare only available to the rich, which is exactly how our country has been designed to work.
Update: the local authorities have caved, and the plant will be allowed to re-open with restrictions. The chances Musk won’t adhere to worker safety guidelines and we’ll be back here again next week seem good. For once I’d prefer he not give me anything else to write about.
Zoom and Gloom
Last month, Bird - the scooter company - laid off four hundred employees on a faceless conference call. Not to be outdone, Uber, king of the Shitty Gig Companies, has laid of a whopping 3,500 employees in a three-minute Zoom call:
“Our rides business is down by more than half. There is not enough work for many frontline customer support employees. [As a result] we are eliminating 3,500 frontline customer support roles,” Chaveleau said.
“Your role is impacted and today will be your last working day with Uber. You will remain on payroll until the date noted in your severance package.”
Unlike the Bird CEO, who was a total dick about firing most of his staff, the HR lady at Uber does appear to be genuinely remorseful. Uber is offering severance packages as well, so that’s decent of them.
In other news, Uber is trying to acquire GrubHub for $6 billion dollars, which would give it control over 55% of the food delivery market in the US. Every cloud, a silver lining.
Please Be the Pee Tape
We’ve had a rough year, this is the least we deserve:
The ransom demand for the secret files of a cyber-attacked lawyer to A-list stars has doubled to $42 million — as the hackers now threaten to reveal “dirty laundry” on President Donald Trump in just a week if they are not paid in full.
[…]
On Thursday, the hackers upped the ante by posting a chilling new message saying, “The ransom is now [doubled to] $42,000,000 … The next person we’ll be publishing is Donald Trump. There’s an election going on, and we found a ton of dirty laundry on time.”
Dirty linens, maybe! We’ve had our deep fake version, it’s time for the real deal.
Corona Stuff
Major US companies are partnering with customs agencies to help stop PPE fraud. French authorities break up a mask smuggling ring. The FTC warned 45 more companies about scam coronavirus treatments. A company called ZestAds was able to spend millions of dollars on Facebook ads for scam masks.
Small Cons
The Atlantic - “All of this, taken together, defined a worldview that would soon have a name: QAnon, derived from a mysterious figure, “Q,” posting anonymously on 4chan. QAnon does not possess a physical location, but it has an infrastructure, a literature, a growing body of adherents, and a great deal of merchandising.”
The Atlantic - “The [Supreme] Court will soon decide whether automated calls to cellphones, however annoying they may be, are constitutionally protected.”
CNBC - “Zoom reached an agreement with New York Attorney General Letitia James’ office Thursday, closing the state’s inquiry into its security practices without an admission of wrongdoing from the company.”
CBS News - “A company whose largest shareholder is Trump campaign manager Brad Parscale received nearly $800,000 from the federal coronavirus relief fund for small businesses, according to a filing with the U.S. Securities and Exchange Commission.”
Tips, comments, or mental dynamite to scammerdarkly@gmail.com