Untying the Deception: The Knot’s Controversial Advertiser Practices Exposed

By Dave Oswald, Forensic Restitution

In the ever-evolving landscape of the wedding industry, The Knot emerged as a pioneering force, leveraging the power of digital technology to reshape how couples plan their big day. However, beneath the surface of its success story lies a web of controversy, allegations, and ethical concerns that have come to define its recent history. From its rise as a wedding industry giant to the accusations of fraudulent practices, The Knot’s journey is one marked by innovation, ambition, and challenges that threaten to tarnish its reputation.

Early Digital Pioneer

Founded in 1996 by David Liu and Carley Roney, The Knot quickly established itself as a trailblazer in the burgeoning digital era. The founders recognized the gap in the market for an online platform that could simplify wedding planning, from inspiration to vendor selection. Their vision was fueled by their own wedding mishaps and a determination to provide couples with a comprehensive resource to navigate the complex world of wedding preparations.

As the internet revolutionized consumer behaviour, The Knot capitalized on this shift by creating an online community that connected brides and grooms with vendors, enabling them to streamline the planning process. With initial funding from AOL, The Knot pioneered features like online gift registries and forums where couples could share ideas and experiences.

Rapid Growth and Allegations

The Knot’s ascent was meteoric. It evolved from a social network for wedding enthusiasts into a comprehensive wedding planning portal, boasting partnerships with industry leaders like Kleinfeld Bridal and JLM Couture. The company’s initial public offering on the NASDAQ marked a significant milestone, highlighting its relevance in the digital era.

However, the journey was not without its challenges. The allegations that have come to define The Knot’s recent history began to surface, casting a shadow over its achievements. Former employees accused the company of defrauding advertisers and investors in the lead-up to its $1 billion sale in 2018. Claims of manipulating contracts and inflating revenue figures to attract investors and drive up stock prices raised serious concerns about the company’s ethical standards.

Controversy Amid Changing Landscape

As the wedding industry evolved and new competitors like Zola and tech giants like TikTok and Instagram entered the scene, The Knot found itself in a battle to remain relevant. The proliferation of platforms offering direct vendor connections threatened to render the middleman role of The Knot obsolete. To stay competitive, the company faced immense pressure to innovate and adapt its business model.

The controversy surrounding The Knot’s alleged unethical practices added another layer of complexity to its challenges. The accusations of fraudulent conduct tarnished the company’s reputation and led to investigations by regulatory bodies like the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC). While The Knot vehemently denied the allegations and emphasized the investigations conducted internally and externally, the controversy persisted, impacting its image and relationships with partners.

From Pioneer to Reckoning

The Knot’s journey mirrors the broader narrative of many tech-driven companies that disrupt industries. It began as an innovative force that reshaped an industry, attracting investors and customers alike. However, the quest for growth and profitability can sometimes lead to ethical lapses, damaging not only the company’s reputation but also the trust of stakeholders who rely on its services.

The allegations of misleading advertisers and investors, altering contracts, and engaging in questionable financial practices raise significant concerns about the company’s commitment to transparency and integrity. While The Knot maintains that it has thoroughly investigated these claims and stands by the accuracy of its financial statements, the allegations continue to cast a shadow over its operations.

Future Prospects and Challenges

As The Knot contemplates a potential initial public offering (IPO), it faces a critical juncture. The controversies of the past have the potential to impact investor sentiment and public perception, making it challenging to regain trust and restore its reputation. The current competitive landscape, characterized by evolving consumer preferences and emerging technologies, adds another layer of complexity to The Knot’s path forward.

To succeed in this dynamic environment, The Knot must not only address the allegations of unethical practices but also demonstrate a renewed commitment to transparency, integrity, and responsible business conduct. Rebuilding relationships with advertisers, investors, and customers will require more than denial; it demands concrete actions that align with ethical standards and stakeholder expectations.

The Knot’s journey from early digital pioneer to a company embroiled in controversy underscores the delicate balance that companies must strike between innovation, profitability, and ethical conduct. Its challenges serve as a cautionary tale for businesses navigating the complexities of the modern business landscape. The Knot’s future hinges on its ability to navigate these challenges, make amends, and regain the trust of stakeholders who once believed in its potential to revolutionize the wedding industry.




Top Fraud Schemes Targeting Seniors in 2022 Included Fake Investments, Romantic Partners, and More

By Dave Oswald, Forensic Restitution

As we celebrate Seniors Month, it is essential to shed light on the alarming increase in scams targeting older Ontarians. The Canadian Anti-Fraud Centre (CAFC) reported a staggering $531 million in fraud cases in 2022, with approximately 26 percent of these funds stolen from seniors. These numbers, however, only represent a fraction of the actual fraud occurrences, as the CAFC estimates that less than 10 percent of victims come forward to report these crimes.

In an effort to raise awareness and protect our senior population, we will highlight the top fraud schemes that targeted seniors in 2022:

  1. False Investment Opportunities:
    Nationally, fraudulent investment schemes cost victims $79.1 million, with $36.5 million reported in Ontario alone. Scammers often prey on seniors who seek secure financial stability for retirement. They promise high returns on investments or present opportunities in non-existent or fraudulent companies. It is crucial for seniors to be cautious and conduct thorough research before investing their hard-earned money. Seeking advice from reputable financial advisors or consulting the Ontario Securities Commission can help verify the legitimacy of investment opportunities.

  2. Romance Frauds:
    In 2022, romance scams accounted for $19.5 million nationwide, with $8.8 million reported in Ontario. These scams target vulnerable seniors who are seeking companionship and emotional connections. Perpetrators create fake online personas on dating websites or social media platforms to establish trust. They manipulate their victims into providing money or personal information by playing on their emotions. It is important for seniors to be cautious when interacting with individuals online and to avoid sharing personal or financial information with strangers.

  3. Fake Service Providers:
    Seniors lost $8.5 million across Canada, with $6 million reported in Ontario, due to scams involving fraudulent service providers. These scammers pose as legitimate contractors or professionals offering services such as home repairs, renovations, or medical assistance. They often demand payment upfront and either deliver subpar work or vanish without completing the job. Seniors should always verify the credentials of service providers, seek recommendations from trusted sources, and be cautious when dealing with unfamiliar individuals or companies.

  4. Extortion Schemes:
    Extortion scams cost victims $7.7 million nationally, with $542,000 reported in Ontario in 2022. Fraudsters employ various tactics, such as threatening phone calls or emails, to intimidate seniors into paying large sums of money to prevent alleged consequences. These schemes can include fabricated legal troubles, false debts, or compromising personal information. Seniors should be aware of these tactics and remember that legitimate organizations will not use such aggressive and coercive methods to collect money. It is important to stay calm, not engage with the fraudsters, and report the incidents to the authorities.

  5. Emergency or Grandparent Scams:
    Nationwide, emergency or grandparent scams resulted in losses of $7.1 million, with $4.3 million reported in Ontario. Scammers exploit the love and concern grandparents have for their grandchildren by impersonating them in distressing situations, such as accidents or legal troubles. They manipulate seniors into providing financial aid urgently, playing on their emotions and desire to protect their loved ones. Seniors should always verify the identity of the person in need by contacting other family members or directly reaching out to the grandchild involved before sending any money.

    It is crucial for seniors and their loved ones to remain vigilant and educated about these common scams targeting older Ontarians. By recognizing the red flags and staying informed, we can reduce the risk of falling victim to these fraudulent schemes.

Forensic Restitution urges everyone to take proactive steps to safeguard themselves and their elderly family members:

  1. Stay informed:
    Keep up with the latest fraud trends, techniques, and scams that target seniors by regularly visiting the Canadian Anti-Fraud Centre’s website or subscribing to their updates. Stay informed about the tactics used by scammers and the evolving landscape of fraud to better protect yourself and your loved ones.
  2. Be cautious online:
    Exercise caution when interacting with individuals or organizations online. Seniors should be skeptical of unsolicited requests or offers that seem too good to be true. Avoid sharing personal or financial information with strangers, especially through email or unfamiliar websites. Remember that legitimate organizations will not ask for sensitive information or payment details via email or phone calls.

  3. Maintain strong passwords and security measures:
    Seniors should use strong, unique passwords for their online accounts and avoid using the same password across multiple platforms. Enable two-factor authentication whenever possible to add an extra layer of security. Regularly update security software and keep devices, such as computers and smartphones, protected against malware and viruses.

  4. Stay connected:
    Maintain open lines of communication with elderly family members or friends. Regular check-ins can help detect scams early and prevent financial losses. Encourage them to share any suspicious encounters or requests for money. By fostering a supportive and trusting environment, seniors may feel more comfortable reaching out for help or advice when faced with potential scams.

  5. Report incidents:
    If you or someone you know falls victim to a fraud or scam, report it promptly to the appropriate authorities. Contact local law enforcement, the Canadian Anti-Fraud Centre, and your provincial consumer protection agency. Reporting these incidents not only increases the chances of apprehending the scammers but also helps in raising awareness and preventing others from becoming victims.

The alarming rise in fraud cases targeting seniors calls for increased awareness and vigilance. By understanding the top fraud schemes, staying informed, and taking proactive measures, we can protect our senior population from falling prey to scams. Together, let us make a concerted effort to safeguard our elderly loved ones and ensure their financial and emotional well-being.




Los Angeles-based fraud ring sentenced for multimillion-dollar COVID-19 relief scheme

By Chetan Sehgal, BDO

To help individuals, businesses, and government organizations cope with pandemic challenges, the U.S. government dedicated trillions of dollars of support through programs under the Coronavirus, Aid, Relief, and Economic Security (CARES) Act—but the speed at which relief programs were rolled out lead to increased opportunities to defraud the system.

Using synthetic identities and forged documents, an eight-person fraud ring committed approximately 150 fraudulent loan applications and sought to steal millions in COVID-19 relief funds.

The eight individuals involved in the fraud ring are Richard Ayvazyan, Marietta Terabelian, Artur Ayvazyan, Manuk Grigoryan, Edvard Paronyan, Vahe Dadyan, Arman Hayrapetyan, and Tamara Dadyan.

Taking advantage of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL)—two programs under the CARES Act—the fraudsters misappropriated over US$20 million* in COVID-19 relief funds by falsifying a number of legal documents:

To apply for loan programs, the defendants created sham businesses, attached fake payroll documents, and forged tax returns to the applications.

Fake, stolen, or synthetic identities were used to open bank accounts for the businesses.

They created fake employer identification numbers (EINs) that were used in phony payroll reports to enhance their legitimacy.

Fake identification documents and corresponding chequebooks, phony business credit cards, and notary stamps and seals belonging to state and federal courts were found during an FBI raid.

The group submitted fictitious documents to lenders and the U.S. Small Business Administration (SBA), a government agency that provides support to entrepreneurs and small businesses.

They used the embezzled funds to pay for down payments on luxury homes in the California cities of Tarzana, Glendale, and Palm Desert, as well as to purchase gold coins, diamonds, jewelry, luxury goods, imported fine goods, and a Harley-Davidson motorcycle.

Three main factors created opportunities for the fraud to take place:

  1. Disaster recovery funds are often put together quickly and are focused on short-term solutions. They are also very vast in scope, with many eligible claimants. To reach those in need quickly, the system relies (at least in part) on the honour system. These factors create the perfect storm for fraudsters to exploit the relief programs.
  2. There was poor investigative due diligence over the identifications used in the loan application process.
  3. Unlike several other U.S. states, California’s loan application system did not have a cross-matching function to verify the identities of individuals. This allowed for the exploitation of fake, stolen, or synthetic identities, as well as the use of fictitious supporting documents such as fake identification, tax documents, and payroll records.

What was the outcome…, check out the details on the BDO site – Covid-19 Relief Scheme Fraud 





Staying Safe and Secure Online: Understanding the Latest Cyber Fraud Trends and Techniques

By Dave Oswald, Forensic Restitution

The rise of the internet and digital devices has transformed the way we live and work, bringing unprecedented levels of convenience and efficiency. However, with these benefits come new risks, and cyber fraud has emerged as a major concern for individuals and businesses alike.

Cyber fraud is a type of crime that exploits digital systems and technology to steal sensitive information, money or property. It can take many forms, including phishing scams, identity theft, ransomware attacks, and more. Cyber criminals use a variety of techniques to carry out their schemes, including social engineering, malware, and hacking.

One of the most common types of cyber fraud is phishing. Phishing attacks involve sending fake emails, texts or social media messages that appear to be from a trusted source, such as a bank or government agency. The message typically contains a link or attachment that, when clicked or downloaded, installs malware on the victim’s device or directs them to a fake login page to steal their credentials.

Another growing threat is ransomware, which involves encrypting a victim’s files or locking them out of their device, and demanding payment in exchange for the decryption key. Ransomware attacks have become more sophisticated in recent years, with some attackers even threatening to release stolen data unless a ransom is paid.

To stay safe and secure online, there are several steps individuals and businesses can take. First, it is important to use strong, unique passwords and two-factor authentication whenever possible to prevent unauthorized access. Regularly updating software and using antivirus and anti-malware software can also help protect against attacks.

Additionally, it is important to be vigilant and skeptical of any unsolicited messages or requests for personal information. Always verify the authenticity of a message or website before entering sensitive information, and never click on suspicious links or attachments.

In summary, the rise of the internet and digital devices has brought many benefits, but also new risks, especially in the form of cyber fraud. By understanding the latest trends and techniques used by cyber criminals and taking appropriate precautions, individuals and businesses can stay safe and secure online.

For more articles from Forensic Restitution, check out their blog Forensic Insights





Fraud Schemes to Watch Out for in 2023: A Guide for Businesses

By Dave Oswald, Forensic Restitution

With the ever-evolving landscape of the business world, accounting and financial professionals must stay vigilant in their efforts to detect and prevent fraud. The COVID-19 pandemic has further accelerated this trend, with remote work, digital transformation, and economic uncertainty all presenting new risks for companies. In this blog post, we’ll explore five of the most common and pressing fraud schemes that organizations need to be aware of in 2023.

Cyber Fraud:
Cyber fraud has been on the rise for several years, and it’s only becoming more prevalent with the increasing dependence on technology and remote work. From malware and ransomware to password cracking and phishing scams, cyber criminals have a range of tools and techniques at their disposal. This year, companies must be particularly vigilant in their cybersecurity efforts, as fraudsters are likely to take advantage of the ongoing pandemic to target businesses and individuals alike.

Vendor and Seller Fraud:
Fraud by vendors and sellers is another common type of financial crime. From fictitious billing to duplicate invoice payments and check tampering schemes, it’s essential that organizations remain aware of these schemes and have processes in place to detect them. This year, it’s more important than ever to work closely with suppliers and ensure that they are adhering to best practices and established protocols.

Payment Fraud:
Payment fraud continues to be a major concern, with false transactions, lost or stolen merchandise, and false requests for refunds all falling under this umbrella. Companies must be proactive in their efforts to detect and prevent payment fraud, using data analytics, fraud investigation techniques, and computer-aided auditing methods to uncover any irregularities.

Healthcare Fraud:
Healthcare fraud is a significant issue, with schemes ranging from billing for services not rendered to misrepresenting the provider of service. In this year, it’s essential to have robust internal controls and a well-trained staff to identify and prevent healthcare fraud. Certified Professional Accountants (CPAs) can play a critical role in detecting and preventing healthcare fraud, leveraging their expertise in financial analysis and investigation to uncover any fraudulent activity.

Identity Theft:
Identity theft is a growing concern, with two main types: traditional identity theft and synthetic identity theft. Traditional identity theft involves a criminal stealing an individual’s personal information, while synthetic identity theft involves a fraudster using a combination of real and fabricated information to create a new identity. This year, organizations must remain vigilant in their efforts to protect sensitive personal information and ensure that their cybersecurity measures are up to date.

Combating fraud requires a multi-disciplinary approach, leveraging the expertise of accounting, financial, and legal professionals, along with the use of advanced data analytics techniques. With these tools and techniques, organizations can better detect and prevent fraud, reducing their exposure to financial crime and other risks. To stay ahead of the curve, companies should invest in the training and development of their staff, ensuring that they have the skills and knowledge necessary to detect and prevent fraud in the business world of 2023.

For more articles from Forensic Restitution, check out their blog Forensic Insights





How to get the Opportunist Fraudster to Confess

By David Debenham

In our paper last month, we found that the difference between those who committed opportunistic fraudsters were more likely to be overconfident to pull off a fraud than those who might actually have the ability to do so, but who feared all of the “unknown-unknowns” that could catch them out.   These overconfident people falsely transfer their brilliance in one field into their abilities in fields they know nothing about such as fraud.  Their body language, vocal tone, and rates of participation suggest confidence because of this false transference. This means that these overconfident individuals speak more often, speak with a confident vocal tone, provided more information and answers, and acted calmly and relaxed as they work with their peers in the midst of perpetrating a fraud. In fact, overconfident individuals were more convincing in their displays of ability than individuals who were actually highly competent in their tasks, who, when questioned, become nervous when their conduct is called into question.  The over-confident do not say “I’m really good at this.” Because for them they are past that stage: Instead, they led their “ability” speak for itself as they explain in great detail what they do, and how they do it, in a calm and relaxed way.’  These status seekers who believe their competence at coding transfers into their ability to play poker, chess, or commit fraud, will want to demonstrate this by simply participating more and exhibiting more comfort with any task you put to them, and that is the key to catching them out.  [1]

The key is to enlist the fraudster’s advice in solving the various issues in your case, much as Columbo does in virtually every episode.   So long as you don’t appear to be as capable as the suspect (and how could you be considering their status and yours?) you can simply pose a serious of problems and let the fraudster solve them for you, all the while incriminating himself. Consider Columbo’s “Bye-bye Sky High IQ Murder case”. Genius accountant Oliver Brandt has been embezzling funds in order to keep his high-maintenance wife in fine frocks and tropical getaways. His business partner Bertie Hastings has just found out – and he must be killed.  Oliver shoots him and rigs an umbrella to take the murder weapon up a chimney. He puts a heavy dictionary on the arm of a chair, balancing precariously.  Oliver then starts a record player playing by pushing the start button, which eventually leads to the sound of two shots fired sometime later when Oliver is safely ensconced in a room full of witnesses who have just entered the adjoining room.  The sound of a body falling between the two shots alarms the witnesses.   The group runs into the room to see Bertie shot. In the confusion Bertie pockets the Dictaphone. Later Oliver recovers the umbrella and disposes of the murder weapon.  Columbo asks if the record had the shots. Of course not.  There were caps in the umbrella that were exploded as soon as the arm of the record player moved.  So too the dictionary was pushed off the arm of the chair by the movement of the arm of the record player, so in sequence it was cap explosion, dictionary fall (“the body”), and second cap explosion. At each stage Columbo suggests a hypothesis and the overconfident “high IQ” Oliver sets him straight, until at the end there is no more mystery to resolve.  Interview technique has outwitted the overconfident murder.   So too, for you.  Enlist the overconfident fraudster to incriminate himself.

[1] https://newsroom.haas.berkeley.edu/why-are-people-overconfident-so-often-it%E2%80%99s-all-about-social-status/



The Parable of the Boiling Frog

By David Debenham

The premise of this parable is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of sinister threats that arise gradually, step by step, over time rather than immediate obvious dangers. I see it differently. I see it as an example of the chasm of comfortable complacency.  One author calls it “The peculiar longevity of things ‘not so bad’.[1] The idea is that people stay in these zones of complacency, or “not so bad”, called “beta regions” because things are not so bad as to motivate them to leave, and also the alternative is not so good as to motivate them to leave.  They are stuck in a beta region of inertia or complacency.  Society pushes conformity, mediocrity and normality because it is both safe, and “not that bad”.  Over time grooves become ruts, and patterns become habits. One day we waking up with a bucket list of things we wished we had done, when at one point or another they were achievable with a little effort and imagination.

 Ironically, a nagging injury, a mild cold, or a less than ideal relationship – if they were slightly worse, we might get the injury checked out, take cold medicine, or break up with that person. Once it is severe enough, we take it seriously and are able to resolve it faster.

Why is this important to the field of fraud investigation?   Too often fraud victims are in the beta zone, where they are not so bad off that they have no “felt need for change”— no desire to go to the police or recover the monies wrongfully taken from them.  Those victims need to see (1) the discrepancy between where they are and where they could be by taking action, (2) assurance that the desired state is achievable, (3) that the desired state is more in keeping with their core values, (4) a path to getting to the desired state, and (5) a support team to accompany them to the desired state.  While you may not be the person to lead the transition team from where the victim is and where they could be, you may want to advise and support that leader.

[1] https://www.scn.ucla.edu/pdf/PeculiarLongevity.pdf


Limitation Periods and Fraud Victims

By David Debenham

“We do not see things as they are, we see things as we are.” [1]

Traditional doctrine treats fraud victims as simply those with weak internal controls, just as we treat victims of theft as those who fail to lock their doors and install burglar alarms.  In my view the truth is far more complex.

There are fraud victims who are simply told lies, and who, as soon as they uncover the lies, they are mentally equipped to start a lawsuit.  They invested in the fraud based on a rational calculation, and when they find out the information they relied on was false, they rationally determine who is at fault and sue for compensation, report the matter to the police, or complain to the relevant professional body.  That, however, does not encompass the entire universe of fraud victims. Many victims believe lie after lie and invest not only their entire life savings, but beg, borrow and steal from relatives, or invest family members’ money until vast fortunes are lost in what appears to an avalanche of throwing good money after bad.  It is this second group of fraud victims that concerns us here.

Most limitation statutes begin the period in which tort victim must sue. When that person knew, or ought to have known with the use of reasonable diligence, that a tort had caused them damage. The usual exception is when the tort victim is a vulnerable person, such as a child, or person with a mental infirmity, the limitation period only starts when they regain their senses or reach the age of majority. ` The fact is the matter many cases the victim of fraud does suffer from a form of mental infirmity or delusion.

Fraudsters often create a “reality distortion field” of “fake news” that lures in precisely those persons most susceptible to their deceptions. To understand this, we have to go back to the first principles of cognition.

First, there is an objective reality, and the reality we perceive.  When we perceive we literally are of two minds:

  • The logical mind, which, subject to errors due to logical fallacies, is what we use to form an analysis that leads to a logical conclusion. This takes effort, and time, and is susceptible to changed conclusion based on additional data.  This our scientific brain at work.
  • The emotional or intuitive mind often operates at the level of the unconscious and allows us to make a myriad of innocuous decisions without taking the time and trouble of going through a rational analysis. We bought A instead of B simply because we liked A more, often for reasons that are obscure even to us. At work are a series of unconscious lens or biases that assist in making “irrational” decisions quickly so we can move on with life without being slowed down by the sheer volume of decisions we have to make in life.

Mr. Spock of Star Trek fame is the shining example of the rational “Vulcan” who represses his “emotional” side to be the optimal “science” officer.  Counter-balancing him is Dr. McCoy, the simple country doctor who sees the “human” (emotional) side of every dilemma.  Captain Kirk then makes the final decision based on the submissions of Spock and McCoy.  So, we would want to believe that we all balance our logical and emotional decision-making minds in perfect harmony.  We know better.

Big decisions are often made quickly, and on irrational grounds.  “Love at first sight”.  I just “love” the white Toyota Corolla but I wouldn’t be caught dead in the red Toyota Corolla even though the white one costs $5000 more and it would only take $250 to paint the red one white.  We often make important decisions without rational analysis.  “Go with your gut”, “it just feels right”, or “let your instincts guide you” rather than be trapped in “analysis paralysis” caused by reasoning to a solution.  If the rational analysis later “kicks in” we say “buyer’s remorse” or “acted in haste, now repent at leisure”.    Fraudsters often prey on this by playing on our unconscious biases, including irrational trust cues (“you can trust me, we are both lifelong Blue Jays fans”), and then put on time limits to commit the fraud victim to a rush to judgment that excludes rational reflection.  Once committed, the fraud victim can only reverse their decision by doing the hardest act known to our species—-admit they made a mistake.

Instead, what happens is the fraudster avoids reflection and buyer’s remorse by repeating and emphasizing misinformation that play on unconscious biases. “Go with your gut”.  “Ley your intuition be your guide”.  “Come on, you know it feels right”.  “Don’t listen to your sister, she’s just jealous because you got the jump on her for a change”.  Rather than engage in a painful analysis that would lead to the conclusion you made a mistake; your emotional self irrationally emphasizes positive data and rejects negative data in order to remain comfortable with the original decision.  Remember the old car commercials that had the beautiful woman lying on the hood—they were as much about making male purchasers of the car irrationally feel good about their purchase than they were about buying the car in the first place— either way, they were never about a rational analysis to buy one car over another.

Let us begin with machine learning as a model for our brain. For sake of arguments, we start with a blank slate at birth then we are bombarded with a host of stimuli that the brain has to sort into 1) relevant and irrelevant, and 2) prioritize relevant stimuli in order of importance so that we can “judge” the situation and “act” appropriately. With babies this is a continued process of trial and error where we learn to “trust” our caregiver’s guidance in determining the relevance and importance of the sensory data inundating our senses. Objective reality is flooding our brains with data and our parents and siblings are providing us with the guidance as trusted advisors how to organize these data into useful organization or paradigm. Data overload in the form of unfamiliar reems of unfamiliar data causes stress leading to crying followed by parental reassurance and guidance.

“Experiences” is thus a combination of our own primary perception of the word (data) and our secondary perception of how to filter this data of useful information based only on our own experiences but those secondary experiences from those we learn to trust from guidance.

As we grow up, we learn to trust friends, teachers, and relatives’ judgments and how to filter data, resulting in tension between our own existing filters and new filters which we have to reconcile with our personal judgments. On an empirical level, our filters are used to predict results and by striving to minimize the “predictions and errors” we improve our filters through which we “see” reality. Teenage angst is caused by attempting to reconcile old filters we have traditionally accepted from our parents and our new filters we accept from our peers and the need to reconcile the tension between the two. Eventually “freeze” our filters when they achieve “unacceptable level of success” with only minor changes when new data is not explained or understood by the existing paradigm, we are using to explain the world around us and to act and guide our actions accordingly. Think of a magic trick. The magicians slight of hand makes it appear that a rabbit was pulled out of the hat. That, however, contradicts our experience we look for an alternate framework to explain this “prediction error” regarding the origin of the rabbit. The more the search in vain for that better explanation, the better the trick. But why do we enjoy the trick— because it proves there is more to life that reason and logic— no one wants to be a Vulcan.

You see, gentlemen, reason is an excellent thing, there’s no disputing that, but reason is nothing but reason and satisfies only the rational side of man’s nature, while will is a manifestation of the whole life, that is, of the whole human life including reason and all the impulses”


So where do things go wrong?  The “twitch reflex”, or master controller of our brain that makes the initial decision to go with our reflexes or analytical processes, is an emotional one that uses our biases to make immediate decisions when we feel pressed to act.  The fraudster therefore creates an “emergency” for the fraud victim to act reflexively rather than reflectively.

Having passed this gate, the fraudster then plays upon our “trust” reactors. Everyone intuitively trust different people for different reasons. Trust, Trust — whether in a person or a product — is a compilation of data biased by “positive” or “negative” emotive experiences. It is that data squeezed through some individual emotional filter, active in every encounter.  Are affinity frauds the result of happy group experiences throughout your childhood?  Do you fall for charmers because they remind you of your father and how he made you feel? When that filter blinds you to danger — when it nudges you again and again to put your faith in a fraudster despite a dearth of data, your individual trust filter betrays you.  To another, the same stimuli may make a person “hate” the fraudster precising because his charm reminds the potential mark of a charming father who ran off and abandon his family.

So, what went wrong? A problem at the perception level is often associated with mental illness. A problem at the “filter” level is associated with the “trust imbalance”. Presume we are not all together in life or there’s another motivation we are likely to trust someone we ought not to of. If there is a perceived imbalance between our perceived self worth and our actual lot in life that suggests we deserve more, we may decide that our personal paradigm is the problem. In order to get the life we deserve, we then fasten-on cult ideology or scheme that promises us our just desserts. All we have to do is shrug off the shackles of our existing belief systems (filters) and see the world in a new way be advocated by someone we are being asked to trust to come and act accordingly. Like Morpheus giving Neo the red pill in the movie the Matrix, we are shown that the world we believed was real is illusory and that once we see the real world as exposed by the red pill, our path to happiness becomes real. The fraudster performs two tasks simultaneously, he or she encourages trust by playing on our unconscious biases while simultaneously discouraging our reliance on our reflective, logical thought processes.  Those who revert to logical reflection see the fraudster’s trick for what it is and reject it out of hand.  Those whose unconscious biases are triggered are blind to the trick and “fall” for it. What follows is a trust in someone that overwhelms our previous trust sources and now becomes a new depository of our trust and with that creation of a new filter that rejects what we previously believed to be true and real as either false or incomplete.

In the case of fraud, the fraudster’s “red pill” or “black box” promises a world of happiness and contentment so long one keeps faith with the new paradigm being advocated by the fraudster. Examining the paradigm carefully would reflect a disappointing lack of trust in the fraudster which would result in being cast out of the group of new believers and forfeiting the benefits being promised as part of the fraudulent scheme.

As the new filter results in evidence to the contrary being rejected as irrelevant or misleading those who propose these other filters are rejected as untrustworthy sources of data. The believers reinforce their common belief to the new paradigm “filter” out data uncomfortable data. The true believers “will power” is tested and the new paradigm defended against those “naysayers” trying to test the fraud victim’s resolve with “false news”.  The so- called echo chamber of social media groups do more than repeat beliefs, they actually reinforce them as like minded “true believers” reproduced the emphasized trustworthiness of the original source by amplifying and enhancing and refining the new paradigm. In such a way, a “community” becomes splintered into a group of competing and rival communities based on competing paradigms. It is only when the trustworthiness of the new paradigm is irrefutably demonstrated (usually by the victims having run out of money without any happy result) that the scales fall from the fraud victims’ eyes the paradigm failed for them and they are ready to trust other sources of information as trustworthy by engaging in conscious reflection on irrefutable data. Usually, the victims ask themselves how they could have been so stupid or greedy, when they should ask themselves what unconscious biases made them so susceptible to the “snake oil” being sold to them. It is only when the fraud victim “comes to” and engages their logical brain and they come to the realization of having been duped that the limitation period for them to sue should begin to run.  Before that the unconscious mind has control of the “true believer” in a form of stupor akin to a hypnotic trance that prevents the victim from acting rationally.


Exemplar: Professional Bias

“The study of law is something unfamiliar to you… unlike any other schooling you’ve had before… I trained your minds. You come in here with a skull of a mush; you leave thinking like a lawyer.” [2]

Athletes develop their “twitch” muscles to improve their quickness or reflexes.  We do the same mentally with various educational systems, training and experiences that allow us to “intuitively” know the right answer without going through the long, laborious rational analysis that a novice would require.  This requires us to build a mental framework or “paradigm” that provides shortcuts to the right answer.   The first stage in this process is to add someone we trust for the right answer— the instructor. The instructor provides you with a new way of looking at problems, you either trust the instructor and adopt his or her worldview, or you fail the course. Paradigm change or a change in one’s world view results in the change in the person or people you trust, at first to expand that group and eventually substitute the new group for the past one.

In the movie the “Paper Chase”, one student, Brooks, had a photographic memory so he could remember all of the “facts” of a particular case, but this was useless to him as a prospective lawyer because of his inability to adapt the filter of the law proposed by this law professor that says which “facts” are a) legally admissible, b) legally relevant and material, and c) legally dispositive. Without the ability to absorb these new filters, whether consciously or through osmosis, Brooks failed out of law school. The main character, Hart, on the other hand works hard to learn these legal filters only to reject them at the end of the movie because of the delayed realization of the distasteful person it caused him to become.  The point is that adoption of a professional worldview is critical to professional success, and that worldview comes with conscious codes of conducts and unconscious biases.  So, for example, lawyers are trained to blind themselves to the flaws of their clients in order to represent them, which often results in lawyers becoming the dupes for their clients’ illegal enterprises.  Police officers’ unconscious biases can oft en cause them to blindly “rush to judgment” about the guilt of a particular suspect.  It is therefore important to understand that fraud victims who have changed their paradigm because they accepted a fraudster as their instructor, who taught them a false paradigm that  that led them become victims are no different from the rest of us.  Secondly, until they regain a more sensible footing on whom they trust to form their world view, they are helpless to see the fraud for what it is.

Thomas Kuhn’s, The Structure of Scientific Resolutions, illustrates the “stickiness” and resilience of paradigms in the contest of the world of science. Scientists historically rejected new paradigms that suggested the sun as the centre of the solar system rather than replacing the paradigm that the earth was the centre of the solar system by discounting evidence to the contrary as unreliable or misleading. Until the existing paradigm, 1) is faced with overwhelming contrary evidence and 2) there’s a new paradigm that “fits the existing and new evidence better than the old one”, old filters will persist. Without a new paradigm, the brain is left with no choice to use the old filters. Only methodologies are used in the in the absence of new methods.

Consider all the biases we know of —are they not conservative of the present way of thinking? Confirmation bias filters out evidence that does not support what we already believe. Implicit bias, or stereotyping, sees new evidence through the existing patterns of behaviour that we are familiar with. Expert bias, or the Einstein effect, means that experts will use old tools to solve new problems no matter how unsatisfactory instead of simply developing new tools because of the power of the use existing paradigm.

Consider the following hypothetical: I have three water jugs, 3, 21, and 127 litres of water in size. I can fill and empty the water jugs as many times as I want but I must get exactly 100 litres. Solution: fill the one 127 litre jug, pour 21 litres into the second jug, and then pour the remaining water into the 3-litre jug twice. Result: 100 litres (127-100-3-3).

Now make it the hypothetical of 3, 23, and 49 litre jugs – how do we get exactly 20 litres? Those who are familiar with the first solution normally would do 49 – 23 – 3 – 3 to get 20 litres. Those unfamiliar with it simply fill the 23-litre jug and pour 3 litres out of the second jug for the more elegant solution 23 -3 = 20. Paradigms can block the blindingly obvious. And so, to what fraudsters their paradigms (stories) they create. As a result, those who have bought into those fraudsters paradigms will do the same mental gymnastics as those calculating the second jug problem rather than get to the blindingly obvious solution.

As one author noted:

“We may believe that we are thinking in an open-minded way completely unaware that are brain is selectively drawing attention away from aspects of our environment that could not inspire new thoughts. Any data that does not fit the solution, we are already clinging to is ignored or discarded.” [3]

So, what causes radical paradigm shifts? It is often a mental reflex of one’s unconscious that says “I really love this guy” or “I really love this idea” that causes fraud victims to fall down the rabbit hole of a “reality distortion field” created or adopted by the fraudster for nefarious purposes. That translates into dropping existing or traditional way of thinking about the world in the face of a revolutionary new one that promises great hope of alleviating present discontent.   Once down the rabbit hole all of our conservative biases confirm the “new reality” in the face of contradictory evidence.  The hardest thing for any person to do is admit they were wrong.  Instead, the logical, analytical mind remains in suspended animation until the fraud victim is jarred out of their delusional state by some dramatic event.

 In the face of this it is the job of the fraud fighter to show the fraud victims that (a) they are a trustworthy source, and (b) they have fallen victim of an trustworthy source so the victim can be deprogrammed by an intervention that shows the victim a way out of their present predicament beyond simply investing more money in a fraudulent scheme. Without that the fraud victim will simply say that this may be the world that you live in, but they choose not to live in it. Until their rational self takes over, they remain  under a spell that makes the idea of suing the fraudster unthinkable.




[1] Nin, Anais. “Seduction of the Minotaur” (1961)

[2] Professor Kingsfield. “The Paper Chase”.

[3] Bilakc, “Why good thoughts block better ones.” Scientific American, Pg 13 (Fall 2020).