The Village Effect: How Face-to-Face Contact Can Make Us Healthier and Happier (36 page)

L
ocated in the good part of town, Mary Coughlan’s living room looks like a cross between a private library and a gallery of Asian and African art. Floor-to-ceiling bookshelves line one wall, and two massive armoires, inlaid with miniature netsuke-like ivory animals, are positioned on either side of her velvet armchair. Her ground-floor apartment gives onto a fenced green space, so it’s easy for Mary to open the sliding glass doors to let out her golden Labrador retriever, Olivia, for some late afternoon exercise. As the dog pads by me, she stops to nuzzle my hand and then lifts her paw. We shake. “She doesn’t do any tricks,” Mary says quickly from her corner, where she’s sitting in the sage-colored velvet chair with her feet perched on a matching ottoman. “That’s beneath her dignity.”

Regal and dignified herself, Mary Coughlan, seventy-seven, has invited me over to talk about how she was swindled out of her life savings—about a million dollars of retirement funds—by someone she had known for thirty years. She first met Earl Jones, a financial planner, in 1979. She was in her late forties at the time, recently widowed and raising four children on her own. She wanted to learn how to handle her own money, and an evening course at the YMCA on financial management for women seemed to be just the thing. “I saw Earl speaking in that series,” she told me, when I asked how she first met him. “I had some money that my father had
left me. I was forty-seven when my husband died, and I wanted to get away from my family handling my money.” She thought Earl Jones “was such a nice guy.” A mutual friend she knew through her mother and through her church connections had worked with Jones, too. “So I trusted him,” she told me.

For the better part of thirty years the arrangement worked well. Investment income arrived regularly, which covered her daily expenses and then some. When her mother died, the money she inherited went directly to Jones. “Seven years ago I sold a house in Westmount”—an upscale neighborhood in Montreal—“and the proceeds went to him.” She did not know at the time that the check he deposited in her account from the sale was a fraction of the agreed-upon price. Though her house had been paid off, Jones had taken out two new mortgages on the property that she knew nothing about. The borrowed cash from those mortgages had landed in Earl Jones’s slush fund. She’d been scammed by a friend.

Other horrors soon surfaced. On July 6, 2009, Los Angeles architect Kevin Curran got a call from an old buddy, telling him there was a possibility that both of their mothers had been swindled by the same con artist. Curran flew to Montreal, intending to spend a week unraveling the mess. One year later he was still there, trying to help his mother and other victims of the fraud, who were mostly older women. “When I saw how Earl had flipped my mother’s mortgage from $150,000 to $350,000 and taken her $500,000 inheritance, I knew we were screwed. She didn’t have the money. I vowed to stay until we had secured mortgage relief,” he told a reporter for the local paper. “That was what initially kept me here.”

Working as the victims’ financial sleuth, manager, and problem-solver, Curran (along with two other adult children of Jones’s victims, Ginny Nelles and Joey Davis) discovered that this was one tightly interwoven social group, but it was also an aging and fragile one. By July 2010, one year after Earl Jones’s Ponzi scheme was revealed, three of Jones’s elderly victims had died, one had been
diagnosed with breast cancer, five had lost their homes, and another eleven were about to lose theirs as the one-year grace period negotiated with their banks expired. Thirty-five others were forced to accept handouts to pay for rent, food, Ensure, and adult diapers from the charities they had not long before supported with their own donations.
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No one wants to spend their golden years financially vulnerable and dependent on others. And for a proud generation of savers, most of whom had cut their teeth during the Depression and who had spent their adult lives intent on being self-supporting, becoming penniless was the ultimate disgrace.

How did Earl Jones pull it off? As was the case with Bernie Madoff, the trust inherent in a tightly knit, homogeneous social network at first helped Jones build a legitimate career. As a member of the community, it’s easy to establish one’s bona fides. And once he had earned other members’ confidence, he no longer had to prove himself. The pressures and temptations built. “I can see him sitting in that chair,” Mary Coughlan said, pointing to where I was sitting. “He used to come here about four times a year. He’d come in and say, ‘How are the kids?’ Then he’d spend two hours here. It was a social visit.” Coughlan said she still thinks of him as a friend—a sociopathic one perhaps, but one she’d trusted. “He’d say, ‘I need your signature,’ and I’d say yes. I had been paying him to look after me.”

And he had. In the early 1980s, when Coughlan began investing with him, Jones issued regular dividend checks and monthly statements detailing her investments in stocks and bonds. But by the late eighties the statements had become less regular and less detailed, appearing only if she asked for one. By the early nineties, not only had his reporting style changed but his investment strategy had shifted, too. He offered clients opportunities to invest in loans on estates and mortgages extended to other clients—often other members of their churchgoing, golf-playing, Maine-summering social
circle. These were people they knew who he said were in a fix, perhaps waiting for a will to be probated so they could buy a big-ticket item like a house or a car; in the meantime they needed some cash to tide them over. The interest would be upward of 8 percent, and sometimes there was a signing bonus of a few thousand as well. “One of his tricks was to say that so-and-so needed money until the will went through,” Coughlan explained, adding that the sad stories Jones told were all too credible. As the loan would be secured against the borrower’s estate, it seemed a safe thing to do. Over fourteen years, Mary Coughlan said yes five times.
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In reality, Jones had never invested a cent of her nest egg. Her capital, along with everyone else’s, had been distributed as interest to maintain the illusion that the fund was growing. Jones’s payroll was $200,000 a month—the monthly “dividends” he disbursed to his core clients. And then there were his own expenses, such as mortgages on four condos, including one in Boca Raton and another on a golf course in Mont-Tremblant, a Quebec ski resort. There was also a condo in Maine that he’d bought for his intellectually handicapped daughter Kimberly. There were private school fees, cars, and cruises, too, all bankrolled by his clients’ nest eggs. He had been running a Madoff-like Ponzi scheme built on his own community’s life savings.

Coughlan was on holiday with her family in Maine in early July 2009 when she got a call from her bank. Her checks were bouncing. Soon other members of her social set were discovering that their money was mysteriously inaccessible. With a trip to New York planned, forty-two-year-old Ginny Nelles—whose late father had for decades been a close friend of Jones’s—discovered that the money she wanted to withdraw from her account with “Uncle Earl” was out of reach, just when she needed it for a family holiday. Then it turned out that Uncle Earl, whose career her own father had launched when they both worked at Montreal Trust in the 1970s, had skipped town.

In the meantime, Earl Jones was frantically scrabbling for fresh money. A longtime client had asked for his capital to buy a house.
Unfortunately, Jones had already spent it. When other clients called his office to inquire about their funds, they encountered not his usual office staff, who were known as Earl’s girls, but a recorded message saying there would be no payments for thirty days. Jones had gone on the lam. He evaded capture for three weeks but was eventually apprehended, tried, and sentenced to eleven years in prison for fraud.
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Until that moment, though, he had been seen as a family man, a pillar of the community, a trusted financial advisor, and a friend.

Between 1982 and 2009 Earl Jones had stolen more than $51 million from 160 victims. Eighty percent were women, many of them widows. “He deals with a lot of little old ladies. He had the looks and the gift of the gab,” said Doris Babbington, a former high-school friend who’d “invested” all of her savings (about $100,000) with Jones.
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She’d known Jones and his wife for sixty years.

A socially skilled man with a large, homogeneous social network, Jones saw a niche that had been neglected by other money managers, who were more interested in snagging high-rollers. His targets were midlevel earners like himself, who had modest roots but harbored high hopes for the future: early retirement, perhaps; membership in a private golf club; Caribbean cruises now and then. More important, though, was establishing a bond with their wives, who would be emotionally vulnerable after their husbands had died. As a rule, these women were financially naive. Having grown up in the 1940s, most had missed out on the feminist revolution. They were not only the beneficiaries of their husband’s or parents’ estates but also the owners of family homes worth at least a couple of hundred thousand. Aside from government pensions, the assets were all they had. They were grateful to Jones for his offer of assistance.
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When Ginny Nelles’s father died in 2004, Earl Jones, once a close friend of the family’s, reappeared at the funeral. The men had been colleagues at Montreal Trust and their families had vacationed together for at least twenty-five of the fifty years they’d known
each other. Jones was the godfather of Ginny’s brother. But he and Nelles’s father had had a falling out in the early nineties. Until he approached them at the funeral, Ginny and the rest of the family hadn’t seen much of him for ten years. Reminding the siblings that he was an estate planner, Jones told them, “If I can help you in any way, I’m here for you.” He reassured Ginny’s mother, Wendy, “Don’t worry. I’ll take care of you.”

Five days after the funeral, Jones persuaded Wendy Nelles to move her husband’s estate planning from the bank to Jones’s own account. “He told her ScotiaBank wasn’t doing much with the money and that the laws had changed. He was a vulture. He swooped in,” Ginny said ruefully.

Four years after that, Jones persuaded Wendy to remortgage her paid-off home for $327,000—to be paid off over forty years. The money was ostensibly invested in her account with Earl to give her an immediate high rate of return; Wendy wanted to share this income with her children and grandchildren. On Jones’s advice, and against the diversification mantra of most financial planners, she collapsed all her accounts in other banks in order to consolidate her money with him.

I met with Ginny Nelles in November 2009, five months after Earl Jones’s Ponzi scheme had been exposed. Her mother was about to lose her house and had no source of income. Ginny and her brother would likely never recover their inheritances from their father, much less their own savings. And this blow had struck after grave health crises for both Ginny and her brother. Yet little of this psychological wear and tear was evident at first glance. Ginny was poised and articulate, crisply dressed in a white blouse and pearls, her highlighted blond hair neatly tied back. Clearly she had experienced certain privileges—attendance at the British-styled private girls’ school that served the upper-crust Anglos of Montreal, Miss Edgar’s and Miss Cramp’s (where Earl’s daughters had also gone to school); a winter ski house in the Laurentians; entire summers
spent at their beach house in Kennebunk, Maine, hanging out with other families much like hers. She seemed perfect to me—a card-carrying member of a cultural and socioeconomic subgroup that had always seemed effortlessly polished, exclusive, and preternaturally Canadian.

Though Jones had the right background, he couldn’t afford the lifestyle. That was the opinion of those speculating about his motives. There is recent evidence, too, that repeatedly getting away with something illicit prompts exhilaration, not guilt. The economists who conducted this revealing study call this the “cheater’s high”.
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Still, most of Jones’s victims were middle class, and they had little in common with other victims of Ponzi schemes. That is, nothing except the fact that they—along with the scammer—belonged to a tightly knit social group with a shared language and religion, not to mention the same cultural mores and interests. (In this case, the members of this “village” shared a deep interest in sports. As a young man, Jones was a gifted, semi-professional hockey player, which further boosted his credibility.) During the decades they were being duped, this group of suburban English speakers also felt themselves to be a beleaguered minority in Quebec. Those who hadn’t moved out of the province lived in the same neighborhoods, went to the same churches, and sent their kids to the same schools. From a social-network perspective, homophily intensified, as did mutual trust within a group that had battened down the hatches. If you were an insider who knew the code, it wasn’t hard to gain the confidence of other insiders.

This was a classic case of what’s called affinity fraud: when common social and religious ties offer con artists a shortcut to a group’s trust. In this book so far, I’ve shown face-to-face interaction to be a vector of health, happiness, academic achievement, and longevity. But trading in honest signals—the lingua franca of close social contact—is not always a force for good. Getting up close and personal can swing both ways, especially in business. While
face-to-face contact can bring increased performance, customer loyalty, satisfaction, and profits, it can also lead to big-time betrayal.

AFFINITY FRAUD

How could so many people fall for the outsized promises of Earl Jones—or Bernie Madoff, for that matter? As social animals, “the default is to trust until there’s a reason not to,” said the late Robyn Dawes, a psychologist at Carnegie Mellon who was one of the pioneers of behavioral economics.
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When it comes to having confidence in other people, our group or religious affiliations work as a stand-in for family relationships. Trusting others who look and sound like us feels natural; there’s a visceral satisfaction that accompanies letting down one’s guard. Believing and helping others within a family or its extension, the group—even if such altruism means there will be less food, money, energy, sexual opportunity, or other goodies for ourselves—just feels good. Evolutionary biologists explain this paradoxical phenomenon through the idea of kin selection. (It’s a paradox because every individual in the species should have evolved to maximize the survival of its own genes, and no one else’s.) Even though it reduces an individual’s advantages, people trust and sacrifice for each other to the degree that they’re genetically related—or suspect that they are—even if there’s no clear benefit to themselves, according to British geneticist J. B. S. Haldane. He pointed out that you would be likely to leap into an icy river to save a drowning sibling (who shares half your genes), because even if you die in the process, a copy of your genes would survive in each of her future offspring.
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