The criminal mind of a fraudster

On his blog, Sam E. Antar warns that white-collar criminals see the world around them as opportunities. According to Antar, white-collar criminals consider other people’s humanity, ethics and good intentions as qualities to exploit. He writes, “We measure our effectiveness by the comfort level of our victims, and we increase our victim’s comfort level by building walls of false integrity around ourselves.”

“It’s a paradox,” says Antar. “The more humane society is, the easier it is to commit crimes. Humanity limits your behavior, but it doesn’t limit our behavior because we’re immoral human beings. One’s humanity might consist of one’s morals, standards of conduct, goodwill, ethics, sense of fairness, giving one the benefit of the doubt, and belief in the rule of law. The things that make you a good person make me a more capable criminal.” (See “A Convicted Felon’s View of White-Collar Crime,” White Collar Fraud, updated Nov. 21, 2023.)

Antar speaks with authority on this subject — he was one of the masterminds behind the infamous Crazy Eddie securities fraud in the 1980s. Antar, the chief financial officer (CFO) of the New York-based electronics store, pleaded guilty in 1991 and 1992 to conspiracy to commit securities fraud, conspiracy to commit mail and wire fraud, and obstruction of justice for cooking Crazy Eddie’s books to increase reported profits and inflate the value of the company’s stock. He was sentenced to six months of house arrest and ordered to pay $30,000 in fines. (See “The Rise And Fall Of Crazy Eddie: A Tale Of Epic Fraud,” by Simon Constable, Forbes, Aug. 27, 2022 and “Sam Antar: The CFO behind the Crazy Eddie’s fraud,” by Quentin Fottrell, MarketWatch, July 29, 2014.)

Anti-fraud professionals should take note of Antar’s warning about the white-collar criminal’s thoughts. In recent years, we’ve seen high-profile fraudsters like Sam Bankman-Fried and Elizabeth Holmes abscond with billions of their victims’ money; there’s still a need to better understand why they do what they do. A better understanding of the people behind the frauds can enable anti-fraud professionals to better prevent and detect these major cases that financially devastate people. In this article, I describe different criminal thinking traits and provide examples through case studies of some of the most notorious fraudsters. I also detail how to use a visual template to map thinking traits you might observe in the course of your own work.

Understanding the mind of the white-collar criminal

As Association of Certified Fraud Examiners (ACFE) founder and Chairman Dr. Joseph T. Wells, CFE, CPA, wrote in a 2012 Internal Auditor article, “While fraudsters may look like ordinary people, they’re not … it is important to concentrate on how they think and their thought processes.” (See “The fraudster’s mind,” by Joseph T. Wells, Internal Auditor, Vol. 69, Issue 2, 2012.) In my own speaking engagements, I’ve come across many anti-fraud professionals looking to better understand these thoughts and thought processes. This, of course, isn’t necessarily the easiest task, considering that many fraudsters can go for years evading detection. According to the ACFE’s Occupational Fraud 2024: A Report to the Nations, 87% of the fraud perpetrators in the cases studied by the report had never been either charged with or convicted of a fraud-related offense. Only 5% of the fraud cases studied involved perpetrators with a prior fraud conviction that either wasn’t known to the victim organization at the time of hiring or didn’t stop the organization from hiring them. (See Occupational Fraud 2024: A Report to the Nations, Association of Certified Fraud Examiners.) Fraudsters don’t always broadcast their intentions in easily identifiable ways, but this doesn’t mean we can’t learn from the ones who’ve been caught to better detect others in the future. Not knowing or understanding these traits could potentially lead to missing important evidence and flawed risk assessments. Consider, for example, a scenario in which an auditor didn’t collect enough evidence to support the conclusion of an audit report because they trusted someone who told them information without handing over verifiable evidence. The auditor trusted the person who gave them the information, but that person had been manipulating and lying to them to avoid providing any evidence.

Many experts in criminal psychology say there’s little difference between the thinking of someone who might rob a bank, and say, someone who might manipulate financial statements to show big profits. According to criminal psychologist Stanton Samenow, “Both pursue power and control at the expense of others. Both are able to shut off considerations of consequences and conscience long enough to do what they want.” (See “Armed robber and corporate crook: Similar mentalities,” by Stanton E. Samenow, Ph.D., Psychology Today, July 7, 2012.)

Having certain thoughts and displaying certain behaviors doesn’t mean that someone has or will commit fraud, but there are risk factors that can facilitate criminal behavior if the conditions are right — the opportunities are there, and they perceive that committing a crime is the solution to a problem.

Organizing the mind of a fraudster

Understanding criminal thinking traits requires understanding antisocial thoughts. Both criminal and antisocial thinking can be thought of as distorted thinking patterns or thinking errors that when combined with one’s attitudes and values can be used to justify law-breaking and unethical behavior — in other words, beliefs that make it acceptable to violate others. Individual thinking traits, attitudes and values play an essential role in whether an individual engages in white-collar crime. Antisocial traits include lying, bullying and aggression, and substance misuse. (See “White-collar crime: A review of recent developments and promising directions for future research,” by Sally Simpson, Annual Review of Sociology, 2013.)

As Antar pointed out at the beginning of this article, people who commit crimes see trust as a weakness to exploit. Whether it’s a trusting individual or their employer who’s placed their trust in them, some will take advantage of that trust and rationalize the harm they’re causing or deny the existence of victims.

Moreover, being around other like-minded individuals can facilitate antisocial and criminal thinking, such as what we might observe in organizations where management might encourage or condone unethical behaviors.

Table 1 below lists and describes common criminal and antisocial thinking patterns adapted from the works of criminal psychologists Stanton Samenow and Glenn Walters. This table organizes these criminal thinking patterns, preferences and attitudes so that we can better recognize those traits. Knowing them can even help anti-fraud professionals themselves from falling victim to manipulation from a suspected fraudster. (See “Criminal Belief Systems,” by Glenn Walters, 2002 and “The criminal personality,” by Samuel Yochelson and Stanton Samenow, 1976.) Note that not all people will exhibit all of these traits or display them in the same manner.

Exploiting weakness

People who think like criminals are often on the lookout for targets they deem weak and vulnerable. For example, fraud offenders might seek an organization with weak internal controls to avoid detection. In one study examining the mindset of accountants who went to prison for defrauding their clients, some of the accountants “claimed that if the victims were incapable of securing their assets, they deserved to have them stolen.” (See “Conversations with inmate accountants: Motivation, opportunity and the Fraud Triangle,” by Steven Dellaportas, Accounting Forum, 2013.)

Ignoring rules, laws and codes of conduct

White-collar criminals, like other types of criminals, often engage in antisocial behaviors like rule-breaking, disregarding appropriate social boundaries and ignoring laws and ethical standards, believing “they don’t have to follow the rules because they made them.” (See “Power Failure, The Inside Story of the Collapse of Enron,” by Mimi Swartz and Sherron Watkins, 2004.) When convicted fraudster Bernard Ebbers, former chief executive officer (CEO) of WorldCom, considered whether the company should establish a code of conduct, he reportedly dismissed it as a “colossal waste of time.” (See “Report of Investigation,” Special Investigative Committee of the Board of Directors of WorldCom Inc., March 31, 2003.)

Goal interference

In corrupt corporate environments with plenty of misconduct, you might observe people treating subordinates inequitably or punishing people who don’t go along with criminal or unethical behaviors. Convicted fraudster and former HealthSouth CFO William Owens intimidated others to establish his power. Diana Henze, vice president of finance at HealthSouth, refused to sign off on financial statements because she suspected they were fraudulent, and she lodged a complaint with the company’s compliance department. Her complaint was ignored. When she was passed over for a promotion to someone less qualified, she confronted Owens about it. Owens reportedly said to her, “You made it clear that you would not do what we asked.” (See “Visionaries or False Prophets,” by Frank Perri, Journal of Contemporary Criminal Justice, 2013.)

Exercising power over others

Exercising power over others through aggressive or controlling tactics such as manipulation, bullying, intimidation and punishment sends the message that life will be easier if they just comply with the manager’s demands. (See “Fraud from a factor of fear: Management by intimidation,” by Slemo Warigon and Betsy Bowers, Fraud Magazine, September/October 2006.) Convicted fraudster and MiniScribe CEO Quentin Wiles instilled fear in others by having employees stand up in front of everyone when they were fired. When asked why he chose this method of management, he answered, “That’s just to show everyone I’m in control of the company.” This sent a clear message: Meet your numbers or you’re out of a job. Managers began “smoothing the numbers … College-educated and graduate-degree managers were breaking into the trunks of auditors at night to alter their work.” (See “The Seven Signs of Ethical Collapse,” by Marianne Jennings, J.D., 2006.)

In the case of Livent Corporation, senior executives who committed financial statement fraud exercised “coercion and intimidation to browbeat their accountants … displaying a contemptuous attitude toward outside auditors” and believed that it was “no one’s business how they ran their company.” (See “Contemporary Auditing,” by Michael C. Knapp, 2009.)

Entitlement

Entitlement is the belief that one is privileged and deserves special access to resources regardless of the consequences to others. One securities fraud offender illustrated this sense of entitlement like this: “Cheating became easy to rationalize as I felt entitled to more. … I felt entitled to oversee hundreds of millions of dollars, I felt entitled to my country club memberships, I felt entitled to flashy Rolex watches, to sport designer suits, to drive high-end BMW sedans.” (See “Debunking the Myth of the Out of Character Offense,” by Frank Perri, Richard Brody and Justin Paperny, Journal of Forensic and Investigative Accounting, 2014.) Another corporate offender believed his wrongdoing wasn’t as severe as the fraud being committed by the company he worked for, stating, “I had a sense of entitlement and felt like anything I took was mine; the company owed it to me because I worked hard.” (See “The Informant: I thought I was bulletproof,” by Alyssa Abkowitz, Fortune China magazine, 2009.)

Rationalization

Rationalization is illustrated in the words of this securities fraud offender: “White-collar offenders utter the same lines I once cried: I did not set out to do harm; my intentions were sound; however, the culture was corrupt; it was unethical, not illegal; any successful business person works out of gray areas; I knew it was wrong, yet the temptation to cheat was too great; everyone was doing it; and so on. I found solace in blaming the toxic culture that I claimed groomed me, or in blaming my senior partner.” (See “Debunking the Myth of the Out of Character Offense,” by Frank Perri, Richard Brody and Justin Paperny, Journal of Forensic and Investigative Accounting, December 2014.)

Immunity

Immunity refers to someone thinking they won’t get caught because they’re too smart. When insider trader David Levine conspired to commit fraud, he reassured himself and his co-conspirators that they wouldn’t get caught because the U.S. Securities and Exchange Commission (SEC) investigators weren’t as smart as him. If the SEC investigators were as smart as he was, “the investigators would be working on Wall Street and pulling down large salaries and bonuses, rather than policing Wall Street and earning a relative pittance.” (See “Normal Organizational Wrongdoing,” by Donald Palmer, 2012.)

Sentimentality

White-collar criminals often display sentimentality through good deeds; it’s often practiced to mitigate their fraudulent acts and project a positive self-image. Philanthropic contributions are a common method of constructing false integrity. Take for example Bankman-Fried who donated millions of the money he stole from FTX customers to political campaigns. Antar gave huge sums of money to charity organizations. “Fraudsters like myself, we build a whole world of respectability around ourselves. I gave money to a lot of charities while I was committing my fraud.” (See “Sam Bankman-Fried directed political donations despite $13 bln ‘hole’, ex-colleague testified,” by Luc Cohen, Reuters, Oct. 17, 2023 and “Debunking the Myth of the Out of Character Offense,” by Frank S. Perri, Journal of Forensic and Investigative Accounting, December 2014.)

Gratification and excitement

Some offenders get a sense of gratification from committing fraud. People who knew Michael Rapp, a high-level executive convicted of bank fraud, observed that he, “loved to spend his days figuring out schemes. … the excitement of swindles held too powerful an allure for him, as did the vast sums of quick and easy money they produced. From the days of [bank] thrifts were deregulated, it was inevitable that Rapp would loot them. Opportunities of that magnitude could not possibly go unnoticed by swindlers like Rapp.” (See “Normal Organizational Wrongdoing,” by Donald Palmer, 2012.)

Social identification

White-collar criminals often identify with and emulate one another. For example, Patrick Finn, chief financial officer of defunct discount pharmacy Phar-Mor, collaborated with CEO Michael Monus to carry out a billion-dollar embezzlement scheme. Finn referred to Monus as “his god” and displayed a blind loyalty to him when following his orders. (See “Corporate Fraud and Managers’ Behavior: Evidence from the Press,” by Jeffrey Cohen, Yuan Ding and Herve Stolowy, Journal of Business Ethics, April 20, 2011.) Antar said of his cousin, CEO of Crazy Eddie, Eddie Antar, “Eddie was a godlike figure to me. We all looked up to him like a leader.” (See “Crazy Accounting at Crazy Eddie Inc.,” by Norbert Tschakert, Journal of Forensic and Investigative Accounting, Volume 9, Issue 1, 2017.)

A continuum for criminal thinking

One method to learn and identify these traits in others is to practice observing people. You might reflect on past interactions with others or even watch a television show featuring a criminal for practice. (“Breaking Bad,” with its main character Walter White is a good example.) You can also practice using the continuum as illustrated in Table 2 below.

This continuum is a learning aid to help you visualize criminal thinking and to see how risk factors for engaging in crimes could increase with each observed behavior. The continuum is based on the traits described in this article but in visual form. I use this in my lectures to ACFE members about criminal thinking patterns. You might consider using it to map certain behaviors you observe or learn about during suspect interviews. Also, using this to observe thinking traits might help you determine whether you need to calibrate your approach to an interview or examination.

Moreover, someone with traits from column 4 might not have a criminal record, but they’re still displaying antisocial thinking traits, such as a corporate executive who’s been bullying subordinates or blaming others for their misfortunes. The executive’s misconduct might be intensified by an organizational culture that rewards their behavior because of the perceived financial benefit they bring to the organization.

Case studies of criminal leadership

How do corrupt corporate leaders display antisocial/criminal thinking? Often, what we’ll observe isn’t necessarily outright law breaking but unethical behaviors, such as creating a hostile work environment for people who aren’t deemed loyal enough when they refuse to engage in misconduct, rationalizing their actions, interfering in the goals of others, showing a sense of entitlement, deception and victimhood. The following are profiles of executives, convicted of fraud, and the types of thinking traits they displayed as their frauds were going on.

Andrew Fastow

Despite the multibillion-dollar financial statement fraud scheme, Enron CFO Andrew Fastow once stated, “I ought to be CFO of the year. … Do you realize what a great job I’ve done at this company?” (See “CFO narcissism and financial reporting quality,” by Charles Ham, Mark H. Lang, Nicholas Seybert and Sean Wang, Journal of Accounting Research, April 21, 2017.) Fastow’s job was to decrease Enron’s exposure to risk so it could meet Wall Street expectations, sustain its stock price and generate badly needed cash. He further stated, “There was an overarching theme at Enron since its founding; you could use as much money as you wanted as long as you didn’t use Enron’s balance sheet.” (See “Why they do it,” by Eugene Soltes, 2019.)

When Fastow learned Enron whistleblower and Vice President Sherron Watkins talked to then-CEO Kenneth Lay about the fraud schemes, Fastow wanted her removed from her position and seized the computer from her desk. Despite Fastow’s wishes to see her terminated, Watkins remained but was removed from the executive suite and sent to a starkly furnished office at the bottom of the Enron building where she was assigned menial tasks. (See “Fraud Examination and White Collar Crime,” by Frank Perri, 2022.)

Fastow is also a demonstration of social identification in his veneration of Enron CEO Jeffrey Skilling. He told people he named his child after Skilling. (See “How Enron Bosses Created a Culture of Pushing Limits,” by Anita Raghavan, Kathryn Kranhold and Alexei Barrionuevo, The Wall Street Journal, Aug. 26, 2002.)

Elizabeth Holmes

In 2022, former CEO of Theranos, Elizabeth Holmes, was found guilty of defrauding investors by making it appear as if her company had successfully developed a blood analyzer, the Edison, that could perform a full range of laboratory tests from a small sample of blood. However, the blood-testing machine failed most of its tests and produced inaccurate results. She deceived investors by: 1) making false and misleading statements, 2) hosting misleading technology demonstrations, 3) providing false and misleading information on Theranos’ financial condition, and 4) overstating the extent of Theranos’ relationships with commercial partners and government entities such as the U.S. Department of Defense and its regulatory status with the U.S. Food and Drug Administration. (See “Fraud Examination and White Collar Crime,” by Frank Perri, 2022.) Holmes displayed thinking traits such as power orientation where she used her position and title of authority, and goal interference to punish those who didn’t follow her agenda. She fired employees who raised questions about the technology and tried to keep their silence with legal threats. (See “How Silicon Valley got Played by Theranos,” by Julia Belluz, Vox, June 15, 2018.) Holmes demanded unquestioned loyalty from employees within an organization based on secrecy, paranoia and bullying. (See “Theranos: How one woman fooled Silicon Valley,” by Sharon Thiruchelvam, Raconteur, Sept. 6, 2018.)

Richard Scrushy

Consider the case of CEO Richard Scrushy who was found civilly liable for financial statement fraud at HealthSouth. From 1996 to 2002, HealthSouth had overstated revenue by $2.5 billion. (See “Financial Statement Fraud: Prevention and Detection,” edited by Zabihollah Rezaee and Richard Riley, Jan. 2, 2012.) As CEO, Scrushy displayed little tolerance for criticism or contrary opinions and would publicly humiliate subordinates. He rationalized by comparing HealthSouth to other companies that had engaged in financial statement fraud, claiming, “I am convinced that there are 8,000 companies out there right now that have [expletive] on their balance sheets. Everyone I’ve been involved with, everyone I know, everybody does.” (See “Corporate Crooks: How Rogue Executives Ripped Off Americans,” by Greg Farrell, 2006.) When others involved in HealthSouth’s fraud implicated Scrushy in the financial statement fraud, he saw himself as the victim, stating, “I’ve been mistreated, so lied to, it’s just massive.” (See “The Insatiable King Richard,” by John Heylar, CNN, July 7, 2003.)

Charles Keating

Convicted bank fraudster Charles Keating is best known for his role in the Lincoln Savings and Loan scandal. Keating encouraged law-breaking and unethical behavior by conveying the message to employees that they were smarter, braver and morally superior over others — especially government regulators; anyone with a contrary view was considered an enemy. (See “Contemporary Issues in Crime and Criminal Justice: Essays in Honor of Gilbert Geis,” by Henry Pontell and David Shichor, 2001.) Keating told his sales force, “Always remember, the weak, meek and ignorant are always good sales targets.” (See “Charles Keating, financier and moralist, 1923-2014,” by Edward Luce, Financial Times, 2019.) Keating sent his team of impeccably groomed young salespeople out to play the role of ideal grandsons to persuade elderly widows to transfer their savings into his high-risk investments, which became worthless after Lincoln Savings and Loan went bankrupt. How did Keating deal with those who disclosed their concerns of fraud to him? When an accountant at Lincoln Savings notified Keating of accounting irregularities, Keating wrote her a thank-you note and a notice of termination. (See “The Seven Signs of Ethical Collapse,” by Marianne Jennings, J.D., 2006.)

Dennis Kozlowski

Tyco CEO Dennis Kozlowski was found guilty of asset misappropriation, securities fraud, taking unauthorized bonuses of more than $120 million and selling $575 million in inflated stock. (See “Ethical Obligations and Decision Making in Accounting,” by Steven M. Mintz and Roselyn E. Morris, 2017.) According to late Harvard Business School professor Abraham Zeleznik, Kozlowski displayed an intense sense of entitlement. “By entitlement, I mean an aspect of a narcissistic personality who comes to believe that he and the institution are one” and “that he can take what he wants when he wants it.” (See “The Rise and Fall of Dennis Kozlowski,” by Anthony Bianco, William Symonds and Nanette Byrnes, Bloomberg, 2002.) He maintained his innocence, saying that he was wrongly sentenced. (See “Tyco International: Leadership Crisis,” by Rob Boostrom, Daniels Fund Ethics Initiative, University of New Mexico, 2011.)

Kozlowski also displayed sentimentality when he hired a public relations professional to advertise his charity, even though he used Tyco’s money to make the donations. (See “The Seven Signs of Ethical Collapse.”)

It starts with understanding

Fraudulent behavior can’t be understood without understanding how fraud perpetrators might think about their schemes. Knowing how people think about exploitable opportunities and knowing the traits that facilitate their fraudulent behaviors are good places to start for mitigating the effects of their behaviors. By understanding how criminal thinking manifests itself, we can better interpret the consequences of those behaviors and respond better to difficult situations. And we can protect ourselves from the manipulations of fraudsters. Consider the case of convicted fraudster Garth Drabinsky, ex-CEO of Livent, and his treatment of company accountants. Drabinsky bullied them into helping him hide the millions of company funds he misappropriated. He told accountants to keep their mouths shut and “do as they are [expletive] told.” Livent accountants who ultimately helped cook the books didn’t just experience emotional trauma from their participation — they also faced fraud charges when the scheme was discovered. (See “Contemporary Auditing – Real Issues & Cases, Updated,” by Michael C. Knapp, 2009 and “Tyrannical Rex: Psychopathic Corporate Leadership and White-Collar Crime,” by Frank S. Perri, Journal of Forensic and Investigative Accounting, 2022.)

Frank S. Perri, J.D., CFE, CPA, is an attorney in Illinois. Contact him at frankperri@hotmail.com.