A.B.C.'s of Behavioral Forensics: Applying Psychology to Financial Fraud Prevention and Detection

CHAPTER 5

“Said the Spider to the Fly . . .”1

THE PREDATOR-PREY DANCE—PUTTING BEHAVIORAL SCIENCE FUNDAMENTALS INTO MOTION

Sam Antar is the former CFO of Crazy Eddie, a consumer elec­tronics chain, and a convicted felon. Antar is a felon because he and the Crazy Eddie chain bilked investors and creditors out of millions of dollars in the 1980s. Now he works professionally speaking about fraud; he is an expert from the wrong side of the law. He still makes a living through his understanding of fraud in the corporate world. He does so by shorting suspicious companies. He recently said, “If I was out of retirement today, I would be bigger than Bernie Madoff. . . . Nothing has changed.”2

Fraud, as we said before, is not an act of computers. It is a human act in which the mind plays a crucially important role. The psychological concepts of the unconscious, the defenses, and emotions constitute a strange, unfamiliar stew for the gatekeepers of financial integrity, viz. accountants, auditors, finance directors, risk managers, and regulators. Former HealthSouth CFO, Aaron Beam—the “Case of Aaron B”—is an excellent example of what happens when these psychological factors combine in an unpleasant way: he became physically sick. However, although his department created the false accounts, and he was complicit in the cooked books at HealthSouth, he was not the (predatory or malignant) bad apple.

Emotions, Unconscious, Defenses—Oh My!

What does the unholy and potent combination of emotions, ...