c.2013 New York Times News Service

c.2013 New York Times News Service

Hey, buddy, want to buy a bridge?

We don’t know whether William McCloundy actually used those words, but he clearly had a compelling sales pitch. Early in the last century, McCloundy managed to sell real estate he didn’t even own, including land near City Hall in Manhattan and in Sea Gate, near Coney Island in Brooklyn.

The pinnacle of his career was the stuff of legend, and it was recorded in 1928 in a New York Times article, “Confidence Man Jailed,” which reported that McCloundy “sold the Brooklyn Bridge in 1901, for which he was convicted of grand larceny and served two and half years in Sing Sing.”

Remarkably, McCloundy wasn’t the only con man sent up the river to Sing Sing for selling the bridge. George C. Parker sold it numerous times, persuading investors that they would become rich by collecting tolls on it. In one exchange, he sold the bridge “to a gullible visitor from the West for $50,000,” Ralph Blumenthal wrote in his book “Miracle at Sing Sing” (St. Martin’s, 2004).

We’ve come a long way since then. In our sophisticated era, no one would fall for a transparently larcenous offer like that — or so we might like to think.

The truth is that while the details of the swindles have changed, the fundamental techniques have not. The cons, like Bernard L. Madoff’s epic Ponzi scheme, have become only bigger. What’s surprising is that more affluent and well-educated Americans are sometimes the easiest marks.

That’s the message of a new study from the Finra Investor Education Foundation, which surveyed more than 2,000 investors, age 40 and older. It found that more than 80 percent of them had been approached with potentially fraudulent offers and that 40 percent of all respondents were unable to spot “classic red flags of fraud” — implicit warnings that they were in danger of being fleeced.

“When it comes to financial fraud, America is a nation at risk,” Gerri Walsh, president of the foundation, said in an interview. “Investment pitches are all around us, and many of them are scams.”

What’s more, she said, “The ability of most Americans to spot these persuasion techniques is dismal.”

The Finra foundation, which is affiliated with the industry-financed Financial Industry Regulatory Authority, sampled a toxic variety of fraudulent sales pitches taken from websites and the Internet: lottery bonanzas, penny-stock enticements, not-so-free lunch seminars, Ponzi schemes and other dubious deals. People were asked whether they found the offers appealing. Many did, even though the offers were chosen because they contained telltale signs of fraud.

Here’s one sample pitch, filled with telling examples of chicanery:

“My friends informed me about a very reliable high-yield investment program I’ve been extremely impressed with. The program pays from 2 percent to 3.4 percent daily depending on the investment plan you choose. The minimum term of investment is 180 days, after which you can either recover the sum of your initial investment or continue further participation in the project. You can also invest on a compound basis and get huge returns. It guarantees the safety of the invested amount and even pays a 5 percent referral commission.”

On a 1-to-10 scale, respondents on average rated this a 5.6, a very appealing investment.

More than half found the safety guarantee attractive — although Walsh said it ought to have raised eyebrows, because “nothing is really guaranteed without a cost.” They liked the 5 percent commission, too, although it is a sign that the offer could be a Ponzi or pyramid scheme.

That’s a fraud practiced by people like Madoff, in which ever-increasing numbers of people are enticed by the promise of high, steady returns. The perpetrator uses fresh money from new investors to pay earlier ones. When the flood of new cash ebbs, such schemes collapse.

“You only find out who is swimming naked when the tide goes out,” as Warren Buffett once said.

That happened in the Madoff case when the stock market plunged in 2008.

The Finra survey was conducted nearly four years after the Madoff scheme was exposed, yet relatively few people saw anything wrong with the sample pitch above. Its personal appeal at the beginning gives a warm, fuzzy feeling by citing “friends,” and seems to have “source credibility or authority,” Walsh said, with its claims of reliability.

Then there is the “dangling of phantom riches before us,” she said: “We’d all love to have investments that are fully guaranteed and that will make us wealthy. Scam artists want us to start salivating and to stop thinking.”

That brings us to the core of the offer — the promise of a daily return of 2 to 3.4 percent. Fewer than 20 percent of respondents found that part of the pitch troubling. Roughly half found it appealing, and the remainder were neutral. That suggests that few people bothered to think about those numbers. They would represent a modest rate of return — if it were what you received after an entire year. As a daily rate, it’s preposterous — a red flag.

How preposterous? I ran the numbers on an Excel spreadsheet (and Finra verified them). Say we’re investing $10,000. Let’s be conservative and assume that the investment produces a return only when markets are open, not every day of the year. And why be greedy? We’ll try the daily return of 2 percent first. After a week, our $10,000 grows to $11,040.81. After two weeks, we’ve got $12,189.94. And after a year, our $10,000 becomes $1,469,749.37.

Not bad at all, but it’s chicken feed compared with the payoff from a 3.4 percent daily return. After a year, $10,000 becomes $45,622,151.99.

That’s great money if you can get it. But you can’t — not legally, not in this world.

“A lot of people aren’t thinking at all about what’s reasonable and what isn’t,” Walsh said. “ ‘Check and verify’ ought to be everyone’s watchword. But we’ve found that many people don’t bother.”

You might assume that people with more money were likely to have better antennas for this kind of thing. But you’d be wrong. The survey showed that for this pitch, the highest earners — those with household incomes of $100,000 or more — found the pitch more appealing than those with lower incomes. And those with more education were generally more credulous, too. The greater their education, the more likely they were to invest in potentially fraudulent schemes.

The explanation for this, Walsh said, is that many well-educated people are overconfident and “let down their defenses.” (And different studies by Finra and others show that men are more likely than women to be overconfident in this way.)

Sadly, there’s no simple way to give everyone immunity from con artists, Walsh said. She added, though, that “the take-away from this ought to be ‘Always ask and check.’”

Ask whether an individual selling an investment is licensed to do so, then check the information online through Finra, which has a service called “Brokercheck.” Ask whether a security being offered is registered with the Securities and Exchange Commission — and then check that independently by going to the SEC’s Edgar database.

That may prepare you for the next guy who tries to sell you the Brooklyn Bridge.