HBO’s new sex cult doc has big lessons for investors

When I first started writing about cryptocurrency (way back in 2013, no big deal), I was above all above all fascinated by the potential of decentralized systems to disrupt everything we took for granted about banks, payments, and finance. But by early 2017, ponzi schemes and other cons had begun leveraging that promise for darker ends. My own fascination increasingly expanded from the technology of crypto to the legion of operators who used techy language and hype to hoodwink victims.

So I was excited for HBO’s new documentary series The Vow. The show is about NXIVM, the supposed ‘executive success program’ that was in fact a multi-level marketing scheme that ticked all the boxes of a cult. That included, most sensationally, a secret inner circle of women who were ultimately subject to physical, emotional, and sexual abuse by founder Keith Raniere. Raniere has since been convicted on felony sex trafficking, wire fraud, and other charges.

Raniere represents a true nadir of sociopathy, and there is no moral equivalency between his worst crimes and short-con financial grifters. But NXIVM was first and most broadly a business scam. And while the current boom in both fintech stocks and “Decentralized Finance” cryptocurrency tokens doesn’t seem like a repeat of the 2017 wave of fraud, no opportunity to learn from the mistakes of others should be passed up.

So what can NXIVM teach us about how not to get conned when investing in the future?

First, just because something is incomprehensible doesn’t mean it’s brilliant. The NXIVM program was essentially (half-baked) group therapy, but group leaders consistently referred to it as a “technology.” Raniere made a big deal about patenting it, and spun wonky neologisms that obscured rather than explained what he was doing.

We live in a time of booming tech stocks and tech-driven social transformation so profound that even professional thinkers struggle to process it. This makes “technology”-based pitches both alluring and disorienting to many. But here’s the thing about technology: it connects things, it moves things around, it cures illness, it increasingly makes decisions. How tech does these things is often arcane, but what it does – the outcome – should be easy to explain, especially as a business or investment proposition. If a pitch is focused on obscure technology, instead of what that technology accomplishes, it’s a red flag.

Second, invest in your own wisdom first. NXIVM was outwardly a self-help group, making it an excellent way to attract people who were troubled, dissatisfied, lost – and therefore easily manipulated. There’s a corollary in investing: The promise of outsized or guaranteed returns is a great way to attract people who don’t have enough savvy to tell the difference between an opportunity and a scam, or between an investment and gambling.

And just like the victims of NXIVM, the victims of financial and investment fraud are often looking for someone else to fill in the gaps in their own knowledge, experience, and expertise. We in the media unfortunately spent a couple of decades abetting this by deifying young tech founders who, it was often implied, simply know things we mere mortals can never comprehend.

But most VCs and other long-term successful investors come from the exact opposite direction – they know the area they’re investing in as well or better than the founders they support. In other words, don’t look for a guru: work to become the guru.

Finally, put in real work to understand the people involved in any project. In my time investigating scammers, I’ve been shocked how many had already done questionable or even criminal things which could be unearthed with a quick Google search. Raniere was no different. In the 1990s, he founded a multi-level marketing company (think Amway) that attracted serious fraud claims. Moreover, this background was reported by Forbes in 2003, nearly 15 years before the whole truth about NXIVM came out.

I believe in second chances, but I’m tempted to carve out an exception for finance and investment schemes – the premeditation, self-delusion, and indifference to human suffering that are required to pull them off speak to a deeply and enduringly damaged perpetrator. Invest (or don’t) accordingly.

Finally, a note: Fortune has just released its latest 40 under 40 list. Honorees include fintech up-and-comers including Yang Bing of Oceanbase and Jonathan Levin of Chainalysis. Get to know them before they drink your milkshake.

David Z. Morris

@davidzmorris

david.morris@fortune.com

DECENTRALIZED NEWS

Credits

The Fed announced dramatic new inflation strategies ... JPMorgan will let staff rotate between office and working from home ... Credit Suisse to double its headcount in China ... Coinbase planning token launch tools for crypto companies ... DeFi token Yearn Finance dominates crypto gainers ... The real doge behind Dogecoin is recovering from an illness ... Chainlink powering price data for DeFi exchange ... Volume on decentralized crypto exchanges hits $11 billion for August.

Debits

New Zealand stock exchange crumbles under DDoS attacks ... Robinhood faces flood of user complaints ... DeFi craze pushes Ethereum fees to new high ... Apple terminates Epic Games' developer account amid payments fight ... Euro fintech Klarna sees mounting losses ... Department of Homeland Security says it can now track private crypto Monero ...Square runs Twitter spam campaign to promote Cash App ... Tezos settles ICO lawsuit ... Herbalife MLM to pay $123 million fine for China bribery ... Ethereum Classic suffers third 51% attack in a month.

BUBBLE-O-METER

$8 billion

One tally of the amount of collateral locked in blockchain-based Decentralized Finance systems at the end of August - nearly double the amount at the start of the month.

FOMO NO MO'

The British had already started leasing Diego Garcia—at 10 square miles, the largest of the 1,000-plus islands—to the United States military in the mid-1960s. Now, to satisfy the terms of the deal, the U.K. was clearing the Chagos Islands of inhabitants, dismissed at the time by British diplomat Denis Greenhill as a “few Tarzans or Man Fridays.”

Part of the shocking colonial history behind an ongoing battle over the .io internet domain detailed by Fortune's David Meyer. Though beloved by crypto and tech companies, .io actually stands for Indian Ocean, and is assigned to the former British territory of the Chagos Islands. Though .io generates millions in revenue, the Chagosians currently see none of that, and are trying to regain control of the domain.

THE LEDGER'S LATEST

Robinhood stumbles under Tesla and Apple trading volume - Jeff John Roberts

How COVID-19 is boosting installment payments - Rachel King

HSBC walks a tightrope between Beijing and the U.S. - Clay Chandler

Investors pour record amounts into silver - Rey Mashayekhi

Coinbase shuffles board ahead of rumored IPO - Jeff John Roberts

The Fed's huge shift on inflation could be rocket fuel for stocks - Bernhard Warner

We won't have a true economic recovery until we tackle the racial wealth gap - Dinesh Paliwal

MEMES AND MUMBLES

Sure, the U.S. Fed's new policies are an epochal shift. But Jamaica's Central Bank released a reggae song to explain inflation targeting, so I'd say they're about even.

This edition of The Ledger was curated by David Z. Morris. Contact him at david.morris@fortune.com