Image from Madoff.com

Bernard Madoff

Let us say he wanted millions of dollars for a new venture related to “biometric authentication.” Would you give it to him?

Well, apparently Ron Burkle did. Along with Gordon Getty and a host of other wealthy Californians. According to The San Francisco Chronicle, Mr. Rogers raised $340 million from investors. Today, his company–called Pay By Touch–is bankrupt and the millions are gone–squandered, investors contend in lawsuits, in an extraordinary spending spree that burned up venture capital at a rate of $8 million a month.

Then there is today’s case of Bernard Madoff, the amiable, well-respected securities titan and investment adviser. Prosecutors say he bilked investors–many of them wealthy individuals–out of billions of dollars.

There were red flags flying all over the firm in recent years, from the unnaturally smooth returns to Madoff’s auditors, who worked from a 13-foot by 18-foot office in Rockland County, N.Y. Some investors saw the potential for fraud and declined to invest. But many other rich investors–from the Florida country clubs of Palm Beach and Boca Raton to the ski slopes of Aspen, Colo.–entrusted Mr. Madoff with large amounts of their wealth.

How could the rich be so easily fooled?

For one, investing today is complicated. The rich don’t have time to scrub the histories and personal backgrounds of all their investment managers. What is more, the lure of steady, strong returns is enough to blind anyone to the potential warning signs.

Yet perhaps the biggest factor in why wealthy investors get duped is relying on recommendations from their friends. In the Madoff case, many of the investors invested because all their friends at the country club were talking about the returns. Country Clubs should be for golfing, not investment advice.

All of which proves that when it comes to the wealthy, the rich aren’t so different. They can get duped just like everyone else. The only difference is that they lose more.