Scams: The Nigerian Prince Is Actually from Spain

One of the joys of being alive when email arrived was getting my first message from royalty: a Nigerian prince.

This signal honor was also urgent. In trouble and needing to flee to the United States, his hundred-million-dollar fortune was locked up by political rivals. He needed an American to get the money out. If I would be his ally, he would be my benefactor. Anyone willing to step up should send name, phone number, and bank account information. Then would come instructions on wiring the necessary fees and bribes to get the millions into my account: $50,000 should be enough. Next would come tragic news that the prince got assassinated in a coup. The money, sadly, went with him.

I got this email as a teenager days after getting my first AOL account. I asked my dad about it. He laughed. “I thought that guy was from Spain.” Turns out, Dad was right.

In 1898, The New York Times warned readers that “An Old Swindle” had returned.¹ For the past thirty years, a Spanish príncipe kept mailing people from prison. Arrested by enemies, desperate to get his family out of Havana (or, sometimes, Barcelona), he needed your help. D. Santiago de Ochoa had been able to bury his great wealth just in time. He wasn’t worried about himself, but for his poor, suffering daughter. If you could send money to secure her release, he would give you the information to unbury the treasure and let you keep it (please, kindly, split some with the beloved child).

This worked. A lot. It’s been going on since at least the U.S. Civil War. Just Google “Nigerian Prince Scam” and see how many recent arrests there are in the news. How is this possible? Why do we fall for this crap?

Americans have a long history of getting hoodwinked. We are, it turns out, a gullible people. Awash in the allure of Go Ahead, money and lives get risked on the smallest of chances. This strange history keeps going because, if you look closely enough, the differences between dreams and delusions aren’t that big.

* * *

For those who first came to the Americas, dissecting fact from fiction was life and death. The high stakes didn’t increase anyone’s competence. Strategists talk about “the fog of war,” when you have a plan but also can’t see clearly to know if the enemy is in front or behind. Europeans bent on making a better life for themselves felt much the same way. The very idea of America was a leap of, sometimes misguided, faith.

By the early 1500s, map makers drew decently good maps of the New World’s coasts. One decided to hazard a guess at what might be in the interior, adding imaginary lakes, mountains, and other fun features to the New World.² When it came time to settle North America, investment companies took his made-up map seriously, assuming the interior bodies of water were real. Entire colonial business plans and proposed town locations rested on one man’s thought experiment. Another map was so wrong that a poor soul trying to locate his new farm with it claimed the drawing “might as well serve for any part of Germany as for East-Florida.”³

The founding of the United States only increased the confusion. If those faraway colonists could create brave new worlds, why not us? In 1821, with Símon Bolívar leading successful revolutions seemingly everywhere, one of his generals arrived in England with glorious news. He was no longer just the Scotsman, Sir George Macgregor.⁴ He was now “His Highness Gregor, Cacique of Poyais.” The cacique, which vaguely meant chief or king, ruled over a small country in modern-day Nicaragua. He told of fabulous natural resources, and with the help of leading London politicians issued over half a million pounds in government bonds to build paradise there. The bonds sold out. Colonists signed up in droves for fresh lives in a new country. People bought a dream, endorsed by prominent leaders, not so different from many Americans’ reality.

They arrived to find a “capital city” of mud huts in swamp land inhabited by surprised natives. The cacique had, it turned out, won his “kingdom” in a drunken night of gambling with a Miskito Indian chief. Of the 200 colonists, just fifty returned alive. The cobbler appointed “Official Shoemaker to the Princess of Poyais” committed suicide. Macgregor, meanwhile, absconded with the money to France and died rich. The scam was so believable that, as late as the 1870s, investors in London still traded Poyais bonds on the off chance they paid out.

* * *

By then Americans were getting used to being pitched false promises. There were so many financial gimmicks available in the 1870s that The American Agriculturalist devoted an entire section to the topic each year, called “Sundry Humbugs.”⁵ It was printed beneath a picture of moths dancing around a candle flame. Humbugs were “schemes to obtain money or its equivalent” without earning it, which suddenly makes sense of Mr. Scrooge’s cursing in A Christmas Carol. He’s just telling Tiny Tim, “No, that’s a scam.”

Humbugs fell into many categories:⁶ advance payment companies (Madoff-like investments that disappeared after the early deposits), discount watches (selling fake knockoffs as refurbished, high-end brands), “Bogus Real Estate Agents” (buying property super cheap that wasn’t really for sale), war claims agents (handling fictitious compensation claims for your losses during the Civil War), fake baking ingredients, counterfeit money schemes, and “marvelous remedies” which were often just candy. “Unsettled prizes” were the most common gimmick, where the reader had won something but needed to send postage to ship it. Most of these are still around, today.

One particularly successful ruse came from “Clark & Co., Claims Adjusters,” who sent official-looking letters asking if the enclosed clipping was your signature. It was yours, because whoever Clark was, he found your John Hancock discarded from old checks. It seems “you” were the proud owner of mining company stock valued at $500 ($15,000 today). They needed to prove you were the owner. Since you knew your signature, if you would kindly send $5 ($150 today) to Mr. Clark’s company, he would forward you the stock. This, by the way, he promptly did, though it was simply the stock of some long-bankrupt mining operation. The newspaper noted the sucker had, at least, “paid $5 for a very useful lesson.”

* * *

Are lotteries a scam? They certainly have a long history of getting people’s money. Governments raised funds for public buildings and common defense this way. Queen Elizabeth used one to improve English harbors.⁷ The winner was freed from arrest from all but the most violent offense for a whole week and given money to spend for their seven days of debauchery. The Virginia colony was financed with lottery money until moral degeneracy from lottery players got out of control.

Lotteries were the most common speculation in colonial America.⁸ Nearly every colony used them to raise funds. The finances of colonial Philadelphia were so bad that they not only ran lotteries, but the city purchased its own tickets, hoping to win.

Stocks and bonds were expensive, and early lottery tickets weren’t cheap, either. Poor people adapted by placing side bets on what the winning lottery numbers would be. This game evolved into “playing the numbers,” run by mafia bosses, with numbers drawn daily.

People treated their numbers seriously. Dream books, hot-selling cheap-printed gambling suggestions, laid claim to exotic spiritualism to guide your bets.⁹ The Gypsy Witch Dream Book and Policy Player’s Guide (1903) is just one example that taught you to find the right numbers while sleeping. Bettors played “gigs,” combinations that went by various names. There were beer gigs, washer-woman gigs, and gigs named after celebrities. Events in life were signs to play particular strategies. Having a run-in with the cops was a sure sign to play the policeman’s gig.

Betting was viewed by many working people as a reasonable financial strategy.¹⁰ Most paper investments weren’t affordable on working wages. Banks regularly faced runs that lost depositors their small savings. The temptations of urban life offered an alarming number of new ways to waste money. A weekly betting strategy, meanwhile, was a highly leveraged short on poverty. The common advice was to bet small change one would otherwise fritter away, so any winnings were gravy.

Lotteries were still a bad bet for working people. There were better financial strategies, just none that offered the excitement and immediacy of numbers. It wasn’t just the poor, either. When the stock market crashed in 1929, many former stock investors joined them playing the numbers in New York, trying to recoup their losses.

* * *

You, of course, would do no such things. You are far too sharp to fall for crazy dreams and simpletons’ math.

Or, not. I know a highly successful land developer. This man’s annual take-home pay is measured in proximity to one million dollars: half a million is a rough year. When we first went to dinner, my annual pay was his rounding error. Yet, while pulling over for gas, he proudly showed me an array of specialized credit cards: one for gasoline, another for the meal we would have, yet another for air travel. He had a Mastercard dedicated exclusively to wine enthusiasts. “Got to rack those points up, am I right?” I drank a $300 bottle of wine across from a man rich enough to buy my hometown and thought: he has no clue that a point is just a penny.

A point is a penny, rebranded and gamified by the credit-card industry. You didn’t just save; you scored! Loyalty programs are everywhere and, to many shoppers, everything. Starbucks has stars, which change in value at precisely the moment members get used to what they mean. Sephora gives more points the more you spend. Rouge members who spend $1,000 thereafter get three points per dollar. That’s three cents per dollar. And you get a birthday gift!

Customer loyalty games went all the way to the Supreme Court. The rewards points in your foodie app are a new spin on an old gimmick: trading stamps.¹¹ In the 1850s, a soap company offered certificates in the package. Collect enough certs, then mail them in for prizes. By the 1890s this morphed into a stamp system for each dime spent. Filling up a stamp book earned rewards.

Consumers loved them for what they were: little green coupons. Retailers pushed them for what they brought in: more business. Competitors sued for what they created: misled consumers. This landed on the Supreme Court’s docket not once, but twice: in 1916 and again in 1972.

The first major player was S&H Green Stamps, which took the idea national. Subscribing stores issued little green stamps, which could be accumulated by shopping at many different vendors. The savvy shopper, having collected multiple stamps from various stores, could order other goods only available from the S&H catalogue or, in some cities, buy at the local S&H store.

But S&H didn’t accept cash. To juice their loyalty program, they only sold goods for completely filled stamp books. A partially filled book held only fractional value. Filling the book became an early twentieth-century obsession, and competitors rushed to make new stamp companies for different retailers. Before long, shoppers were flush with green, blue, or red stamp books from competing stores.

Some families religiously saved tens of thousands of stamps each year. One company shipped over 100 million stamp books to users. In 1905 word got out that the B&M Blue Trading Stamp company was declaring bankruptcy. A mob of women flooded the streets of Manhattan, many from out of state. Authorities attempted to keep them out of the stockroom, since the goods belonged to the company’s creditors. The stamp-wielding women, unimpressed by American bankruptcy law, smashed in the doors and took everything inside.

Stores responded to this passion with double- and triple-stamp days. Just like today, smart shoppers maneuvered their shopping around the points, not the points around their needs. In 1950s Denver, a local Save-a-Nickel store offered four-times the stamps all week long. Local retailers cried foul and published an op-ed decrying stamp inflation. With so many stickers being thrown out in the early 1950s, a stamp just wasn’t worth what it was in the good old days.

Ads for stamps emphasized that they were “free.” Consumers believed it. Credit-card swipers believe it, too.

Credit-card rewards pushed stamps from the scene. In 1986, the same year Mike Tyson won his first boxing title, the heavyweight of retail Sears created the Discover Card with a cash back program. Consumers loved it, and points, miles, and cash were soon the rebate programs du jour. None of this was new, and it was no accident that a retailer figured it out. Americans had been gobbling up shopping credits for nearly a century.

The trick, of course, is that 1 percent cash back is just a penny. Americans consider “cash” to be dollars but pennies to be “small change.”The slogan “1 percent small change back” doesn’t resonate. Hearing 1 percent cash, the brain does not hear “one penny” but “one dollar.”

Here was the issue that got the Supreme Court involved. Stamps, the Court opined in 1916, bordered on but did not cross into lotteries. They did have “the seduction and evil” of illegal gaming. By encouraging the shopper to come back again and again for their Pavlovian rewards, stores were playing fast and loose with the line of consumer deception. After all, someone is paying for the discount, and that person was generally the consumer themselves through higher prices. By raising prices a few percentage points to cover the stamps (and now points), they created the illusion of a reward. But the rebate was at best a deferred savings account and certainly an incentive to overspend.

All those people with lost stamps, partially filled books, or shopping addictions were paying the price with no reward. Families that didn’t want to use stamps paid more but got nothing in return, functionally forcing everyone to play the game. People addicted to the rewards shopped more than they otherwise would. The average person spent, in today’s dollars, nearly $100 more every month if they were in a rewards program, compared with those who were not.

This same dilemma applies now. Cash-back and points cards average their rebates at 1 percent, but payment systems like Visa or American Express charge as much as 2.5 percent per transaction to the store.¹² The store increases the cost of the goods they sell accordingly. Budgets of credit-card–using families are increased by over $1,000 per year from scoring points. But you aren’t dunking on the credit-card companies (who are doing just fine). Cash-paying consumers who reap no rewards pay those higher prices, too, as do those carrying card balances with 18 percent interest: all the points get scored on them. The families least likely to have good rewards cards, the poor, are the ones shoveling money into the accounts of those who best manage to run up the score, the upper-middle class.¹³

This gamification of shopping, rewarding winners at the cost of losers, was an issue that the 1916 Supreme Court ultimately ruled was for states to decide. In 1972, with the federal government’s power expanded, a more liberal set of justices green-lighted nearly unlimited power to the Federal Trade Commission to deem stamp systems a deceptive practice. Over half of the fifty states considered or enacted legislation to restrict or tax stamps and points.¹⁴

Rewards programs survived every assault. When North Dakota passed a tax on stamp companies in the 1950s, residents voted two-to-one to overturn it. Women’s clubs picketed the New Jersey capital against anti-stamp legislation. By 1965, over 80 percent of American shoppers saved stamps. And today, over 80 percent oppose legislation on credit-card rewards, even when pollsters explain doing so would lower prices. As far as consumers are concerned, we’re playing this game and we’re winning!

So there you stand, paying 3 percent more for gasoline because you get 2 percent back for the family trip to the beach, to which you’ll fly with miles from another card you only use when dining out. On a good month, your net spread is a loss of 1 percent. But it feels so good when you’re scoring.

The thrill is meant to distract you from the sleight of hand. They took money from your account and time from your life, as you juggle your multi-card system. What you’ve won are redeemable tokens, chased after like children at a Chuck E. Cheese, where the din of loud music and smell of cheap pizza help you forget that the ultimate prize you’re furiously banging buttons to win is worth barely a penny.