‘Sudden wealth syndrome’ takes a toll on the rich

  • By David Lazarus Los Angeles Times
  • Friday, May 22, 2015 1:48pm
  • BusinessSports

Celebrities — they’re just like us. Or so the gossip magazines say.

I’ll attest to this much: The rich and famous can have as hard a time protecting their money as everyone else. Just ask Kevin Bacon, erstwhile client of Ponzi-scheme con artist Bernie Madoff.

“Most people, unfortunately, are predisposed to spend more than they have,” said Peter Mainstain, a Los Angeles business manager whose clients include actors and athletes.

“When you’re young and you’re new to money, there are a lot of hands out,” he said. “It’s easy to get caught up in it.”

Take the case of former Los Angeles Clippers forward Craig Smith, who says he was bilked out of more than $2 million. Smith, 31, told me he knew very little about managing money when he first came into serious coin.

“Growing up in Los Angeles, I didn’t know what a million dollars looked like,” he said. “You hear about all this stuff, but in real life it’s different.”

The 6-foot-7 Smith was raised in Inglewood and was a high school standout. He was drafted by the Minnesota Timberwolves in 2006 and traded to the Clippers in 2009. He joined the Portland Trail Blazers in 2011 and now is a free agent.

Smith’s total income from six years in the National Basketball Association was $9.4 million, according to the website Basketball-Reference.com.

He told me, and he alleges in a pair of lawsuits filed in Los Angeles County Superior Court, that he discovered in 2012 that he had only $85 in an account at City National Bank.

Smith’s lawsuits allege that his then-business manager, Noah Lookofsky, forged Smith’s signature to transfer more than $2 million to his own accounts from Smith’s accounts at City National and U.S. Bank.

Smith is suing the two banks for allegedly failing to notify him of unusual activity involving his accounts. Representatives of both institutions declined to comment.

Smith also is suing Lookofsky. Lookofsky declined to comment on the allegations against him, saying only that “no fraud was committed.” Separately, he is awaiting trial in Iowa on a bad check charge.

Coming into big bucks is a problem most people would love to have. But it’s a situation fraught with peril — so much so that psychologists have coined a phrase, “sudden wealth syndrome,” to describe those whose lives are ruined after becoming rich.

Think of all the stories you’ve read about lottery winners who end up destitute.

Athletes and entertainers have it a little different. They’ve worked for their success, after all, and frequently approach sudden wealth with a sense of entitlement.

“Those are the hardest clients to deal with,” said Belva Anakwenze, an LA business manager who got her start handling NBA players but now focuses on clients in the TV industry.

“I stopped chasing NBA players because they just don’t care about their finances,” she said. “They don’t ask any questions. They don’t want to know.”

For his part, Smith acknowledged that he was more focused at the outset of his career on enjoying himself than in raising his financial game.

“You’re young,” he said. “You want to show off a little bit.”

That’s the first mistake a newly rich person can make, Anakwenze said. Rather than strutting your stuff, it’s important from the get-go to take your finances seriously and to understand how your cash is being put to use.

“I also advise segregation of services,” she said. “I’ll be your business manager, but someone else will do your taxes, and someone else will handle your investments. That way there are checks and balances.”

Another rule of thumb: Don’t be foolish.

Bernie Gudvi, a business manager whose clients include pop and rock stars, said it can be tempting for the newly rich to think they’ll hit financial home runs by investing in clubs, restaurants and similarly risky businesses.

“You’re successful at what you do, so you think that makes you smart in other areas,” said Gudvi, who is also based in LA. “That’s usually not the case.”

Scott Feinstein, another area business manager whose clients include actors and athletes, said one of the biggest challenges he faces is dealing with clients’ restlessness.

“They’re frequently bored and looking for something to do,” he said. “The combination of boredom and money is the root of all evil, as far as I’m concerned.”

By this point, you’re probably thinking, “Well, if I struck it rich, I wouldn’t be a jerk. I’d do it right.”

The reality, however, is that the rules for one-percenters apply to the other 99 percent as well — meaning these are things you already should be doing:

Be hands-on with your finances. Make sure your money is being put to the best use in financial markets, and revisit your portfolio annually.

Do your homework. If you don’t know the answer to a question, ask someone who does.

Don’t take on more risk than you can handle.

Plan for the future. That means saving a portion of your income.

Each of the business managers I spoke with said the most important task they face is educating clients about responsible cash management. Some clients get it, they said. Others end up broke as soon as the well runs dry.

Smith gets it – at least now.

“This is a business,” he said. “It’s all about longevity.”

The biggest lesson he’s learned?

Smith didn’t hesitate. Pay attention to your money, he said.

“And don’t trust anyone.”

David Lazarus, a Los Angeles Times columnist, writes on consumer issues. He can be reached at david.lazaruslatimes.com.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.