The consequences of investment fraud for its victims

Abstract:

Victims of investment fraud can experience adverse effects that go beyond the wealth transfer to the perpetrators. We study these consequences of investment scams using information on thousands of Ponzi scheme victims combined with register data on the entire Finnish population. The victims  earn 5% less income and are more likely to lose their job and be absent from work relative to a tightly matched control group after the scheme collapses. This decline leads to a long-term cumulative income loss that exceeds the average direct investment loss. Victims also experience an increase in indebtedness and divorces, and they shun away from investments delegated to asset managers. Our results are relevant for understanding the consequences of financial fraud and misconduct and the benefits of consumer financial protection.