Investment Fraud Research Articles

Does robo-advisory help reduce the likelihood of carrying a credit card debt? Evidence from an instrumental variable approach

The rapid increase in consumer credit card debt has been a major concern in the United States. The emerging robo-advisory, which allows fraud detection and credit spending planning, has shown to be a potential preventive measure for credit card indebtedness. Thus, the present study examines the causal effect of robo-advisory usage on the likelihood of carrying a credit card debt. Instrumental variable regression is carried out on a sample (n = 1762) extracted from the 2015 National Financial Capability Study (NFCS) Investor Survey and State-by-State Survey. Although the present study cannot establish a causal relationship between robo-advisory and carrying a credit card debt, this study shows that fear of investment fraud can be a suitable instrument variable for examining this relationship in future research. Results are robust after controlling for an individual’s demographic factors and variables related to financial literacy that may affect credit card use.

A study on discrete Ponzi Scheme model through Sturm-Liouville theory

In this paper, we introduce a second order self-adjoint difference equation which describes the dynamics of Ponzi schemes: a type of investment fraud that promises more than it can deliver. We use ...

Financial Literacy Overconfidence and Investment Fraud Victimization

Financial Literacy Overconfidence and Investment Fraud Victimization

Scammed and scarred: Effects of investment fraud on its victims

We study the effects of investment-fraud victimization using information on thousands of Ponzi scheme participants combined with register data on the Finnish population. A difference-in-differences analysis reveals the victims earn 5% less income after the scheme collapses. This persistent loss arises from a combination of unemployment, absenteeism, mobility, and labor force exit, and its long-run value exceeds the direct investment loss. Victims also experience higher indebtedness and more divorces and shy away from investments delegated to asset managers. These scars from fraud victimization add to the social cost of fraud and are relevant for optimal regulatory design.

The demographic profile of victims of investment fraud: an update

PurposeThis study aims to examine the demographic factors of investors, contributing to financial victimization that occurs in Canada from June of 2008 to December of 2019.Design/methodology/approachIn all 235 cases disclosing the details of financial crime victims are collected from the Industry Regulatory Organization of Canada (IIROC) enforcement platform between June of 2009 and December of 2019 for the analysis. The study used a descriptive analysis to showcase the demographic characteristics of investors who have been victims of financial crimes in Canada.FindingsThe findings indicate that these investors of age 60 and above were more likely to fall prey to various types of financial crime. The results also disclosed that retirees and investors with limited investment knowledge increase the probability of being vulnerable to the perpetrators than others.Research limitations/implicationsOverall, the study helps regulators in the securities industry gain insights into demographic portraits of the more vulnerable investors. Hence, more precautionary measures could pitch into these concerns to protect specific subsets of investors from investment fraud.Originality/valueIndividuals who are more vulnerable to investment fraud might not be entirely comparable with the stereotypical victims that most studies portray. The research gap could cause individual investors who appear to be at lower risk to unconsciously fall prey to investment fraud. The IIROC study, detailing the demographic factors of victims, can fill the gap and improve understanding of the tendency of victims.

Speculative bubbles under supply constraints, background risk and investment fraud in the art market

We examine the unexplored effects on art markets of artist death (asset supply constraints), collectors' wealth (background risk) and forgery risk (risk of investment fraud), under short-sale constraints and risk aversion. Speculative bubbles emerge and have the form of an option strangle (a put option and a call option), in which strike prices are affected by art supply constraints and the association of the artworks' emotional value with both collectors' wealth and forgery, while the options' underlying asset is the stochastic heterogeneous beliefs of agents. We show that speculative bubbles increase with four elements: art supply constraints; a more negative correlation between collectors' wealth and the artworks' emotional value; a more positive relationship between forgery and the artworks' emotional value; and more heterogeneous beliefs. These four sources of speculation increase the expected turnover rate; however, they also augment the variance of speculative bubbles, which generates price discounts (i.e. risk premiums) for holding artworks. Consequently, the net impact of speculation is not necessarily increased art prices. This study not only contributes to the art market literature, but also to studies about speculative bubbles in other financial markets under heterogeneous beliefs, short-sale constraints and risk-averse investors, since we additionally consider the simultaneous effect of asset supply constraints, investors' background risk and the risk of investment fraud.

GOOD CORPORATE GOVERNANCE IMPLEMENTATION AS A PERFORMANCE AND COMPANY VALUE

Good corporate governance or commonly called as GCG can be said as a tool for control of corporate decision making that is fair and accountable. So that the decision taken by the company management has considered all interested parties such as shareholders, board of commissioners, board of directors in their efforts to improve the performance and value of the company while also considering other stakeholders. Understanding GCG does not have the same definition but has almost the same spirit and values. The emphasis of GCG is on the necessity of a commitment to apply the rules of the game and to conduct business in a healthy and ethical manner. At present, where information disclosure and advancement of knowledge in all fields are advancing rapidly, encouraging capital owners and company managers to innovate and be creative in conducting their business. This condition 'forces' the company to compete as a winner in getting the maximum profit and sometimes causes problems both within the company and outside the company. A good GCG implementation will suppress problems that might arise such as bribery, corruption, investment fraud, embezzlement of funds, abuse of authority, environmental pollution, etc.

Sir Allen Stanford: inmate # 35017-183; a case study of a Ponzi scheme and its aftermath

Research methodology This case involves a real-life Ponzi scheme perpetrated by Sir Allen Stanford, a man who bribed Antiguan regulators and a certified public accountant firm to perpetuate his scam. The case includes the process of making victims whole, which involves a court-initiated clawback process: taking back payouts to investors or charities to redistribute the funds to other fraud victims who did not receive their fair payout. Students apply theory learned in an upper-level fraud or forensic accounting course. Finally, the case addresses the aftermath of a fraud scheme. Case overview/synopsis Ponzi schemes – one of the most common types of investment fraud – have caused investors to lose billions of dollars. Because of the prevalence of Ponzi schemes and the ramifications to investors, it is important for business students to understand the nature of these schemes and to learn how to recognize them. As future business professionals, students will be charged with recognizing a Ponzi scheme early and uncovering it before investors lose their investments. Complexity academic level This case is designed for upper-level undergraduate students or graduate students taking a fraud or forensic accounting course, which is best introduced after professors cover Ponzi schemes and also these concepts: fraud triangle, fraud diamond and fraud red flags.

EXPLORING FACTORS THAT PERSUADE YOUTH INVOLVEMENT IN MONEY GAME

ABSTRACT Most of the youths may have the mentality of getting rich in an abbreviated period. People with this mentality are more easily to be attracted to involve in an illegal investment scheme such as money game. Money game can be known as a get-rich-quick scheme, pyramid investment scheme or Ponzi scheme. It is well informed that the money game is a fraud. However, there are still many people who are attracted to join them. Therefore, the purpose of this research is to explore the factors that persuade youth to involve themselves in the money game. The data for this research obtained through semi-structured interview using non-probability sampling as the sampling technique where subjects that selected were based on the convenient of accessibility and proximity of the researchers. The informants of this research were the victims of the money game schemes and the range of the age is between 18 to 35 years old regardless of any races and gender. This research found that peers play a significant role in the decision-making process as they are one of the most people had spent more time and having an intense relationship other than family. Besides, they decided to join the money game also because they are having a challenging situation where they really need money to survive and to sustain their life. They believed that by joining the money game, it able to solve their financial issue. Low salary also one of the factors that forced the youths to join the money game. Low salary made them suffer to cover their expenses. The implication of this research shows that many of the youths were lacking in the financial literacy which makes the youths easily to fall into investment fraud. Keywords: youth, money game, persuasive communication, financial literacy, fraud

The application of scam compliance models to investment fraud offending

PurposeThe purpose of this paper is to undertake an exploratory study on mapping the investment fraud methods and tactics used by scammers against the emerging literature on scam compliance.Design/methodology/approachQualitative interviews were conducted with victims of investment fraud supported by the engagement of specialist counsellors and allied health professionals who specialise in scam victim support (including investment fraud).FindingsInvestment fraud offending in the cases sampled exhibited a number of dominant offending traits and methodological themes. These included a strong reliance or dependency on legitimate service provisioning on the part of the fraudster and the use of key trust measures to lure the victim. The empirical data revealed the presence of a number of scam compliance influences captured in the literature, including trust, social influence and urgency, as well as others not previously documented that pave the way for further research attention.Research limitations/implicationsThe research only examined a sample of investment fraud victim experiences that engaged a national victim support service immediately following detection over a 24 month period.Practical implicationsThe research found that offending relied upon the participation of trust-building signals and measures. Legitimate economy participants appear to play a dominant role in enabling investment scam activities, further creating efficiencies for criminals. The offending tended to follow a number of distinct but connected phases. Impacts were influenced by specific offending attributes, such as whether remote access was given to offenders of a victim’s device, as well as the nature of the identity credentials access.Originality/valueThe research has practically applied an emerging view of scam compliance influences and vulnerabilities within an investment fraud context. The study is novel in its thematic analysis of the distinct phases and tactics used by scammers.

Older and wiser: age differences in susceptibility to investment fraud: the protective role of emotional intelligence

ABSTRACT There have been inconsistent results regarding whether older adults are more vulnerable to fraud than younger adults. The two main goals of this study were to investigate the claim that there is an age-related vulnerability to fraud and to examine whether emotional intelligence (EI) may be associated with fraud susceptibility. Participants (N = 281; 18–82 years; M = 53.4) were recruited via Amazon’s Mechanical Turk and completed measures of EI, decision-making, and scam susceptibility. Participants who scored higher on “ability” EI were less susceptible to scams. The “younger” group (M = 2.50, SD = 1.06) was more susceptible to scams than the “older” group, p <.001, d = 0.56, while the “older” group (M = 4.64, SD = 1.52) reported the scams as being more risky than the “younger” group, p =.002, d = 0.37. “Older” participants were more sensitive to risk, less susceptible to persuasion, and had higher than average emotional understanding. Emotional understanding was found to be a partial mediator for age-related differences in scam susceptibility and susceptibility to persuasion.

Fraud against hedge funds: implications to operational risk and due diligence

PurposeThe loss of an amount in excess of $100m cash deposit can be disruptive to the operations, definitely the liquidity of the hedge fund. Should a hedge fund liquidity position deteriorate, its compromised solvency could impact its vendors, most notably creditors and prime brokers. Large successful hedge funds do make basic mistakes. Lawyer Marc Dreier committed the criminal act of selling fraudulent promissory notes to hedge funds and others. Mr Drier’s success in selling fraudulent promissory notes was facilitated by his accomplices who posed as fake representatives of legitimate institutions. Drier and team presented bogus “audited financial statements” and forged developer’s signatures, and even went as far as using the unsuspecting institutions’ premises for meetings to meet potential notes buyers to further falsely legitimize the scheme. He had the notes buyers send their payments to his law firm account, to secure the money. His actions cost his victims, who include 13 hedge fund managers, other investors and entities, $400m in addition to his law firm’s employees who also suffered when his law firm was dissolved. For his actions, he was sentenced 20 years in federal prison for investment fraud. This study aims to direct hedge fund investors and other stakeholders to thoroughly vet the compliance function, especially controls on cash disbursements, even if the hedge fund is sizable (in excess of $1bn). Investors and even other stakeholders also should place a greater focus on what is usually overlooked issue; most notably the credit quality and authenticity of short-term investments bought by their hedge funds.Design/methodology/approachA thorough investigation of a fraud committed by a lawyer against a number of hedge funds. Several important lessons are identified to professionals who conduct due diligence on hedge funds.FindingsThe details of the case are very remarkable. This case directs investors’ attention to place greater efforts on certain aspects of operational risk and due diligence on not only hedge funds but also other investment managers. Normally investors conduct operational due diligence on the fund and its operations. Investors also vet fund external parties such as prime brokers, custodians, accountants and fund administrators. Yet, investors normally do not suspect the quality of short-term fund investments. In this case, the short-terms investments were the source of unforeseen yet substantial risk.Research limitations/implicationsStakeholders in hedge funds need to carefully investigate the issuer of and the quality of short-term investments that a hedge fund invests in. Future research can investigate the association of hedge fund manager failure with a liquidity position of the fund.Practical implicationsInvestors must thoroughly the entirety of the fund including short-term securities.Originality/valueNormally, it is the hedge funds that commit the fraud against investors. In this case, it is the multi-billion hedge funds run by sophisticated fund managers, who are the victims.

Robo-advisors: A substitute for human financial advice?

Using representative US investor data, we investigate whether automated financial advisors, also referred to as robo-advisors, reduce investors’ demand for human financial advice offered by financial service providers. Our results provide a strong negative relationship between using robo-advisors and seeking human financial advice. We show that the substitution effect of robo-advisors is especially driven by investors who fear to be victimized by investment fraud. Our findings suggest that robo-advisors seem to offer a valid alternative for seeking investment advice, especially among those investors who worry about potential conflicts of interest that appear in the context of human financial advice.

What makes the base of the pyramid susceptible to investment fraud

PurposeDubious investment schemes by unlisted companies are alluring individual investors at the base of the pyramid to invest money and lose them. The purpose of the abstract is to identify the factors that induce the people at base-of-pyramid (BoP) to invest in fraudulent schemes.Design/methodology/approachOpen-ended interviews of people at the BoP from areas in and around Kharagpur town in West Bengal were conducted. Through open coding, codes, categories and themes were generated.FindingsInterpersonal trusts form the central feature of investment fraud. The personal relationship among the community members helps these schemes thrive. False hopes of higher returns within a short span combined with constraints of accessing banking services is another motivation for the people at the base of the pyramid to fall prey to these schemes. With limited education, they find these investment avenues convenient providing scope to the perpetrators of fraud to exploit them. To curb these dubious schemes to flourish and exploit the people at the BoP, financial inclusion on a large scale is required. Moreover, the government should take steps to educate the mass at the base of the pyramid.Originality/valueThis study offers new insights on the victims of investment fraud in India those belonging to the economically weak groups and lower income groups comprising together as the BoP) of the society.

PERAN GALERI INVESTASI SYARIAH BURSA EFEK INDONESIA (GIS BEI) IAIN BENGKULU DALAM MENINGKATKAN LITERASI PASAR MODAL (Studi Kasus Masyarakat Sumur Dewa Air Sebakul)

The purpose of this study was to find out how the role of the Indonesian Stock Exchange Islamic Investment Gallery (GIS BEI) IAIN Bengkulu Gallery in improving Capital Market literacy in the Community thus encouraging an increase in fraudulent investment fraud. This study uses descriptive qualitative methods. The data used are primary data and secondary data. Data collection techniques used were interviews, observation, and documentation in accordance with the problems studied, and data analysis techniques using the Miles and Huberman models. The results of this study reveal that the IDX Investment Gallery concept of 3 in 1 which is a collaboration between the IDX, Universities and Securities Companies is expected not only to introduce the Capital Market from the theoretical side but also the practice. The existence of the IDX Investment Gallery is expected to provide mutual benefits to all parties so that the dissemination of capital market information is on target and can provide optimal benefits for students, economic practitioners, investors, capital market observers and the general public in the surrounding areas both for socialization and education purposes / capital market education as well as for economic interests or investment alternatives to avoid fraudulent investment fraud.

Collective action and UK wine investment fraud

PurposeThe purpose of this paper is to examine the measures taken by legitimate wine investment companies and enforcement agencies to counter alternative investment scams.Design/methodology/approachThe authors interviewed wine industry and law enforcement specialists to understand the nature of wine investment fraud and the characteristics of the victims. They also drew on secondary data in the form of government agency research and media sources.FindingsThe majority of wine investment frauds are boiler room operations, using social engineering techniques to draw victims into the fraud. The authors conclude that countering wine investment fraud requires public education by government, the wine industry and the police.Research limitations/implicationsThis is a small-scale study that uses interviews with experts in the industry and in law enforcement and secondary data as evidence. Despite the limitations in the number of interviews, the authors are able to comment on the social impacts of alternative investment scams and suggest a theoretical basis for future work in the field.Practical implicationsThe authors make a case for regulators and investors to be part of collective action through education and public awareness campaigns to combat alternative investment fraud.Originality/valueThe authors outline how collective action theory might be extended to investigate fraud prevention measures in other financial and commodity markets.

INVESTASI TABUNGAN DI BANK SYARIAH DALAM PRESPEKTIF HUKUM EKONOMI SYARIAH

Investment is a commitment to the activities undertaken by a person or legal entity, to set aside a portion of his income in order to be used to conduct a business with the hope at a certain time will get the results (profit). The rise of investment fraud, and the lack of clarity on the returns to profits derived from the investment returns halal or not, require the public to be more selective in investing their wealth. This article discusses the concept of investment and savings investment in Sharia Bank with the sharia economic law perspective. Islamic banking undertakes the business of fund raising, based on Sharia Principles. One of Sharia Bank's investment products is a savings whose investment is based on wadi'ah contract and investment fund based on mudharabah contract or other contract which is not contrary to sharia principles. The regulation of savings in a Sharia Bank is regulated by Law No. 21 of 2008, and Fatwa DSN No: 02 / DSN-MUI / IV / 2000. The law of investing in Sharia Banks is permissible, because by investing in Sharia Banks slowly we can help the equity of economy and economic welfare.

Robo-Advisors: A Substitute for Human Financial Advice?

Using representative US investor data, we investigate whether automated financial advisors, also referred to as robo-advisors, reduce investors’ demand for human financial advice offered by financial service providers. Our results provide a strong negative relationship between using robo-advisors and seeking human financial advice. We show that the substitution effect of robo-advisors is especially driven by investors who fear to be victimized by investment fraud. Our findings suggest that robo-advisors seem to offer a valid alternative for seeking investment advice, especially among those investors who worry about potential conflicts of interest that appear in the context of human financial advice.

Profiling Victims of Investment Fraud: Mindsets and Risky Behaviors

Abstract Millions of Americans are targeted by investment scams, resulting in billions of dollars lost each year. Previous research indicates that investment fraud victims are more likely to be male, white, and married, and to have higher socioeconomic status compared to the general US population, but little research examines what behaviors and mindsets differentiate them from other investors. A telephone survey was administered to 214 investment fraud victims and 813 general investors recruited using random digit dialing. Based on the opportunity model of predatory victimization, the aim was to identify differences in investment behaviors and psychological mindsets that may affect exposure to investment scams and make individuals more attractive and susceptible targets. In addition to being older and male, victims were more materialistic than general investors and were more frequent stock traders, and purchased more investments sold through unsolicited calls, emails, television advertisements, or “free lunch” seminars, but were less likely to invest based on a social network member’s recommendation. As more retirees begin to take on managing their retirement assets, many may be tempted by unreasonable investment returns promised by unscrupulous brokers. Findings point to specific areas where investor education is needed to counteract poor investment decision-making and risky mindsets.

Art Market Bubbles, Limited Art Supply and Collectors' Wealth

We examine the unexplored effects on art markets of artist death (asset supply constraints), collectors' wealth (background risk) and forgery risk (risk of investment fraud), under short-sale constraints and risk aversion. Speculative bubbles emerge and have the form of an option strangle (a put option and a call option), in which strike prices are affected by art supply constraints and the association of the artworks' emotional value with both collectors' wealth and forgery, while the options' underlying asset is the stochastic heterogeneous beliefs of agents. We show that speculative bubbles increase with four elements: art supply constraints; a more negative correlation between collectors' wealth and the artworks' emotional value; a more positive relationship between forgery and the artworks' emotional value; and more heterogeneous beliefs. These four sources of speculation increase the expected turnover rate; however, they also augment the variance of speculative bubbles, which generates price discounts (i.e. risk premiums) for holding artworks. Consequently, the net impact of speculation is not necessarily increased art prices. This study not only contributes to the art market literature, but also to studies about speculative bubbles in other financial markets under heterogeneous beliefs, short-sale constraints and risk-averse investors, since we additionally consider the simultaneous effect of asset supply constraints, investors’ background risk and the risk of investment fraud.