The Economics of Financial Scams: Evidence from Initial Coin Offerings

We examine the economics of financial scams by analyzing the market for initial coin offerings (ICOs). Using data snapshots of 5,873 ICOs, we find that irregularities in ICO characteristics across listing websites predict higher scam risk. These patterns are consistent with a framework where malicious issuers maximize profits by using irregularities to screen for naïve investors. Almost half of the ICOs in our sample may be scams, amounting to more than U.S. $6 billion in losses. Our results draw attention to the frequent use of screening mechanisms in financial scams.

Keywords: Financial scams, Economics of crime, Forensic finance, Cryptocurrency

JEL Classification: D40, D84, G12, G14

Suggested Citation: Suggested Citation

Phua, Jing Wen Kenny and Sang, Bo and Wei, Chishen and Yu, Gloria Yang, The Economics of Financial Scams: Evidence from Initial Coin Offerings (March 23, 2022). Available at SSRN: https://ssrn.com/abstract=4064453 or http://dx.doi.org/10.2139/ssrn.4064453