Who Gets Swindled in Ponzi Schemes?

35 Pages Posted: 29 Mar 2015  

Stephen Deason

Emory University

Shivaram Rajgopal

Columbia Business School

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: March 28, 2015

Abstract

Extant knowledge of Ponzi schemes in the accounting and finance literature is mainly anecdotal. The consequence of this is that it is difficult to know what, if anything, can be done to deter these frauds. We seek to fill part of our knowledge gap about Ponzi schemes by providing large-scale evidence based on a sample of 376 Ponzi schemes prosecuted by the SEC between 1988 and 2012. Our evidence indicates that the majority of SEC-prosecuted schemes involve sums that are much lower than those in the highly visible frauds perpetrated by Bernard Madoff and Allen Stanford. The mean duration of Ponzi schemes in our sample is about four years and these schemes have a mean (median) average per-investor investment of around $431,700 ($87,800). Ponzi schemes are more likely to occur in U.S. states where the citizenry is inherently more trusting. The ex post success of a Ponzi scheme (as measured by duration, total amount invested, or the percentage cut to perpetrators) tends to be greater when an affinity link is present, the elderly are targeted, and whether the perpetrator provides financial incentives to third-parties to recruit victims into the scheme.

Keywords: Ponzi scheme, fraud, social ties

JEL Classification: G18, K42

Suggested Citation

Deason, Stephen and Rajgopal, Shivaram and Waymire, Gregory B., Who Gets Swindled in Ponzi Schemes? (March 28, 2015). Available at SSRN: https://ssrn.com/abstract=2586490 or http://dx.doi.org/10.2139/ssrn.2586490

Stephen Deason

Emory University ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Gregory B. Waymire (Contact Author)

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)

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