Scammed and Scarred: Effects of Investment Fraud on its Victims

Abstract

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.