Mr Ponzi with Fraud Scheme Is Knocking: Investors Who May Open

Abstract

Investors’ confidence is often abused by individuals who take advantage of investors on the financial market through fraudulent investment schemes. This article analyses factors that expose investors to Ponzi schemes. This study adopts a logistic regression model to assess the chances of investors falling prey to fraudulent investment schemes. This relationship is hypothesized as a function of affinity and trust, risk appetite, investment knowledge, understanding of Ponzi scheme, awareness of failed investment company, and demographic factors. The article reveals that affinity and trust, investment knowledge, awareness of investment company failure, understanding of Ponzi and educational level significantly affect the chances of an investor being victim or a non-victim of a Ponzi scheme. Demographic factors exhibit the expected relationship although not significant. The investment market can in no way be free of Ponzi schemes. Regulators of financial markets would have to intensify education of investors on how to identify and avoid Ponzi schemes. By analysing investors’ Ponzi victimization factors, this article adds to our empirical understanding of the factors that tend to put investors at risk of falling prey to Ponzi schemes.