The Fallout from Financial Fraud
Posted by Mark on January 17, 2017 at 06:37 | Last modified: October 26, 2016 14:34I’ve done a lot of posting in this blog about things in finance that are not what they seem. At worst, we’re talking about a criminal act of fraud. Today I’m going to talk a bit about why we should care.
Taking steps to avoid falling prey to fraud may seem obvious to some. Without thinking too much about it, people may indicate a desire to avoid being taken advantage of, to avoid being robbed, or to avoid a bruised ego (pride).
Because of my background in psychology, I took particular interest in a 2015 research report issued by the FINRA Investor Education Foundation called “Non-Traditional Costs of Financial Fraud.” In case anyone doubts this is a big deal, the Stanford Financial Fraud Research Center estimates $50 billion is lost to financial fraud every year.
Data for the report was collected through an online survey administered in August 2014. Six hundred self-reported fraud victims 25 years of age or older responded to the survey:
- 65% reported significant experience of at least one psychological symptom, which included severe stress (50%), anxiety (44%), difficulty sleeping (38%), and depression (35%).
- ~50% of victims blamed themselves for the loss.
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These indicate far-reaching adverse events suffered as a result of financial fraud.
The report also asked about more “traditional” costs of a financial crime:
- ~50% of fraud victims reported incurring indirect financial costs such as late fees, legal fees and bounced checks.
- ~29% of respondents reported indirect costs exceeding $1,000 as a result of the fraud
- 9% declared bankruptcy
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The report suggests psychological and financial distress may be experienced for a long time after the crime has been committed. This probably doesn’t surprise anyone upon reading it. For those who don’t read/hear about it, though, I feel we have much to do with regard to raising awareness of financial fraud.
I’ve learned a saying in my studies of finance and trading: “if something sounds too good to be true then it probably is.” To this end, a little bit of critical analysis can go a long way for prevention.
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