According to a new study recently published in The Review of Financial Studies, the Bernie Madoff Ponzi Scam not only bilked over 10,000 investors of billions of dollars, but it also caused many in the investing public to stop trusting the financial industry. The study is called Trust Busting: The Effect of Fraud on Investor Behavior.
Researchers were able to track the impact of the Madoff fraud outside of the investors who were directly impacted because Madoff, who is Jewish, worked primarily with rich, older Jewish investors. Assistant Professor of Applied Economics and Management at Cornell Scott Yonker, who is a co-author of the study, describes the Madoff Ponzi Scam as an affinity scam in that it targeted investors who had similar backgrounds. That said, his victims included retail investors, wealthy investors, famous investors, celebrities, and various entities and financial funds.
The study found that once the Madoff Ponzi scheme became public knowledge, investors who either personally knew his victims or lived in the areas where his victims lived withdrew $363B from their financial advisers and placed their funds in banks instead—that’s almost 20 times more than the $17B that Madoff has been ordered to pay in restitution to his investors.