Understanding Ponzi Schemes: Can Better Financial Regulation Prevent Investors from Being Defrauded?(New Horizons in Money and Finance series)

A Ponzi scheme is one of the simplest, albeit effective, financial frauds to engineer, and new schemes keep coming forward. Despite this, however, people continue to invest in them. How are we to account for the seemingly never-ending lure of such schemes? In providing answers to this central question, this concise and well-researched book examines how Ponzi schemes operate, how they differ from pyramid schemes, Ponzi finance and other financial arrangements.The author questions whether the victims have only themselves to blame, why fraudsters think that they can avoid detection, and what important insights behavioural finance theory and psychology can add. Particular attention is paid to the reasons behind the failure of financial regulation, and the types of regulatory changes needed to protect investors and avoid repetitions. The analysis is informed by case studies of 11 Ponzi schemes in the US, UK, Australia and New Zealand. Finance and business academics interested in the operation of Ponzi schemes, and how they differ from pyramid schemes, will find this book invaluable, as will students of economics, finance, behavioural decision-making and psychology. Lawyers, psychologists, regulatory agencies and financial institutions will also benefit considerably from the analysis.

Table of Contents:
Contents: 1. An Outline of the Book 2. How do Ponzi Schemes Work? Comparing them to Other Financial Activities 3. Charles Ponzi’s Scheme Re-examined 4. Bernard Madoff and the ‘Mother of all Ponzi Schemes’ 5. Allen Stanford: The Cricketing Impresario 6. Five Other Case Studies: From Shaking Down the FBI to Bitcoin Fraud 7. Preying on the Amish 8. What can Behavioural Finance Tell Us? 9. What Would Psychologists Say? 10. What Can be Done About Ponzi Schemes? 11. Summary and Conclusions Index

About the Author :
Mervyn K. Lewis, Emeritus Professor, University of South Australia and Emeritus Fellow, Academy of the Social Sciences in Australia

Review :
‘This book offers highly valuable information about Ponzi schemes. The writing is clear and well organized, and it is an excellent work not only for academic researchers, policy makers, and students, but it can also be valuable to general readers.’ ‘. . . more than two dozen books on Ponzi schemes have now been written, but Understanding Ponzi Schemes provides a most informative and detailed​ ​analysis of this phenomenon based on the author’s theoretical analysis and empirical case​ ​studies. . . . The subject of Lewis’s Understanding Ponzi Schemes is significant, as Ponzi schemes are a kind of investment fraud that occurs frequently around the world. . . He does a superb job of offering a systematic description of what​ ​Ponzi schemes are, how they happen, why people fall for them, how they are able to survive​ ​for long periods of time, what we can do to avoid being victims, and ways of preventing them. . . . On the whole, this book offers highly valuable information about Ponzi schemes. The writing​ ​is clear and well organized, and it is an excellent work not only for academic researchers,​ ​policy makers, and students, but it can also be valuable to general readers.’ ‘The short, well-referenced volume is an invaluable arrow in the quiver of finance scholars, regulatory agents, financial advisers, and other public policy officials. But it is also, not unlike the topic itself, an engaging, very readable look inside this fraudulent world. Summing Up: Highly recommended.’ ‘Ponzi schemes are a particularly vicious form of financial fraud, in that the overly trusting victims, who are often wiped out, typically share an affiliation with the fraudster. They are interesting, in that they share some features with legitimate financial phenomena (such as stock manias) and shed light on the human tendency towards behaving foolishly, especially when encouraged or modeled by others. In Understanding Ponzi Schemes, Mervyn Lewis has written what is probably the best and most comprehensive book on the topic. Extremely readable, this book uses both theoretical models and real-life case studies to provide readers with an answer to two questions: “How do Ponzi schemes work and why are they successful?” Lewis also provides useful answers to a third question: “What can regulators and individuals do to be protected from future incarnations of Charles Ponzi?”’