Fraud does serious damage to investors – beyond monetary losses

A Finra survey points to health, marital and trust problems resulting from financial scams

Mar 9, 2015 @ 12:02 pm

By Srividya Kalyanaraman

Financial fraud causes far more damage than just the dollars missing from an investor's portfolio.

Many fraud victims experience a one-two punch, the second being emotional distress, such as anxiety and depression. Nearly 65% of investors taken for a ride report such stress, according to new survey findings from the Financial Industry Regulatory Authority Inc.'s Investor Education Foundation.

"Fraud's effects linger and cause distress well after the scam is over,” Finra Foundation President Gerri Walsh said in a statement. “For the first time, we have data on the deep toll that fraud exerts on its victims, and the results are sobering.”

Finra's research director, Gary Mottola, pointed to survey results that highlight the severity of some reactions to monetary loss.

“About 20% of fraud victims reported separation and divorce due to financial troubles, and the amount of emotional impact is proportional to the monetary loss," he said.

Fraud costs victims about $40 billion-$50 billion every year, according to a 2012 study by Stanford Financial Fraud Research Center and Finra. This includes indirect financial costs like lost wages, legal fees and opportunity costs as well as nonfinancial impacts, including lost personal time, stress and anxiety.

The new Finra survey titled “Nonfinancial costs of financial fraud” found that about 38% of people scammed over finances have difficulty sleeping, 24% face health problems and 9% go bankrupt as a result of the scam.

Nearly half of victims blame themselves when they get tied up in fraud. Worse yet for advisers constantly battling for prospects' trust, 61% of respondents to Finra's survey said they were duped because they were too trusting.

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