Madoff Scandal Lost Industry $363 Billion
Bernie Madoff’s Ponzi scheme resulted in a $363 billion “exodus” from investment funds since his 2009 conviction, reveals new research from Cornell University cited by Business Insider. But financial planners were hurt the least, according to the study.
Following revelations of the scheme, which included Madoff falsifying returns and customer account statements, people who knew Madoff’s victims or resided in areas where his victims were concentrated began pulling money from investment firms, the researchers found.
The researchers identified more than 10,000 Madoff victims through court documents and found that loss of trust in investment services spread most heavily in areas most hurt by Madoff’s fraud, Business Insider writes. The withdrawals were so high in some areas that investment companies went out of business as a result, according to a statement from Scott Yonker, an assistant professor at Cornell and coauthor of the report, cited by Business Insider.
Investment firms that had clients in these concentrated areas were 40% more likely to go out of business than companies in a control group, according to the report.
The impetus to put money somewhere safer — most of it went into banks — was largely driven by trust, or lack thereof, Business Insider writes. And that worked in the favor of some financial advisors.
“Advisers who provided services that can build trust, such as financial planning advice, experienced fewer withdrawals,” the study said, according to Business Insider. “Taken together, our results show that trust plays a critical role in the financial intermediation industry.”