The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud

Stolowy, Hervé; Messner, Martin; Jeanjean, Thomas; Baker, C. Richard

doi:10.1111/1911-3846.12039

Cited by 41 publications

(25 citation statements)

References 67 publications

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“…In other cases, scam artists take advantage of affinities and social networks, which quickly generate interest in the scam by word of mouth (Baker and Faulkner, 2003;Nash et al, 2013). Affinity relationships between the scammers and their victims may also play an important role in the second step, in which operators try to garner trust (for a detailed discussion of the construction of trust in the Madoff Ponzi scheme see Stolowy et al, 2014). In this phase scam artists may hijack trusted brand names and misrepresent themselves as being representatives of legitimate companies.…”

Section: Financial Scamsmentioning

confidence: 99%

“…In the hedge fund industry, where the mystique of alpha returns reigns supreme, trading models are generally clouded in secrecy for fear that competitors will imitate them. Perpetrators of investment scams take advantage of this justified secrecy, using it primarily to keep investors at bay and avoid detection (Frankel, 2012;Blois, 2013;Shapiro, 2013;Stolowy et al, 2014). It has also been suggested that technological advancements have given fraudsters a greater range of vehicles and opportunities to perpetrate investment scams.…”

Section: Perpetrators Motivations and Opportunitiesmentioning

confidence: 99%

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Financial Fraud: A Literature Review

Reurink

2018

Journal of Economic Surveys

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This paper describes the empirical universe of financial fraud as it has been documented in the academic literature. Specifically, it describes the different forms of fraudulent behaviour in the context of financial market activities, the prevalence and consequences of such behaviour as identified by previous research, and the economic and market structures that scholars believe facilitate it. To structure the discussion, a conceptual distinction is made between three types of financial fraud: false financial disclosures, financial scams, and financial mis‐selling. The findings of the literature review highlight a number of recent developments that scholars think have facilitated the occurrence of financial fraud, including (1) the development of new fundamental conflicts of interest and perverse incentive structures in the financial industry; (2) an influx of unsophisticated, gullible participants in the financial marketplace; (3) the increasing complexity involved in financial market transactions as a result of rapid technological, legal, and financial innovation and an ever‐widening menu of financial products; (4) an increase in the use of justified secrecy in the form of a mystification of trading models adopted by fund managers.

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Section: Financial Scamsmentioning

confidence: 99%

Section: Perpetrators Motivations and Opportunitiesmentioning

confidence: 99%

Financial Fraud: A Literature Review

Reurink

2018

Journal of Economic Surveys

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“…Their claims will be stacked up against those of other legitimate institutions (see Richardson ). Anecdotal evidence suggests the absence of qualified audit reports, controversial analyst reports, or litigation may make it harder to convince others that acts of fraud have occurred (e.g., Stolowy et al ). Opponents of whistleblowers sometimes argue that opportunistic motives may be responsible for whistleblowing behavior.…”

Section: Theoretical Underpinningsmentioning

confidence: 99%

“…Unlike Dyck et al (), the seven cases we study are “exceptional” because of the level of public awareness (see, later in this article, the extent of press coverage) and by the availability of original statements from the seven whistleblowers (first‐ and second‐hand interviews, books). As Stolowy et al (, 360) stated about the Madoff fraud, “it is often with the help of ‘extreme cases’ (Flyvbjerg ) that we can better understand some basic mechanisms that are of general relevance but are difficult to discern in ‘average’ cases, where they appear in less visible forms. Cooper and Morgan () emphasize the potential of extreme cases to further our understanding of accounting phenomena.”…”

Section: Introductionmentioning

confidence: 99%

Building the Legitimacy of Whistleblowers: A Multi‐Case Discourse Analysis

Stolowy

Gendron

Moll

et al. 2018

Contemporary Accting Res

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Evidence suggests that society still does not view whistleblowers as wholly legitimate-despite legal protections now offered in some jurisdictions, such as the United States. Drawing on a discourse analysis (i.e., an examination of statements), we investigate the well-publicized stories of seven whistleblowers from 69 sources, including books, firstand second-hand interviews, websites, and videos. Our focus is to examine how whistleblower discourses can build legitimacy by more tightly defining the whistleblower role and demonstrating its alignment with social norms. Using whistleblower self-narratives, we identify four narrative patterns: (i) Trigger(s)-the event(s) leading to whistleblowing; (ii) Personality traits-whistleblower's morality, resourcefulness, and determination; (iii) Constraints-barriers requiring regulatory and organizational change; and (iv) Consequences-the longer term positive impact of the whistleblowing act. These patterns rely on symbolic, analogical, and metaphorical framing to allow others to better understand the role of whistleblowers and enlist their support. Exploring a data set of 1,621 press articles, we find indications that these narrative patterns resonate in the media-which provide a form of support and may be instrumental in legitimizing the whistleblower role. Grounded on these results, we develop a legitimacy construction model of the whistleblower role, that is, a representation of how role legitimacy is produced and sustained. From this model, we identify a number of important areas for future research.Construction de la légitimité des lanceurs d'alerte : une analyse de discours multi-cas RÉSUMÉ De nombreuses situations dans le domaine du public donnent à penser qu'il existe un scepticisme important à l'égard de la légitimité des lanceurs d'alertemalgré la protection juridique dont ils bénéficient maintenant dans certains pays, dont les États-Unis. A l'aide d'une analyse de discours

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“…The financial crisis, the importance of pension schemes, and the possibility to directly inform the public through social networks render the role of nonprofessional investors more active and important. Moreover, nonprofessional investors are severely hurt by investment decisions based on inaccurate financial disclosures, given that they invest their money directly or indirectly (e.g., through benefit plans or health‐care plans) in the audited companies (Silvers, ; Stolowy, Messner, Jeanjean, & Baker, ).…”

Section: Introductionmentioning

confidence: 99%

Why are auditors blamed when something goes wrong? Experimental evidence

2018

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Audit firms claim that they are used as the whipping boy when something goes wrong, either because of the public's poor knowledge of the auditing function or because financial incentives exist to blame the audit firm. An alternative explanation is that audit firms' active communication of their assurance provider role causes blaming behavior. We investigate these different explanations based on a 2 × 2 between-subjects experiment in which we manipulate financial incentives to blame the audit firm and the audit firm's communication strategy. Three weeks in advance of the experiment we administered an auditing knowledge questionnaire to the participants to include their auditing knowledge levels into our study. We find that audit firms with "deep pockets" and an active assurance provider communication strategy receive significantly higher blame, and that poor knowledge of auditing is associated with higher blame. Furthermore, when a firm uses an assurance provider communication strategy, then it receives higher blame from participants with high (relative to low) auditing knowledge.

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The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud

Cited by 41 publications

References 67 publications

Financial Fraud: A Literature Review

Financial Fraud: A Literature Review

Building the Legitimacy of Whistleblowers: A Multi‐Case Discourse Analysis

Why are auditors blamed when something goes wrong? Experimental evidence

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