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Ponzi Schemes and the Financial Sector: DMG and DRFE in Colombia

Author

Listed:
  • Marc Hofstetter
  • Daniel Mejía
  • José Nicolás Rosas
  • Miguel Urrutia

Abstract

By the time the Colombian government closed DMG and DRFE, two Ponzi schemes that were operating in Colombia until 2008, over half a million customers had deposited funds corresponding to 1.2% of Colombia’s annual GDP. We show that the individuals who invested in DMG and DRFE obtained close to 40% more loans in the formal financial sector prior to the government closing these firms, compared to similar individuals who did not invest in these pyramids. Moreover, deposits in the formal financial sector fell in those municipalities affected by these two pyramids: a one-standard deviation increase in the municipal presence of the pyramid schemes reduced municipal saving deposits by 2.9% and Certificate Deposits by close to 10%. After the firms were shut down, the proportion of nonperforming loans of investors rose 35% above non-investors’ loans; two years later, investors’ deposits had not yet fully recovered.

Suggested Citation

  • Marc Hofstetter & Daniel Mejía & José Nicolás Rosas & Miguel Urrutia, 2017. "Ponzi Schemes and the Financial Sector: DMG and DRFE in Colombia," Documentos CEDE 15609, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:015609
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    1. Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.
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    Cited by:

    1. Lars Hornuf & Paul P. Momtaz & Rachel J. Nam & Ye Yuan, 2023. "Cybercrime on the Ethereum Blockchain," CESifo Working Paper Series 10598, CESifo.
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    3. Hofstetter, Marc & Mejía, Daniel & Rosas, José Nicolás & Urrutia, Miguel, 2018. "Ponzi schemes and the financial sector: DMG and DRFE in Colombia," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 18-33.
    4. Shuyu Zhang & Dunli Zhang & Jianming Zheng & Walter Aerts & Dandan Xu, 2023. "Plus Token and investor searching behaviour – A cryptocurrency Ponzi scheme," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4713-4728, December.

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    More about this item

    Keywords

    Ponzi Schemes; Pyramids; Colombia; Financial Sector; Savings and Loans; Loan Ratings.;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E - Macroeconomics and Monetary Economics
    • G - Financial Economics

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