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. 2021 Mar 3;23(3):300.
doi: 10.3390/e23030300.

Predicting Fraud Victimization Using Classical Machine Learning

Mark Lokanan  1 , Susan Liu  1
Affiliations
Free PMC article

Predicting Fraud Victimization Using Classical Machine Learning

Mark Lokanan et al. Entropy (Basel). .
Free PMC article

Abstract

Protecting financial consumers from investment fraud has been a recurring problem in Canada. The purpose of this paper is to predict the demographic characteristics of investors who are likely to be victims of investment fraud. Data for this paper came from the Investment Industry Regulatory Organization of Canada's (IIROC) database between January of 2009 and December of 2019. In total, 4575 investors were coded as victims of investment fraud. The study employed a machine-learning algorithm to predict the probability of fraud victimization. The machine learning model deployed in this paper predicted the typical demographic profile of fraud victims as investors who classify as female, have poor financial knowledge, know the advisor from the past, and are retired. Investors who are characterized as having limited financial literacy but a long-time relationship with their advisor have reduced probabilities of being victimized. However, male investors with low or moderate-level investment knowledge were more likely to be preyed upon by their investment advisors. While not statistically significant, older adults, in general, are at greater risk of being victimized. The findings from this paper can be used by Canadian self-regulatory organizations and securities commissions to inform their investors' protection mandates.

Keywords: consumers; fraud prediction; investment fraud; machine learning; self-regulation; victims.

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Conflict of interest statement

The authors declare no conflict of interest.

Figures

Figure 1
Figure 1
SVM Hyperplanes.
Figure 2
Figure 2
Descriptive Statistics.
Figure 3
Figure 3
Probability of Fraud Victimization.
Figure 4
Figure 4
Confusion Matrix of Fraud Victimization Model.
Figure 5
Figure 5
Model Accuracy and Classification.
Figure 6
Figure 6
ROC Curve of Financial Exploitation.
See this image and copyright information in PMC

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