A Reflection on the Preventive Measures Against Damages of Unlawful Fund Raising -With a Focus on the Deterrence Theory-

Abstract

Purpose: The economic crimes targeting an unspecified majority are beyond imagination in terms of economic development and the extent of their damages incurred. Among the typical examples is the crime of unlawful fund raising. Despite the continuous crackdowns and punishments at the pan-government level, it threatens the economy of the commoners. The most unlawful fund raising companies are not subject to financial supervision, yet promise to pay a fixed interest rate or high dividends several dozen times larger than the financial institutions as a bait of high returns. However, there is no source of income, and it is just a ‘Ponzi scheme’ which preserves the profits of existing investors with the investment of new investors. This is a method through which the unlawful fund raising companies guarantee the principal and interest from an unspecified number of people without authorization, permission, registration, or reporting. Furthermore, defrauding multi-level investment by paying referral allowances or commissions when introducing sub-investors is a typical behavior of the unlawful fund raising crimes.

Method: This study reviews previous studies through the literature study, and examines the actual situation via the empirical studies along with theoretical review of unlawful fund raising act, which is deceived by high returns, and deceptive behavior through multi-stage investment.

Results: This study based on the gravity of the crime of unlawful fund raising, the latest trends in the crime types including the impersonation of financial companies and virtual currencies are analyzed. Sanctions against those who engage in an unlawful fund raising act should be strengthened, and good traders should be protected.

Conclusion: Furthermore, the gravity of punishment in the deterrence theory for the crime prevention is presented as a theoretical grounds. As a measure to prevent damages, it is necessary to raise the criminal punishment, and introduce punitive damages and a special judicial police officer system.

Keywords: Unlawful Fund Raising, Financial Crime, Investment Fraud, Deterrence Theory, Ponzi Scheme

---