Investing in people: The role of social networks in the diffusion of a large-scale fraud

•The study applies social network analysis in the context of a Ponzi scheme.•It draws on diffusion theory to analyze the spread through a network of investors.•The fraudsters were successful in convincing multiple others to spread the fraud.•Interpersonal ties were key in maintaining the fraud over a period of five years.

This paper draws from social network analysis and diffusion theory to study the case of a mortgage fraud that spread undetected for five years in British Columbia, Canada. The fraud is studied from the point of view of 559 victims who unknowingly invested in the Ponzi scheme which defrauded 2285 investors for a total of $ 240 million dollars. Results show diffusion played a role in the success of the Eron fraud even though the fraud ended before it reached the final stages of a classic diffusion process. A closer look at the social structure of the Eron network revealed the elements that made the fraud successful: (1) change agents, particularly Eron principals and Eron employees invested their personal time and effort recruiting investors; (2) independent brokers actively spread the fraud to their clients; and (3) opinion leaders, investors themselves, unknowingly spread the fraud through their social networks by recruiting their friends and family to invest in Eron.