Ponzi: Proliferation as regulators’ headache

Gullible Nigerians are falling prey to the antics of Ponzi scheme/wonder bank operators, a development that has made regulators’ efforts at curbing the menace an exercise in futility, ABDULWAHAB ISA reports

They are back in numbers. They operate in disguise under various names. By Securities and Exchange Commission (SEC) conservative figure, three million Nigerians may have lost about N18 billion to wonder banks/ponzi scheme operators. Lamido Yuguda, Director-General, Securities and Exchange Commission, gave the rough estimate lost by gullible Nigerian investors to fast pace investment outlets sprouting across Nigeria. Between March 2021 when SEC boss gave total amount lost to wonder banks till date, the amount has leaped. On a daily basis, the media space is replete with stories of gullible Nigerians who fell into the trap of ponzi scheme operators and other contrived investment outlets. The victims ignore repeated warnings by finance regulatory bodies, Central Bank of Nigeria, SEC and Nigeria Deposit Insurance Corporation (NDIC) to desist from patronising ponzi schemes.

Proliferation of wonder banks

Crave for cheap, unsubstantiated income is the root cause of spiraling trend in ponzi schemes. Investment, the process of committing resources to projects for profit yielding is allowed. It’s in order as far as legitimacy of the investment is guaranteed by law. Buying shares in quoted firms, subscribing to bonds, investing in Treasury Bills etc are a form of investment. They yield interests. Return on investments in shares, bonds and TBs is moderate, but guaranteed. With Ponzi schemes or wonder banks, investors give money to a portfolio manager. Then, when they want their money back, they are paid with funds contributed by subsequent investors. With a pyramid scheme, the initial schemer recruits other investors who in turn recruit other investors and so on until the chain breaks unexpectedly in the middle. It leaves thousands of gullible investors biting their fingers. The Economic and Financial Crimes Commission (EFCC) is said to have received an average of 1,000 letters filed against Ponzi scheme operators every month in the last three years. According to a popular news medium (not New Telegraph), quoting a source in the anti-graft agency, the complaints come from the regional offices of the agency and, most times, more letters were received from rural areas across the length and breadth of the country. “We get more than 1,000 letters per month because there are thousands of victims who are ignorant of the fact that they are supposed to report such cases to EFCC. “We have found that several couples are involved in the menace. While.some of them are already in the net of the agency, others are on the run, but we are closing in on them and they will be arrested sooner than they expected,” an EFCC source was quoted by the medium. The anti-graft agency said over 1,000 Nigerians write monthly to complain about being scammed by the operators. The agency believe there could be more victims than those willing to speak up, but also, that more people could still fall victim to these shady entities that parade themselves as investment experts. Analysis by finance experts shows victims of wonder banks increase in time of economic downturn. The economy experienced a steep down due to COVID-19. In an attempt to make extra income, some Nigerians bought into investment dummies sold to them by ponzi schemes operators. They were promised mouthwatering ROIs, an abnormal return that is too good to be real. According to Wale Okunrinboye, more Nigerians fell victim to the scheme due to the state of the economy and the fact that rates on other investments are low. “Nigerians go for such schemes because they are desperate due to the state of the Nigerian economy. “Also, investment opportunities that would have been available for people are not so attractive because government has kept interest rates low. With the rising inflation, people are looking for ways to double their money. “Even at that, these are not reasons for people to fall victim to such schemes because, at the end of the day, the money that is not enough will be lost to the operators,” Okunrinboye was quoted as cautioning by Nairametrics at a recent event. Another financial analyst, Ope Dapo-Thomas, noted that the nation was witnessing a rise in the scheme because there is money out there, but people do not know where to invest. “In most cases, they would have loved to invest in other forms of investments like treasury bills, but the rates are quite low and they don’t want to get negative real returns, as inflation is higher than investors’ returns. “People are looking for where to put their money and this is the right ingredient for the operators,” he said.

Regulators’ headache

The Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC) are regulatory agencies empowered by law to regulate Nigeria’s finance and investment space. At the onset of ponzi schemes and wonder banks, the regulatory agencies speedily acted. They alerted Nigerians to be wary of fraudsters camouflaging as investment outfits. Last year, NDIC, for umpteenth time, warned bank depositors to be wary of unrealistic high returns being promised by operators. The Corporation drew public attention to the nefarious activities of wonder banks. The agency warned that most of the operators were not licensed by it and, as such, should not be patronised by customers of financial institutions. NDIC Managing Director, Bello Hassan, gave the warning in Abuja at the 16th Abuja International Trade Fair. He said people who deposited their money in insured banks and financial institutions could get a refund when the banks liquidate, adding that those that put their funds in banks that are not covered by the Corporation risked losing their deposits during liquidation process. Three years ago, SEC also alerted Nigerians to a number of illegally operated financial outfits whose services were inimical to genuine investment. Specifically, SEC, via a public notice, declared that iBSmartify Nigeria was not registered by it, warning also that products offer by the outfit were illegal. According to SEC, “the general public is hereby advised that neither the promoters of iBSmartify Nigeria nor the illegal products they offer are registered or regulated by the Commission. In view of the above, the Commission, therefore, warns the general public that any person dealing with the said entity and others in the same business in any manner whatsoever, does so at his/her own risk.” The capital market regulator had, in time past, raised the alarm over proliferation of the operation of unlawful/unlicensed investment schemes, with promises of huge, but unjustifiable returns on investment and had warned Nigerians against patronising them. These activities are perpetrated by suspected promoters of Ponzi and other fraudulent schemes under the following identities: Loom Nigeria Money, Box Value Trading Company Ltd, Now-Now Alert, Flip Cash Investment, Result Investment Nigeria Limited, Helping Hand and Investment and No Failure Development and Empowerment Nig. Ltd. Others are MBA Forex and Investment Ltd, Federate Investors Trading Company, Jamalife Helpers Global Ltd, Flexus Global Solutions and Investment Ltd, United Capital Investment Company Limited. SEC said that capital market had been properly positioned to attract Nigerians and provide benefits to Nigerians who invest therein. SEC, over time, sustained its investor education programme to assist people to understand whatever issues they have around the capital market. “But, besides that, there are new products coming up every day in the Nigerian capital market. We have a lot of ethical funds, one of the safest areas to invest in is Mutual Funds, Collective Investments Schemes and we encourage Nigerians to be part of these and others,” SEC noted. The Central Bank of Nigeria (CBN) is also not relenting in warning the public to be wary of fraudsters masquerading as investment outfits. Speaking on the danger of patronising them recently, CBN Director of Corporate Communications, Osita Nwanisiobi, gave the warning during a two-day CBN FAIR (sensitisation) programme in Umuahia, Abia State. He warned members of the public against patronising those who would ask them to deposit a certain amount of money and get a huge percentage as interest in return after just a few days of the transaction. The apex bank cautioned that any financial institution not licensed by CBN was operating illegally and prone to duping the public. It warned Nigerians to be careful of any deposit money institution not insured by NDIC.

Last line

Much as SEC, CBN and NDIC are working assiduously to tame proliferation of wonder banks in Nigeria’s finance space, gullible Nigerians, who thirst for easy wealth accumulation, are, however, a clog in the wheel of regulators’ efforts.




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