New Telegraph

Ponzi: Renewed attraction for desperate Nigerians

Some Nigerians have continued to eye Ponzi schemes and wonder banks as the fastest route to escape hardship, even as they have been defrauded at different times despite regulators’ warnings. RHODA OGUNSEYE reports

Nigerians, over the years, have shown they have a high appetite for high risk, high return on investment, regardless of the lack of a business model inherent in most of their investment choices; always ever willing to rush into the next get-rich schemes. Despite depressing experience of the Mavrodi Mundial Movement (MMM) in 2016 and 2017 where investors lost about N12 billion, according to the Central Bank of Nigeria (CBN), some Nigerians are still looking out for the next Ponzi scheme to invest in.

Ponzi defined

Principal Partner, Laurel Francis & Associates, Mrs Anastasia Braimoh, while speaking during a session at the 16th Annual Business Law Conference of the Nigerian Bar Association’s Section on Business Law (NBA-SBL) held recently in Abuja, said everyone knows what a Ponzi scheme is, but the problem is identifying it. She said: “Basically a Ponzi scheme is a scam, it’s just robbing Peter to pay Paul. We all know what a Ponzi scheme is, but identifying it is the problem. “Even professors have been duped, literate people too have been duped.” Speaking on the characteristics of a ponzi scheme, she said: “First of all, it is an unregistered scheme that is not regulated; it’s illegal, but the only legality it has is that it has registered as a company with CAC. Apart from that, it’s not regulated by any regulator and that should be a red flag. “The company will give a very mouth-watering return on investment. When a company is giving you an unrealistic return, which does not tally with conventional investment, then, it’s a red flag. “The structure might be complex and they use high-sounding words. They also lure investors by making the entry amount very low.” She said it was important to note that a company could start a business legitimately and transit into illegality. “They can register with the regulators and, at some point in the operations, it becomes a oonzi scheme and, as an investor, you have to be very vigilant and aware because that is the responsibility that you have to protect your own investment,” she said.

Growing regulator’s concern

The development is already an headache for the Securities and Exchange Commission (SEC). The Director-General of the Commission, Mr. Lamido Yuguda, said that SEC would continuously collaborate and engage relevant agencies to eliminate completely all ponzi schemes operations in the capital market. Yuguda said SEC had been fighting a serious war against ponzi schemes and had been engaging and alerting Nigerians on the need to only deal with operators that are registered with the Commission. According to him, “we have their list on SEC website and we have always said that if you go to an operator or when an operator approaches you, you must confirm that he is a licensed operator with SEC. “We have our numbers on how to reach our offices in the zones and we have done a lot of sensitisation in terms of seminars and webinars, all in an effort to discourage people from going to ponzi schemes. “Unfortunately, a lot of people continue to patronise this ponzi schemes, we have had cases that have been reported to us, our enforcement department and the police unit have been on many of these cases that have been reported to us trying to resolve them.” Yuguda emphasised that it was not very difficult to identify a ponzi scheme as they usually promise unreasonably high returns just to lure people. He said: “I will like to use this opportunity to say that it is not very difficult to recognise a ponzi scheme and the people that go to ponzi scheme many of them are probably aware that there is a type of risk that they are taking, because when somebody tells you that I will pay you a 10 per cent per month on your investments, that means if you invest a million naira, every month you get 10 per cent of that, which is N100,000.00. “If you see something like this, it is probably too good to be true. Because when you compound the annual rate of return, you find out that it is way higher than any decent investments can give you. “There are people who think they can be amongst the first people to go in and probably go out before it collapses, but you may be taking a huge risk because you do not know if you are the first, may be the 1000th and could be that it is your own money that could get trapped. It is important for investors to understand the tale-tell signs of a ponzi scheme and to alert the Commission if they need some clarity.”

Collaboration

The SEC DG disclosed that the Commission had been working with other agencies of government in terms of reducing the access of ponzi schemes to the advertising platforms, the print media or electronic media i.e. radio and television. He said: “These collaborations are very important because ponzi schemes are cancers to the capital market; a lot of money has been lost and it is unacceptable to continue to have this kind of investment losses by people. “In terms of the synergies between the Commission and the law enforcement on the fight against ponzi schemes, I can say that there is very good synergy and harmony between SEC and the law enforcement agencies. “It is worthy to mention that SEC has a detachment of the Nigerian Police working directly with the Commission on capital market matters, including ponzi schemes and we have a good collaboration with the Nigerian Financial Intelligence Unit, the EFCC, especially on the fight against money laundry and ponzi schemes.” Yuguda stated that the Commission had stepped up enlightenment on ponzi schemes to ensure the message gets to the street, while also working with various states, local governments and different agencies of government, including non-governmental organisations, to make sure that the message gets to the nooks and crannies of our country “This is something that is depriving a lot of households of hard earned money. Money that could be used for a lot of other meaningful activities and needs are now surrendered to fraudsters essentially. “When they come to you trying to convince you, they actually come in the form of very honest people, giving you all sort of promises in terms of financial return but once they get your money the story begins to change,” he noted. He reiterated the Commission’s commitment to continue to strive and fulfil its mandate of protecting investors and creating an enabling environment for market operations.

Quasi legal scheme

The Commission is also worried over unregistered investments crowdfunding platforms. It said it was concerned that despite warnings, some investors were still patronising unregistered investments crowdfunding platforms, warning investors against the activity. Crowdfunding is the process of raising funds to finance a project or business from the public through an online platform. Crowdfunding portal is a website, portal, intermediary portal, application, or other similar module that facilitates interaction between fundraisers and the investing public.

In a circular released August 3, 2022, SEC stated that it had observed with concern the fraudulent activities of some unregistered investment crowdfunding platforms and hereby strongly advise the investing public against making investment(s) with or through any crowdfunding platform not registered with the Commission.

The Commission stated that in recognition of the potential and importance of crowdfunding platforms and the need to protect investors through effective regulation, it had in January 2021 published its crowdfunding rules and requested well-intending crowdfunding platforms to register with the Commission and comply with the Rules by June 30, 2021. According to the circular, “the Commission by this circular hereby notifies the general public and operators of unregistered crowdfunding platforms, that operating any crowdfunding platform that is not registered by the Commission is illegal and may lead to prosecution of such operators and loss of investment by their clients. “Members of the public are further advised to confirm the registration status of any entity soliciting their participation in any investment scheme by contacting the Commission through its website: sec.gov.ng, e-mail: sec@sec. gov.ng, telephone no: 09-4621168.” The Commission had, in the recently released rules on Crowdfunding, said: “A proposed rule has been developed to provide a regulatory framework permitting private companies with the required structure and mechanism in place to raise capital from the public through crowdfunding.” It noted that micro, small and medium enterprises (MSMEs) incorporated as a company in Nigeria with a minimum of two-years operating track record should be eligible to raise funds through a crowdfunding portal registered by the commission. According to the Commission, total fees payable to parties to a crowdfunding issue shall not exceed two per cent of the total funds raised. The Commission noted that the maximum amount, which might be raised by a medium enterprise, shall not exceed N100 million. “The maximum amount, which may be raised by a small enterprise shall not exceed N70 million and the maximum amount, which may be raised by a micro enterprise shall not exceed N50 million. “The limits set forth above shall not apply to MSMEs operating as digital commodities investment platforms or such other MSMEs as may be designated by the Commission from time to time,” it said.

Last line

The Commission explained that retail investors might not invest more than 10 per cent of their annual income in a calendar year.

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