Sustaining battle against Ponzi scheme

With fraudsters still lurking around, there is need to sustain battle against activities of illegal fund managers in order to protect investors and save the market


Following the rising rate of illegal fund managers in the economy, the Securities and Exchange Commission (SEC) and other stakeholders have continued to raise the alarm as unsuspecting Nigerians keep falling victims of scam.

The line of trade of these illegal fund managers, known as Ponzi, is usually tinted with promises of high returns to investors.

What is ponzi scheme?

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organisers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.

In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.

Market development as attraction

Nigeria has made progress in capital market development. The menu of available asset classes has been expanded to include exchange traded funds, and the market infrastructure has been modernised and strengthened with the platforms for over-the-counter now established.

The Securities and Exchange Commission has undertaken a number of initiatives to boost investor confidence including the establishment of the National Investors’ Protection Fund meant to cushion the adverse effect of losses suffered in the capital market, just as the e-dividend policy was designed to minimise cases of unclaimed dividend.

Other initiatives are the Direct Cash Settlement scheme, which ensures that investors receive their money directly whenever securities are sold; the corporate governance scorecard for companies listed on the Nigerian Stock Exchange and the recapitalisation of capital market operators.

While these are encouraging developments, the country’s investment climate is beginning to witness a rise in illegal fund managers.

According to the annual report of the Nigeria Electronic Fraud Forum, which was unveiled in 2017, the Nigerian investing public lost N11.9 billion to the Mavrodi Mundial Moneybox Ponzi scheme.

Within the last few months, more illegal fund managers had adopted various strategies to collect money from would-be investors.

Some of them engage in free seminars at their offices for people to learn more about their products and the money-making business.

SEC, however, has not relented in its efforts at sealing up their premises and going further to educate and enlighten Nigerians on the dangers of such activities.

Kano example

SEC alongside officials of the Economic and Financial Crimes Commission, EFCC, have visited virtually all major newspapers and radio stations in Kano metropolis, warning innocent Nigerians of the dangers of investing in Ponzi schemes.

Their efforts seem to have paid off as out of the six notable companies that engaged in Ponzi scheme in Kano at the beginning of last year, only one remains open. They are, howeve, not open because customers are investing money, but are being besieged by people, who want to divest as a result of sustained publicity on the dangers of such patronage.

For instance, Dantata Success firm was shut down for carrying out investment operations that fall within fund management without registration with the apex regulator.

It woukd also be recalled that one other company, MGB Global, had around July this year, been sealed by the EFCC due to mounting petitions by depositors whose demands for refunds could not be met by the company.

The other four, Bitcoin company, Money Rite, No Failure Development and X-World, have closed shop due to mounting request by the populace to withdraw what was collected from them in the name of investments.

This position is a consequence of sustained enlightenment by the Securities and Exchange Commission in partnership with the Kano office of the Economic and Financial Crimes Commission.

The management of SEC said that the closure was to end unlawful activities of the companies against unsuspecting investors, therefore, urging investors to ensure that they only deal with fund managers that are registered with the commission.

It said: “The accounts of the company have been frozen; the promoters have been arrested by the Nigeria Police Force and are undergoing interrogation.

“The commission wishes to notify the investing public that the company is not licensed to carry out investments business of any type and as such its operations are illegal.

“SEC, therefore, advises the public to exercise due diligence and caution in the course of making investment decisions. The valid licences of lawful operators could be obtained on the commission’s website by members of the public to confirm the licences of firms with which they intend to carry out investment activities.”

Speaking on the activities of illegal fund managers, the acting Director-General, SEC, Ms Mary Uduk, urged Nigerians to stay away from fake financial experts, who would promise to double their money within a short time.

She said that the commission was committed to sensitising investors and protecting them from the antics of fraudsters, especially promoters of Ponzi schemes.

Uduk said: “We want to ensure that people do not fall victim to the antics of fraudsters who purport to be able to double any amount of money you make available to them as investment value.

“These fraudsters or promoters of Ponzi schemes are the false prophets of the investment environment; they are the ill wind that blows no good and at whose sight you must flee. They are to be avoided. This is one message you must take home to family, friends, relations and acquaintances in order to save them from the agony of loss of their hard-earned money.”

Also commenting on the trend, the acting Executive Commissioner, Legal and Enforcement, SEC, Mr Reginald Karawusa, said that the operations of illegal schemes in the last five years had swindled Nigerians of their hard-earned savings with promises of unrealistic returns on deposits.

This, he said, still went on despite a series of warnings by the commission to the general public against investing in such schemes.

Karawusa added that the SEC management was determined to address head-on the menace and further proliferation of Ponzi schemes in Nigeria.

Strong warning to Nigerians

Uduk had warned against unregistered schemes luring unsuspecting Nigerians with tempting returns.

Urging investors to be wary of any investment proposing a return level that was unreasonably high, Uduk advised members of the public to always ascertain whether such fund manager and the products being offered were registered with the SEC.

Uduk said that the capital market was properly positioned to provide benefits to Nigerians.

According to her, SEC has been doing a lot in terms of investor education to assist people understand issues surrounding the capital market.

She said: “This is for the all-important purpose of ensuring that the gains of your participation, be these dividends, proceeds from share sales/transfers, etc accrue to you seamlessly without sweat and in the shortest time possible.

“The purpose is also to ensure that you do not fall victim to the antics of fraudsters who purport to be able to double any amount of money you make available to them as investment value.

“These fraudsters or promoters of Ponzi schemes are the false prophets of the investment environment; they are the ill-wind that blows no good and at whose sight you must flee. They are to be avoided.

“This is one message you must keep spreading to family, friends, relations and acquaintances in order to save them from the agony of loss of their hard-earned money.

“Please note that anyone that subscribes to these illegal activities does so at their own risk.”

Uduk added that the commission had undertaken various initiatives to make the capital market more user-friendly so that people can participate in it with greater ease, comfort and convenience.

She further disclosed that the SEC was leading the entire capital market industry in an effort to migrate all shareholders to an e-dividend regime.

According to her, the essence of the e-dividend mandate management system is to eradicate or reduce the incidence of unclaimed dividends to the barest minimum.

Need to sustain awareness

The Managing Director/Chief Executive Officer, Crane Securities Limited, Mr. Mike Eze, said there was need for a better structured public awareness campaign to be jointly anchored by NSE, SEC and market operators for the education of shareholders and the protection of their interests, especially the small investors.

He said the average Nigerian investor suffered considerably, with many losers being first-time investors, essentially unaware of the workings Ponzi scheme.

Nigerian must be skeptical of any scheme that requires new investors to pay existing investors.

On what steps could be taken to avoid Ponzi schemes and other investment frauds, Eze said: “Whether you are a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.”

He noted that there were so many investors, who would  have avoided trouble and losses if they had asked questions from the start and verified the answers with information from independent sources.

Eze said: “When you consider your next investment opportunity, start with these global accepted five questions: Is the seller licensed? Is the investment registered? How do the risks compare with the potential rewards? Do I understand the investment? Where can I turn for help?”

Last line

There is a strong requirement to strengthen regulators’ investor education/awareness function, especially for retail investors and sustain the fight against Ponzi in the overall interest of market development.

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