Nigerians Lose N300b to Ponzi Schemes and Speculative Trade
Nigerians lose over N300 Billion Naira to Ponzi Schemes every year without any trace.
The Rising inflation and perceived poor performance of the capital market have continued to fuel the trend.
Low returns on government securities have exposed Nigerians to speculative and dubious schemes. Victims suffering over N300 billion in the last five years. all, with a possible loss of investors’ total capital.
This has been a recurring challenge and has of late grown aggressively as more Nigerians have fallen and are still falling victims to such schemes.
Newera News gathered that of the N300 billion lost by millions of Nigerians to Ponzi schemes in the past few years, over 2,000 speculators lost N900 million to Yuan Dong Ponzi.
Also, Galaxy Transport Ponzi schemes defrauded victims of N7 billion while N2 billion was lost to Famzhi Interbiz Limited. Nigerians who invested in Cowlane and Dureil also lost N100 million to each of the outfits.
For the infamous Mavrodi Mundial Movement (MMM) that operated between 2015 and 2016, three million investors lost N18 billion. Nospecto investors also lost over N106 billion within the same period.
The Nigeria Electronic Fraud Forum, which was unveiled in 2017, stated that the Nigerian investing public also lost another N11.9 billion to the MMM.
The SEC recently announced that the Ponzi scheme outfit currently under its investigation is the ‘grand-daddy of the fraudsters. Sec revealed that the promoter is estimated to have collected over N147 billion between 2019 and 2020.
SEC said: “There is an online Ponzi scheme under our investigation. Some of those who have suffered from these schemes have been heartbroken; some have committed suicide.”
The latest incident, which involved a case of suicide has to do with four investors who were defrauded through an advertisement placed by a company on radios, podcasts and other social media platforms, calling for participation in the company’s various investment plans, which included: logistics/bike investment, customer relationship management investment, education virtual reality for students investment, location sponsorship investment, real estate and independent investment, with returns hovering between 60 to 110 per cent.
The deceased was said to have taken a loan of undisclosed millions of naira from the bank, which he invested in the company. About three others also attempted to take their lives when they could not withstand the pressure from the banks where they took loans.
Among those who invested in the company were: Agboniffo Ohis Iyawere, who put N3,340,000 into the business, while Victor Okinedo staked N15,340,000. Chibueze Amuchie lost N800,000. Bazuaye John and his family and Obiakor Elochukwu Pious and his wife invested N25,081,000 and N44,900,000 respectively.
Another victim, Enokela Monday, a 100 level student of Air Force Institution of Technology, Kaduna, invested N1.5 million, meant for his school fees, rent and loan he collected from his friend.
Recently, victims of the N123 million MBA Forex Scam stormed the headquarters of the Economic and Financial Crimes Commission (EFCC) to demand the arrest and prosecution of the company’s Chief Executive Officer, Maxwell Odum.
The protesters alleged that they were defrauded of a whopping sum of N122.51 million in a scheme promoted by the firm with a promise that they would be getting a 15 per cent return on investment every month. The company had since reneged on its promise on payment of returns, according to the protesters.
Already, the EFCC has arrested and is prosecuting about 10 ponzi scheme operators who have allegedly fleeced Nigerians of over N12 billion between October 2020 and August 2021 after most of the operators had promised their victims attractive returns on investment (ROI) as high as 55 per cent after their first month of investment, a bait swallowed by thousand Nigerians who have since got their fingers burnt.
The EFCC Special Fraud Unit (SFU) had arraigned Dominic Joshua of Brisk Capital Limited for allegedly defrauding investors of over N2 billion with a promise of a 60 per cent return on their investments.
Several media houses (not The Guardian) validated the investment opportunity. This made it difficult for victims to exercise restraints. That the investment promoters were only 21 with 10-year investment experience did not raise any red flag among the investors.
Operators have argued that the over 60 per cent offer from Ponzi scheme promoters is higher than yields in FGN bonds. For instance, FGN bonds due for maturity by January 27, 2022, has 4.04 per cent returns while the one due for April 27, 2023, would offer 9.75 per cent returns.
The stock market, which remained bullish between December 2005 and March 2008, became bearish in April 2008 and has remained so since then with only a marginal short-lived recovery.
For instance, the NSE All-share index (ASI), which measures the performance of quoted companies, depreciated from 63,016.6 at which it opened on January 1, 2008, to 31,450.78 on the last trading day in 2008. Foreign investors, who realised the danger posed by the on-coming financial turmoil, withdrew their funds, depressing the stock market, as the ASI shed more than 70 per cent between March 2008 and April 2009.
Companies, which had undertaken private placements during the stock market boom period, had tied down funds without listing the shares on the exchange to generate returns as projected in their prospectuses. Indeed, N700 billion investors’ funds were discovered to have been trapped in private placements by firms.
The situation thus created liquidity and credibility problems for the equities segment and further depressed the market as the retail investors lost their financial strength.
ASI, which stood at 63,016.6 as of January 1, 2008, depreciated by 60.5 per cent to close at 39, 252.89 as at the close of the transaction on September 6, 2021.
Every form of investment comes with a certain level of risk. The only exception is an investment in government securities such as treasury bills and bonds. Even these, in reality, are prone to inflation risk.
In the case of Ponzi schemes, the popular saying in finance, ‘the higher the return, the higher the risk’, is not hyped because the schemes often promise very high returns with little or no risk.
Here, investment funds are pooled with others, and investors receive returns that are paid from the deposits of new investors. Rarely is the money invested in real investment vehicles.
Former Acting Director-General, SEC, Mary Uduk, had in a forum in Lagos warned Nigerians to stay away from fake financial experts who would promise to double their money within a short time.
She explained that the commission was committed to sensitising investors and protecting them from the antics of such fraudsters, especially promoters of Ponzi schemes.
Uduk said: “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. How can somebody give you a 50 per cent return? Where is he going to get the 50 per cent? Where is he going to put the money? What is he going to do?”
Also, at a recent post-Capital Market Committee (CMC) media parley, the Director-General of SEC, Lamido Yuguda, urged Nigerians to stay away from fake financial experts who promise to double their money within a short time. He said the commission would intensify efforts to clamp down on promoters of these illegal investment outfits in the capital market, in addition to its commitment to zero tolerance for infractions.
But experts have argued that the damage these schemes can inflict requires a determined regulatory response to shut them down at an early stage before they gain momentum.
They stressed the need for regulators to keep the public informed, through general warnings regarding the methods used to defraud investors and the need to question potential investments’ financial viability.
The experts also urge SEC to publicise lists of individuals or entities that hold or do not hold a license to carry out financial activities; and a database of actions taken against specific individuals and entities.
In his reaction, Chief Research Officer of Investdata, Ambrose Omordion, said: “Many people are patronising the outfits because the stock market is down. They do not know what the capital market is all about.
“SEC has warned that Nigerians should be careful about investing in these fraudulent outfits. People that put their money in wonder banks are still complaining. Government should go and find out who is behind these schemes. Again, the government should make the capital market more liquid so that people will not look for alternatives.”
Professor of Capital Market, Nasarawa State University, Prof Uche Uwaleke, said Ponzi schemes tend to flourish during periods of economic downturn and are prevalent in societies with high rates of unemployment and poverty.
He said this is because these conditions render a lot of people vulnerable to money-doubling tricks fraudulently packaged to escape economic hardship.
“It was not surprising therefore that the MMM scheme spread like wildfire during the period of economic recession in Nigeria. It was a scheme that was promising investors as much as 30 per cent return monthly or 360 per cent per annum in an economy where the average annual return on investment was around 16 per cent at the time.”
He advised the investing public to be wary of any investment scheme with highly attractive propositions and mouth-watering returns.
Uwaleke argued that any rational investor should probe further if any investment offering is appearing ‘too good to be true.’
In addition, he said the advice of experts should be sought before taking any investment leap where possible.
“The first step is to even check whether the firm is registered with the SEC. Operators of Ponzi schemes tend to bypass the SEC given that their real intention is to swindle the unsuspecting public. He stressed the need for the SEC to continue to clamp down on such fraudulent schemes as they have been doing in recent times.
According to him, members of the public should also be willing to volunteer information to the SEC, EFCC and the police regarding activities of unregistered investment firms.
“Above all, the CBN and the SEC should intensify the awareness campaign on the dangers of patronising ponzi schemes because of its potential to erode investors’ confidence, which is detrimental to the current efforts at increasing financial inclusion in the country,” he said.
According to him, the best way to reduce the level of loss that comes from these schemes is not for government to compete with the schemes in terms of interest rate but to increase enlightenment to the investing public about the risk of loss to capital, which comes from investing in Ponzi schemes as against the safety of investments which comes from investing in government securities and other regulated companies.
To serve as a public advisory outfit, the Association of Corporate and Individual Investment Advisers (CIIA), said it would work towards ensuring investor protection through robust education, awareness creation and crisis prevention techniques.
To this end, a virtual forum will hold on September 17, with an ensemble of panellists in the industry to discuss critical areas ranging from the behavioural aspect of investing to traditional portfolio/product management, risk management and administrative acumen and their relevance to the domestic market as currently configured in the overall business of money management.
CIIA is bringing key market stakeholders together for the purpose of x-raying the real challenges of Ponzi’s as they affect the growth of the domestic capital market and proffer possible remedies in stemming or eradicating the scourge of the untoward trend.
