Public endorsement of Ponzi schemes by Nigerian celebrities, greed and poor financial investment knowledge have been identified as some of the major enablers to the loss of billions of naira by investors in ponzi schemes, ICIR findings have shown.
Nigerians lost over N300 billion in ponzi schemes in five years, according to a research done by Norrenberger Financial Investments Scheme, an investment banking financial firm.
ICIR checks revealed the N300bn sum was about the combined revenue generated by Rivers, Abuja, Delta and Kaduna states in 2020.
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“Most Nigerians get into the ponzi scheme knowing it is a bubble, hoping they get in early enough to make some profit. Most players know it is a gamble, so they put in only small amounts they can afford to lose,” the Managing Director of Norrenberger Financial Investments, Tony Edeh, told the ICIR.
The financial expert, who spoke further on how low financial knowledge is a key enabler to the ponzi scheme in Nigeria, stressed that many victims of the ponzi scheme did not have the knowledge to pick out flaws from an offer.
He added, “Financial literacy is still low in the country. As a result, few can tell when an offer is too good to be true. Many investment scams mask themselves as legitimate by flaunting business registration certificates.”
The investment banker emphasised there were other red flags to watch beyond registering a business with the Corporate Affairs Commission (CAC).
“Registering a business with the Corporate Affairs Commission does not mean they are licensed to hold investor funds. However, the volume of fraud cases shows that this is not common knowledge,” he pointed out.
He expressed concern that many Nigerians were unaware that fund managers needed licences from the Securities and Exchange Commission (SEC).
Edeh said endorsement of ponzi schemes by celebrities also play a key role in thriving operations of ponzi schemes.
He said,” Endorsements more popular among celebrities often involve investments, housing, forex trading, and banking.
“For instance, Racksterli, an online investment platform that claimed to pay 40-50 per cent return on investment, crashed about a year after it started. The scheme was endorsed by celebrities like David Adeleke (Davido), Divine Ikubor (Rema), and Williams Uchemba, causing thousands of people to jump on it.
“For a while, it fared well, making payments as agreed, but it soon crashed as it was a ponzi scheme that only thrived on people’s referrals. That was quite unfortunate.” Edeh said.
While giving a similar insight on how to spot a ponzi scheme investment, a financial investment expert, Kalu Aja, said, “If the company registration is incomplete or absent, it’s a red flag. All organisations that do business with the public have to hold a valid and up-to-date registration. This requirement is essential for any company offering financial products or services.”
Aja stressed that simply having CAC registration was not insufficient.
According to him, “If a company offers public investment products, that organisation MUST be Securities and Exchange Commission (SEC) registered.
“Keep in mind that a company cannot also seek to raise funds from the public to fund its private business. The investor must ask two questions from any entity offering investment products.The questions are: is the entity providing the investment service duly registered by SEC? Is the investment scheme authorised by the SEC? Who is the fund custodian?”
Findings revealed that the ponzi scheme has been evolving in different forms to attract people of different generations.
For instance, from the days of famous wonder banks such as ‘Umana Umana’ to Nospetco Oil and Gas, ponzi schemes in Nigeria have evolved with the times into community scams like Ultimate Cycler.
Investment analysts believe Nigeria provides a fertile ecosystem for investment frauds to thrive.
Some of them who spoke to the ICIR cited scarce justice from security outfits as a major factor that makes Nigeria a breeding ground for ponzi schemes.
Citing an instance, Edeh said law enforcement agents were not doing enough to nip the activities of fraudsters in the bud.
Expressing concern over remarks by the Public Complaints Commission (PCC), he said, “The Public Complaints Commission had said that the Economic and Financial Crimes Commission (EFCC) was not doing enough to curb ponzi schemes in the country.
“According to the PCC, EFCC relies more on information provided by victims to act. This means that the agency does not intervene until damage is done.
“Consequently, not enough of these fraudsters end up facing the law. Leaving the country is the go-to escape plan for the perpeprators of fraud,” he said.
The SEC has, in a recent partnership with the National Orientation Agency (NOA), stated that ponzi schemes had undermined the reputation of the capital market and dampened investors’ confidence.
SEC expressed concern that, “Such schemes with all the illegality and promises of unrealistic returns have burnt the fortunes of many ambitious investors, from Yuan Dong Ponzi to Galaxy Transport, Famzhi Interbiz Limited, Cowlane and Durell, and the infamous Mavrodi Mundial Movement (MMM).
“This has created a considerable challenge to the growth of our market, and the Commission is striving to change the narrative by instilling a fair, transparent, and orderly market.”
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.