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 over the activities of these outfits, who, through their operations, have fleeced unsuspecting Nigerian of their hard-earned money.
The line of trade of these illegal fund managers, which are known as ponzi scheme in the developed market, is usually tinted with promises of high returns on investors.
SEC last year disclosed that three million Nigerians lost N18 billion to Ponzi scheme operators as devastating impacts of the COVID-19 pandemic on the Nigerian economy, low-interest-rate environment, coupled with the increased use of online services to interact and transact, have helped the proliferation of ponzi schemes through the offering of unrealistic returns on investment to unsuspecting investors.
Early in the year, SEC on March 14, 2022 shut the offices of Oxford International Group/Oxford Commercial Services, Farmforte Agro Allied Solutions Limited/Agropartnerships and Vektr Capital Investment/Vektr Enterprise.
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.
SEC Efforts
SEC said it has been fighting a serious war against Ponzi schemes, saying investors should only deal with registered operators that have the registration of the Commission.
According to SEC, we have their list on the 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 the SEC. We have our numbers on how to reach our offices in the zones and we have done a lot of sensitizations in terms of seminars, webinars all in an effort to discourage people from going to Ponzi schemes.
The director-general of SEC, Lamido Yuguda, stated that “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 trying to resolve the cases that have been reported to us.
“It is important for our investors to understand the tale-tell signs of a Ponzi scheme and to alert the commission if they need some clarity, we have contact numbers through WhatsApp, email or walk to any of our offices for reporting.
SEC Working With Other Agencies
Yuguda said SEC has been working with other agencies of the government in terms of reducing the access of Ponzi schemes, saying this is 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 the SEC and the law enforcement agencies. It is worthy to mention that the SEC has a detachment of the Nigerian Police working directly with the SEC on capital market matters including Ponzi schemes and we have a good collaboration with the Nigerian Financial Intelligence Unit (FIU), the EFCC especially on the fight against money laundry and Ponzi schemes.”
He added that “the collaboration between the organisations is very strong and we are always talking between ourselves. We are expanding to other organisations that have control over our airwaves and internet systems because you still see a lot of adverts of Ponzi schemes on these. We have a very strong collaboration and engaging continuously with these agencies to eliminate completely all Ponzi schemes operations in the market.”
Stakeholders Views
On the capital market analysts’ part, they maintained that the punishment is a welcome development but that the commission needed to strengthen its awareness programme on investment and engage those at the grass root of the danger of not investing in registered CMOs on the Exchange.
The managing director/chief executive officer, Crane Securities Limited, Mr. Mike Eze, said there was the need for a better structured public awareness campaign to be jointly anchored by NGX, 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 of Ponzi scheme. Nigerians must be sceptical 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 might 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 globally 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?”
Also, the managing director, APT Securities Limited, Malam Garba Kurfi, demanded of the capital market regulating bodies to encourage more products aimed at meeting investors’ expectations.
Giving his suggestion, he said, “The way is to encourage more products that can be registered and meet the aspirations of the investors that will reduce their participation in Ponzi schemes.”
To reduce the menace, the managing director, Morgan Capital, Mr Rotimi Olubi said the continued awareness of the dangers and the inherent risks associated with such investment schemes must be sustained.
He noted that stricter public sanctions of erring promoters, compensation of a whistleblower when a Ponzi scheme/promoter is identified, public sensitisation on how to identify and avoid a potential Ponzi scheme and continued investor education are the strategies capital market regulating bodies must adopt in eradicating Ponzi schemes in the country.
The vice president, Highcap Securities, David Adonri, noted that if perpetrators of previous Ponzi schemes are severely punished, it would serve as deterrence to others, saying that regulators needed to be vigilant at all times to fish out and deal mercilessly with perpetrators.
A finance expert at PAC Holdings, Mr Wole Adeyeye suggested that, “the best way to address Ponzi schemes is to create awareness in the country.
“People need to know the danger in investing in Ponzi schemes. Also, regulating bodies can invest in technology to monitor these Ponzi schemes. They can make the website of these Ponzi schemes inaccessible to the public.”
In his contribution, the head, Retail Investment, Chapel Hill Denham, Mr Ayodeji Ebo said, “There is a limit to what the regulators can do in respect of Ponzi schemes because there is an element of greed as well as a knowledge gap.
“Investors needed to carry out proper due diligence by checking if the investment outfit is registered with the SEC or the CBN. This will minimise their risk. Also, understanding the characteristics of genuine investments will enable investors to discern quickly when they come across Ponzi schemes.”
The commission enjoined the investing public to seek clarification as may be required via its established channels of communication on investment products advertised through conventional or online mediums.
Overall, there is a strong requirement to strengthen regulators’ investor education/ awareness function, especially for retail investors and sustain the fight against Ponzi for the overall interest of market development and for SEC to win the war against Ponzi Scheme.
