The most basic of the study of economics negates the expectation that an investor can earn a 100 percent return on investment in a month ad infinitum while the entity remains a going concern. That is why it beats the imagination of many to see that Nigerians have lost hundreds of billions of naira in five years to Ponzi Schemes and still invest in such ventures.
A report by the Norrenberger Financial Investments Scheme estimated that as of 2022, Nigerians lost over N300billion to Ponzi schemes in five years. Call it greed or ignorance, Nigerians continue to fall victim to pyramid schemes.
A Ponzi scheme operates similarly to a pyramid scheme in that they are based on using new investors’ funds to pay earlier backers. But these schemes become unsustainable when the backlog of old investors eligible for payments exceeds the investments coming into the system.
Fraudulent schemes are not new to Nigeria; they were common in the 1980s and early 1990s. The earliest in the recall were the Umana-Umana investment platform in Port Harcourt, Rivers State, and Calabar, Cross River, the Planwell Scheme in Edo, and the Nospecto in Lagos.
When a pyramid scheme, Mavrodi Mundial Movement (MMM), launched by the Russian politician, Sergius Mavrodi, made its way to Nigeria, many Nigerians embraced it as a safeguard for financial freedom amidst the economic recession which plagued the country in 2016.
According to a report by a British newspaper, The Independent, MMM swept across Africa with branches promising returns on investment of 30 per cent a month in Nigeria, South Africa, Zimbabwe, and some East African countries. Within the first few months of the scheme’s launch, 2.4 million people had signed up to join it.
Following the collapse of MMM, the Nigeria Electronic Fraud Forum indicated that citizens lost N11.9bn to the scheme. The Central Bank of Nigeria also disclosed that investors lost N12bn.
The Nigerian Deposit Insurance Corporation also estimated that over three million Nigerians lost about N18billion to the scheme. This development led to cases of suicide and attempted suicide among many citizens, who invested in the fraudulent scheme.
After the infamous crash of MMM, online investment schemes have sprung up. Some of them include: Loom, Twinkas, Donation Hub, Get Help Worldwide, Smile2Charity, Ultimate Cycler, Givers Forum, I-Charity, Crowd Raising, Clarrita, and Help2Get.
Other schemes such as MyBonus2u, RackSterli, Quintessential Investment Company, Inks Nation, and Wales Kingdom Capital Limited preyed on Nigerians’ quest for financial freedom and their founders disappeared with the money invested by citizens.
Section 38(1) of the Investments and Security Act 2007 prohibits the operation of Ponzi schemes.
The section provides that “no person shall (a) operate in the Nigerian capital market as an expert or professional or in any other capacity as may be determined by the commission or (b) carry on investments and securities business unless the person is registered in accordance with this Act and the rules and regulations made thereunder.”
Despite the existence of the law, and its enforcement by agencies of government, it would seem like the lure to get rich quick has induced many criminal-minded elements to sidestep it and continue to take advantage of over-ambitious Nigerians.
For example, in 2021, the Economic and Financial Crimes Commission disclosed that it arrested a couple, Emmanuel and Victoria Jaiyeoba, in Ibadan for defrauding investors in an N935m Ponzi scheme. The EFCC noted that the suspects defrauded their victims under the guise of forex trading.
A couple, Gloria Osei and Muyiwa Folorunsho, who operated Ponzi schemes are still large after they reportedly obtained Dominican passports to escape a manhunt by the Interpol desk of the Nigeria police to arrest and detain them for prosecution which includes defrauding investors N1bn.
A businesswoman, Chinyere Emeka-Atu, was arrested following an accusation of defrauding traders and market women of over N600m in Lagos State.
While the list of scammers is long, and tales of sorrow unending, many seem not to have learned their lessons. Acknowledging from experience that early entrants in Ponzi Schemes are the usual winners, Paul Ibokwe, a trader in Alaba International Market in Lagos, told NATIONAL ECONOMY that has lost money in the past, but looks forward to being among early starters whenever there is a new opportunity.
Patience Asukwo, a hairstylist, said she had grown from just N10,000 to N500,000 in 2016 when MMM was rife. She said she then invested everything back into the scheme with the hope of getting up to N1 million when everything crashed. She said she regretted the mistake but could have gotten rich if she hadn’t put all her money back into the scheme. Looking back, Asukwo said she will still invest in Ponzi schemes again but would be wiser to know when to get out.
A lecturer in the Department of Banking and Finance, Nnamdi Azikiwe University, Dr. Felix Echekoba, reacting to Igbokwe’s and Asukwo’s comments, said it is such attitude that keeps the cycle never-ending and makes criminals thrive. Echekoba said in the end, the criminals will always gain, and investors will always lose.
But Gbenga Jakande, a social affairs analyst in Lagos said Ponzi schemes will always thrive as long as there is hardship in the land. Comparing a drowning man trying to cling to a thread, Jakande said poor and vulnerable people will always give ear to fantasies because they seek every opportunity to get out of poverty. He stated that such people will only hear one testimony and feel it could be them, and join the bandwagon, only to have their hands burnt.
But a lecturer at the Insurance Department at Ebonyi State University, Dr. Nelson Nkwo, said the public should be better protected from such criminals by putting in place alert mechanisms. He said payments go through the banks. Therefore, law enforcement officers can get the banks to flag accounts that see such payments and alert the appropriate authorities to nip the process in the bud before it gets to the level where unsuspecting Nigerians lose billions of their hard-earned money.