Tackling Menace of Ponzi Schemes

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Acting Director General of SEC, Ms. Mary Uduk d

The Securities and Exchange Commission has made progress in tackling the activities of Ponzi schemes as part of efforts to protect investors in nation’s capital market, writes Goddy Egene

“We are working on the cases that we have at hand and they will be charged to court soon. They (Ponzi schemes) are everywhere and we are taking good actions to ensure that innocent Nigerians are not defrauded of their hard earned money. The cases are being prepared right now, and also establishing a process and structure. Once we are done with that, they will be charged to court.”

The above are the words of the acting Director General of the Securities and Exchange Commission (SEC), Ms. Mary Uduk last December, when responding to questions from journalists on what the commission was doing about Ponzi schemes operators arrested in the country.

The apex regulator of the nation’s capital market has been striving to restore investor confidence to the market over the years after the global financial meltdown of 2007, 2008 and 2009. Given the efforts, many investors are returning to the market. However, in some cases, gullible investors have fallen prey to the activities of Ponzi scheme operators through the promise of unrealistic high returns.

In order to protect investors, SEC had many times warned investors against patronising those schemes. For instance, Uduk had often stressed that SEC remained committed to sensitising and protecting investors from the antics of fraudsters, especially promoters of Ponzi scheme According to her, people should not to 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,” Uduk advised investors.

She explained that operators of illegal schemes in the last five years have swindled Nigerians of their hard-earned savings with promises of unrealistic returns on deposits.

This usually happens despite a series of warnings by the commission to the general public against investing in such schemes. But the SEC boss assured investors that it was determined to tackle the menace head-on and stem the further proliferation of Ponzi schemes in the country.

Uduk, said anyone who subscribes to these illegal activities does so at his or her own risk, adding that the commission had undertaken various initiatives to make the capital market more user-friendly so that people can participate with greater ease, comfort, and convenience.

According to her, SEC has done so much in terms of investor education for a better understanding of the workings of the capital market, so Nigerians do not fall victim to the antics of fraudsters who promise to double any amount of money you make available to them as investment value.

Pacts with EFCC, NFIU
As part of efforts to protect investors and ensure fraudulent activities are eliminated from the market, SEC last year reviewed the Memorandum of Understanding (MoU) it signed with the Economic and Financial Crimes Commission(EFCC) in January 2017. It also signed a new pact with Nigerian Financial Intelligence Unit (NFIU).

The MoU serves to, among others, promote the efficient investigation and conclusion of all cases reported by either Institution to each other, to promote the integrity, efficiency and soundness of the Nigerian capital market and the economy in general.

The pact equally seeks to promote collaboration in the areas of training and secondment of middle cadre officers of the SEC to the EFCC and those of the EFCC to the SEC; or in the alternative, the establishment of a liaison desk in both Institutions as well as promote collaboration in other areas beneficial to both Institutions.

“Going by the provisions of the document, the Institutions shall provide each other with the utmost mutual assistance in any matter falling within the competence of the Institutions, including in particular the following areas: Secondment of middle cadre officers, training to enhance the investigative skills and capacity of personnel of the Institutions and consequently increase the general output and performance of the Institutions and facilitate better understanding of each other’s’ functions through capacity building programs and human capital development in the areas of investigation of fraud in the capital market,” SEC said.

Besides, both institutions will also collaborate in the areas of exchange of information to assist the performance of the Institutions’ respective functions, reporting, investigation and prosecution of fraudulent/manipulative practices in the Nigerian capital market and any other activity as agreed between the Institutions from time to time.

“We have had reasons to work together on some cases in the past. There is no better time for the SEC and EFCC to collaborate more closely than now,” Uduk declared.
Similarly, SEC and NFIU entered into a pact to close ranks in the face of, “insider dealings, reawakening of Ponzi schemes, cybercrime and other fraudulent activities that have engulfed the market in the last few years.”

According to Uduk, under the collaboration, NFIU would assist the commission in tracking suspicious transactions as they occur.
“If we have solutions that will help us track transactions, it will greatly reduce the incidence of insider dealings. We will be very willing to collaborate with you on that in our determination to ensure that our markets are efficient and transparent and all investors are protected,’’ she said.

The MoU covers training, secondment of middle cadre officers between the organisations, cross-border monitoring, repatriation of stolen funds from the capital market and prosecution of offenders, among others.

The Director of NFIU, Mr. Modibbo Tukur, assured SEC that the agency would continue to play its part in ensuring that the financial system was safe for Nigerians to operate.
According to him, NFIU was making efforts to ensure that the financial system was rid of shell companies, adding that, for companies to exist, they should have physical addresses.

“If anyone establishes a company, it has to be a company indeed and we have to be firm on this. This has become more important now given the roll out of the Economic Community of West Africa States (ECOWAS) single currency, because with that, we know that capital and investments will move across borders and it is a single currency. So, we have to step up regulation to avoid fraudulent transactions.

“We will begin by September and some companies will have to be deregistered if they do not meet the criteria. We will publish the parameters and also give them enough time to regularise after which those that do not comply before the deadline will be shut down. If you have an empty company hanging in the system, it is a potential danger and we should not allow it to thrive,” Tukur said.

Clamp down on Ponzi operators
In order to curb the activities of illegal capital market operators, SEC began the sealing off of their premises. For instance, Dantata Success and Profitable Company in Kano was closed down by the commission last year,
Dantata Success solicited funds from unsuspecting members of the public and did not register with the commission before going into investment operations that fall within the purview of fund management.

It sold registration forms to prospective investors according to their investment plans, ranging from N1,000 to N3,000, with the minimum amount investable being N50,000 and a maximum amount of N5m, luring unsuspecting investors with returns of monthly interest on the investment of between 25 and 50 per cent, depending on the nature and type of the investment. The investment period of the scheme was pegged at a minimum of 30 working days and a maximum of 12 months with an offer of interest rates on a short and medium-term basis.

The company, which claims to be involved in trading, general merchandise supply, oil and gas, transportation, import, export, and general contract, in one of its notices, directed all prospective customers to make deposits into designated bank accounts between February 5 and 15.
This directive was against Nigerian laws which provide that businesses carrying out capital market activities in the country must register and be regulated by the SEC which is empowered by Section 13 of ISA 2007 to shut down any company without due registration.

The company’s bank accounts were frozen, while its promoters were arrested and interrogated by the Nigeria Police, as part of what the SEC management said was to end the company’s unlawful activities against unsuspecting investors.

Also, Lagos-based Growing Circle, was shut down by SEC just as it issued a “cease-and-desist order” to Kapa-Community Ministry International Inc (KAPA), which solicited investments from the public in a manner resembling a Ponzi scheme. This followed “substantial” evidence that it had been offering and selling securities in the form of investment contracts without the necessary license.

In the same vein, last May, SEC alerted Nigerians about an online investment scheme tagged ‘Loom Money Nigeria,’ luring young people into a pyramid scheme through social media platforms like Facebook and WhatsApp. Victims were encouraged to invest as low as N1000 and N13,000 and get as much as eight times the value of the investment within 48 hours.

Last July, the EFCC sealed off the premises of MGB Global, its accounts frozen and the promoters arrested and interrogated by the Nigeria Police, following mounting petitions by depositors over unmet demands for refunds. Four other such unlicensed companies whose premises were sealed were Bitcoin company, Money Rite, No Failure Development and X-World, after mounting requests by the populace to withdraw what was collected in the name of investments.

From every indication, SEC will continue to work with stakeholders to make the market more attractive.

In her New Year message, Uduk called for more partnership and cooperation among regulators and operators in order to take the market to lofty heights.
According to her, 2020 will see SEC embark on a number of programmes geared towards taking the market to new levels, saying all hands must be on deck to make that happen.

“The new year 2020, which also signifies the commencement of a new decade, will see us embark on a number of programmes geared towards taking our market to lofty heights.

I enjoin us all to see this as a call to renew our passion and commitment to building the capital market of our dreams: a world-class capital market – founded on the values of partnership and cooperation that has helped us stand the test of time. The capital market of our dreams can only be achieved through harmonious partnership and our continuous cooperation,” she said.