COVID-19: SEC Raises the Alarm over Rise in Ponzi Schemes

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  • Says it’s threat to investor protection

By Ndubuisi Francis

The Securities and Exchange Commission (SEC) has stated that the devastating impact of the Covid-19 pandemic, the low-interest rate environment, coupled with increased use of online services for interaction and transactions have triggered the proliferation of Ponzi schemes in the Nigerian economy.

It described the continued activities of such schemes as a threat to the protection of investors, the functioning of a fair and orderly financial market as well as the development of the economy at large.

The SEC Director General, Mr. Lamido Yuguda, made the observations at the opening of a two-day webinar organised by the Attorney General Alliance-Africa in collaboration with the Commission, Tuesday.

Yuguda said Ponzi scheme operators have capitalised on the harsh economic climate to offer unrealistic returns on investment to unsuspecting investors, adding that the illegal schemes have also been able to solicit new investors and expand their operations through the increased use of online services.

He however stated that the SEC has a statutory duty to promote investor education and the training of persons in the capital market, adding that the webinar was organised in furtherance of that statutory mandate.

According to him, “This capacity building programme will afford participants the opportunity to learn contemporary and innovative ways of combating and curbing the menace of Ponzi schemes in Nigeria.

“I believe the knowledge gathered from this programme will provide participants new ways of approaching, assessing and tackling the growing problem of Ponzi schemes.”

He described the theme of the programme as apt, and its organization timely, in view of the contemporary challenges confronting the Nigerian financial sector and its regulators, by the activities of Ponzi schemes.

Yuguda stressed that the pervasiveness of Ponzi schemes undermines regulatory efforts in developing the capital market, and also negatively impacts investor confidence.

The SEC chief executive noted that
Ponzi schemes operate with unsustainable operating models that ultimately lead to huge losses for investors.

He recalled that following the collapse of the MMM Ponzi scheme, the Nigerian Deposit Insurance Corporation (NDIC) had estimated that over three million Nigerians lost about N18 billion, stressing that several other illegal investment schemes had cost Nigerians their assets and life savings.

The commission’s efforts in addressing Ponzi schemes, he said, are therefore geared towards investor protection and preserving market integrity, emphasising that the Nigerian capital market should be a safe destination for investors.

He assured participants that SEC will continue to apply innovative measures to combat the activities of Ponzi schemes, while seeking the cooperation of relevant stakeholders.

In his remarks, AGA-Africa Board member, Mr. Markus Green, stated that due to the Covid-19 pandemic, businesses are operated online with criminals taking advantage to attract people to Ponzi schemes, adding that the webinar is timely in order to build capacity on how to track these schemes, apprehend the perpetrators and prosecute them.

He said: “We bring in experts from the United States to combine with others in Africa for training on these activities and how to curb them. COVID-19 has changed the way we do business but it has not stopped us from our work.”

Also speaking, the Attorney General of the Federation (AGF) and Minister of Justice, Mr. Abubakar Malami, submitted that there is no underlying investment for Ponzi schemes, pointing out that they can never deliver the returns on investment as promised.

Malami stated that they are fundamentally different from legitimate investment opportunities, as the perpetrators are simply fraudsters who take advantage of even the wealthy, intelligent, and sophisticated people.

Describing the perpetrators as people who are usually very good at what they do and thrive on trust and friendship, promising easy cash in the short term and financial succour to the naïve, he stated that a Ponzi scheme is an operational, social and economic risk.

According to him, “The fight against it is now a war, and in fact a full-blown war. It is everywhere, not peculiar to us.”

Malami added that the nation has relevant laws to ensure that offenders are punished, stating that the government was doing its best to tackle economic problems and committed to ensuring that Nigerians are lifted from poverty through a number of incentive-based loans and a number of programmes.