Stakeholders Renew Battle against Ponzi Scheme Operators


The financial services sector in 2021 recorded increase in the number of Ponzi schemes, contributing to local investors’ weak participation in the nation’s capital market. Kayode Tokede in this report highlights what the regulatory bodies, especially Securities and Exchange Commission (SEC) must do to tackle this financial pandemic

The apex capital market last year consistently reported cases of Ponzi schemes, warning investors to stay clear to avoid their fingers being burnt.

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.

As gathered by THISDAY, SEC in 2021 warned investors of more than five investment schemes, stating that these operators are not registered as Capital Market Operators (CMO) with the commission.

Specifically, SEC in May 2021 warned the public of the proposed launch of a Crowdyvest Halal Fund by Crowdyvest, an unregistered entity purporting to operate as a cooperative society.

The commission had issued a Cease and Desist Order on Crowdyvest to stop the launch and operations of the Crowdyvest Halal Fund and any other investment activity which involves soliciting investments and deposits from the public.

Also, SEC in the same year warned the public of MBA Capital and Trading Limited, Poyoyo Investment (PILVEST) Nigeria Limited and activities of FinAfrica Investment Limited (Chinmark Group).

Given the recent increase in Ponzi investment scheme activity, which has resulted in many people losing their life savings to scammers, many people believe the SEC’s warning shot is appropriate, and key stakeholders must collaborate on awareness and stringent enforcement to serve as a deterrent to others.

A Major Blow on Ponzi Scheme Operators

The commission on June 2021 obtained judgment of the Federal High Court sitting in Abuja in respect of BARA Finance & Investment Limited, wherein the company, as well as Messrs Ede Agida Peters and Olom Ojebong Jacob, were convicted of engaging in illegal capital market activities and operating an unregistered investment scheme, contrary to the provisions of Sections 38, 54 and 67 of the Investments and Securities Act 2007.

The court had sentenced Mr Ede Agida Peters and Mr Olom Ojebong Jacob to one-year imprisonment at the Nigerian Correctional Centre, without the option of a fine. No pronouncement was made by the court on the commission’s request for the defendants to refund all outstanding monies due to their “investors”.

The commission reiterated that BARA Finance & Investment Ltd and its promoters are not registered to operate in the Nigerian capital market.

Accordingly, it advised the public to desist from engaging in any capital market-related business/investment activities with the company or otherwise dealing with the above-mentioned individuals convicted by the Federal High Court.

The case of BARA Finance & Investment Limited was the only court judgment the commission reported in 2021, an indication that the judiciary system has to be fortified to carry out swift judgements on operators of Ponzi schemes.

Early March 2021, the Minister of Justice, Abubakar Malami had vowed that the federal government would clamp down on Ponzi scheme operators.

He noted that Ponzi schemes are different from legitimate investment opportunities, as the perpetrators take advantage of their fellow citizens.

He added that: “The investment climate is not simplistic, it can be highly sophisticated and that is why the law regulates the space to ensure that the requisite duty of care by operators is not breached in any way, that there is a proper disclosure as required by law and that there is a generally level playing field for all stakeholders.”

On its part, the commission vowed to continue to crack down on Ponzi schemes and illegal fund managers amid the recent resurgence in the financial sector.

According to the Director-General, SEC, Lamido Yuguda, “Ponzi schemes operate with unsustainable operating models that ultimately lead to huge losses for investors.

Yuguda said the unlawful schemes had continued to enjoy massive patronage of the populace and remained a source of concern for regulators in the financial sector.

He added: “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. Several other illegal investment schemes have cost Nigerians their assets and life savings.”

Stakeholders on Possible Solutions

Capital market analysts 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.

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

“This capacity building programme will allow participants to learn contemporary and innovative ways of combating and curbing the menace of Ponzi schemes in Nigeria,” he said.

According to him, the commission is poised to continue to apply measures and seek the cooperation of relevant stakeholders toward combating the activities of these Ponzi schemes.

He regretted that the upsurge of the schemes had undermined the reputation of the financial markets and dampened investors’ confidence, among other things.

“SEC firmly believes that the country’s capital market can attain its potential if market operators and participants contribute their respective quotas to the growth.

“SEC is committed to always ensuring and maintaining an environment that is enabled by the appropriate regulatory framework, timely and affordable access to the market.

In a chat with THISDAY, 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.

He added 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 minimize 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.