Against the backdrop of continued operation of illegal financial institutions and ponzi schemes in the Nigerian economy, the Central Bank of Nigeria, CBN, is intensifying its public awareness campaign to dissuade Nigerians from falling victim.
This comes in addition with collaboration with security
agencies and other financial sector regulators to stem the tide of the
unwholesome financial system.
Though the results of these efforts are not immediately
measurable in terms of number of Nigerians that have used the CBN channels to
escape the lure of the ponzi scheme purveyors Vanguard learnt that the efforts
of the apex bank have resulted in successful recovery and refund of
N95.2billion to victims in 2021.
Ponzi schemes, also known as pyramid investments, are a form
of financial fraud that lures investors with the promise of high returns but
often ends up giving no returns at all, with a possible loss of investors’
total capital.
The apex bank has used its several public events to educate
the general public on how to spot illegal financial services operators. It also
used the occasions to advise the investing public to visit the websites of the
Central Bank, Securities and Exchange
Commission (SEC) and other relevant member agencies of the apex bank’s
Financial Services Regulation Coordinating Committee (FSRCC) to verify the
registration and licence status of illegal financial companies and schemes
before investing in them.
The CBN, which raised the red flag earlier this month had similarly,
in March, cautioned Nigerians to distance themselves from purveyors of such
dubious financial deals which have sent thousands of Nigerians to bankruptcy
and early graves.
The CBN had in April 1994, undertook to facilitate a formal
framework for the co-ordination of regulatory and supervisory activities in the
Nigerian financial sector by establishing the FSRCC to address more
effectively, through consultations and regular inter-agency meetings, issues of
common concern to regulatory and supervisory bodies.
The apex bank has mapped out plans to end Ponzi Scheme in
Nigeria, while sensitizing Nigerians on the new digital currency, E-Naira.
The CBN’s Director of Corporate Communications, Mr Osita
Nwanisobi, said the apex bank is doing everything within its powers to end the
ugly trend called Ponzi scheme.
In one of the recent public sensitization efforts, he
stated: “What CBN is doing today is to arrest the situation of Ponzi scheme in
Nigeria.
“The first thing we are doing is to sensitize Nigerians on
the need to know that they are the first security to themselves.
“When we sensitize you, you will know that there is no way
someone would come to you to convince you that he/she has a product that can
earn you 10% per month, which means 120% per annum and you would rush such
business.
“This sensitization would help you to know if such business
is registered with the CBN or not by going to the CBN website to find out.
“If it is an entity that is supposed to be regulated by the
CBN, you will equally know.
“Moreso, most of these people do not have licence from
anywhere but they are just operating on their own.”
He noted that the surge in the operations of Illegal
Financial Operators (IFOs) is disturbing and poses a major danger to public
confidence and Nigeria’s financial stability.
He assured the public that the CBN is working seriously with
security agencies to end the menace as it is hampering the efforts of the CBN
on promotion of financial stability and economic development in the country.
In a sustained campaign against illegal financial schemes,
the apex bank used its website to remind the general public to avoid engaging
with illegal and unregistered financial operators who entice and scam members
of the public with large profits.
This was contained in a circular released on the CBN website
titled “Advisory on Illegal Financial Operators in Nigeria’’, signed by the
Secretary of the FSRCC.
The document partly reads, “The FSRCC wishes to draw the
attention of the general public to the worrisome increase in the activities of
the Illegal Financial Operators (IFOs) which portends grave risk to public
confidence and the stability of the Nigerian Financial System.
“The general public is advised to refrain from dealing with
unlicensed or illegal financial operators, who lure and defraud unsuspecting
members of the public by offering extra-ordinary returns on investments as
bait.”
The apex bank also asked Nigerians to report to law
enforcement agencies any individual or entity suspected of being involved in
such illicit activities.
Reports available to Vanguard indicated that rising
inflation, perceived poor performance of the capital market, as well as low
returns on government securities have exposed Nigerians to speculative and
dubious schemes with victims suffering over N300 billion in the last five
years.
Of this amount over 2,000 speculators lost N900 million to
Yuan Dong Ponzi. Also, Galaxy Transport Ponzi schemes defrauded victims of N7
billion while N2 billion was lost to Famzhi Interbiz Limited. Nigerians who
invested in Cowlane and Dureil also lost N100 million to each of the outfits.
For the infamous Mavrodi Mundial Movement (MMM) that
operated between 2015 and 2016, three million investors lost N18 billion.
Nospecto investors also lost over N106 billion within the same period.
The SEC recently announced that a ponzi scheme outfit
currently under its investigation is the ‘grand-daddy’ of the fraudsters,
stating that the promoter is estimated to have collected over N147 billion
between 2019 and 2020.
It, therefore, described the continued activities of Ponzi
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.
SEC Director-General, Mr. Lamido Yuguda, made this known
during the opening of a webinar organised by the Attorney-General Alliance-Africa
in collaboration with the SEC recently.
Yuguda said the devastating impact of the COVID-19 pandemic
on the economy, the low-interest rate environment, coupled with the increased
use of online services to interact and transact, has helped the proliferation
of Ponzi schemes.
He said Ponzi schemes operators had capitalised on the harsh
economic climate to offer unrealistic returns on investment to unsuspecting
investors, adding that these illegal schemes have also been able to solicit new
investors and expand their operations through the increased use of online
services.
He stated: “Ponzi schemes operate with unsustainable
operating models that, ultimately, lead to huge losses for investors.
“The pervasiveness of Ponzi schemes undermines regulatory
efforts in developing the capital market, and also negatively impacts investor
confidence.” Also speaking, the Attorney-General of the Federation and Minister
of Justice, Mr. Abubakar Malami (SAN) explained that there is no underlying
investment for Ponzi scheme, so it can never deliver the returns on investment
as promised.
According to him, they are fundamentally different from
legitimate investment opportunities, as the perpetrators are simply fraudsters
who take advantage of even the wealthy, intelligent, the sophisticated people.
He stated: “They are usually people who are very good at
what they do and they thrive on trust and friendship promising easy cash in the
short term and financial succour to the naïve. Ponzi scheme is an operational,
social and economic risk and 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 is 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.
What experts say
But experts believed that the major way to frustrate the
activities of illegal financial operators is to develop the stock market and
other legitimate investment platforms in a way to attract potential investors.
This was the position of Prof Uche Uwaleke, a Professor of Capital
Market, Nasarawa State University. He believed that Ponzi schemes tend to
flourish during periods of economic downturn and are prevalent in societies
with high rates of unemployment and poverty.
He said this is because these conditions render a lot of
people vulnerable to money-doubling tricks fraudulently packaged as an
opportunity to escape economic hardship.
He stated: “It was not surprising therefore that the MMM
scheme spread like wildfire during the period of economic recession in Nigeria.
It was a scheme that was promising investors as much as 30 per cent return
monthly or 360 per cent per annum in an economy where the average annual return
on investment was around 16 per cent at the time.”
He advised the investing public to be wary of any investment
scheme with highly attractive propositions and mouth-watering returns.
Uwaleke argued that any rational investor should probe
further if any investment offering is appearing ‘too good to be true.’
In addition, he said the advice of experts should be sought
before taking any investment leap where possible.
“The first step is to even check whether the firm is
registered with the SEC. Operators of Ponzi schemes tend to bypass the SEC
given that their real intention is to swindle the unsuspecting public. He
stressed the need for the SEC to continue to clamp down on such fraudulent
schemes as they have been doing in recent times.
According to him, members of the public should also be
willing to volunteer information to the SEC, EFCC and the police regarding
activities of unregistered investment firms.
“Above all, the CBN and the SEC should intensify the
awareness campaign on the dangers of patronising ponzi schemes because of its
potential to erode investors’ confidence, which is detrimental to the current
efforts at increasing financial inclusion in the country,” he said.
In his comment, Chief Research Officer of Investdata,
Ambrose Omordion, said: “Many people are patronising the outfits because the
stock market is down. They do not know what the capital market is all about.
“SEC has warned that Nigerians should be careful about
investing in these fraudulent outfits. People that put their money in wonder
banks are still complaining. Government should go and find out who is behind
these schemes. Again, the government should make the capital market more liquid
so that people will not look for alternatives.”
Head of Research, FSL Securities, Victor Chiazor, said ponzi
schemes are targeted at less-informed investors and offer very high returns
that are not offered by risk-free instruments and other government-regulated
agencies.
According to him, the best way to reduce the level of loss
that comes from these schemes is not for government to compete with the schemes
in terms of interest rate but to increase enlightenment to the investing public
about the risk of loss to capital, which comes from investing in Ponzi schemes
as against the safety of investments which comes from investing in government
securities and other regulated companies.
To serve as a public advisory outfit, the Association of
Corporate and Individual Investment Advisers (CIIA), said it would work towards
ensuring investor protection through robust education, awareness creation and
crisis prevention techniques