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    Tuesday, May 31, 2022

    CBN Warns Nigerians Against Ponzi Schemes, illegal Financial Institutions

    The Central Bank of Nigeria (CBN) has warned Nigerians against patronising illegal financial institutions, just as it renewed its stand against Ponzi schemes.

    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

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