Nigeria: SEC Raises the Alarm Over Rise in Ponzi Schemes

3 March 2021

The Securities and Exchange Commission (SEC) yesterday expressed concerns over the proliferation of Ponzi schemes in Nigeria owing to the devastating impact of the COVID-19 pandemic, the low-interest rate environment as well as the increased use of online services for interaction and transactions.

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.

SEC Director-General, Mr. Lamido Yuguda, said at a webinar organised by the Attorney-General Alliance-Africa in collaboration with the commission, that Ponzi scheme operators had capitalised on the harsh economic climate to offer unrealistic returns on investment to unsuspecting investors.

He added that the illegal operators are 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.

He said: "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 with new ways of approaching, assessing and tackling the growing problem of Ponzi schemes."

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

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

According to him, 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, while other illegal investment schemes have cost Nigerians their assets and life savings.

The commission's efforts in addressing Ponzi schemes, he said, were, therefore, geared towards investor protection and preserving market integrity.

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

He added 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 and Minister of Justice, Mr. Abubakar Malami, said there was no underlying investment for Ponzi schemes, adding 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.

He described the perpetrators as people who are usually good at what they do and thrive on trust and friendship promising easy cash in the short term and financial succour to the naive.

He stated that a Ponzi scheme is an operational, social and economic risk.

"The fight against it is now a war, and in fact a full-blown war. It is everywhere, not peculiar to us," he added.

Malami said the nation had laws to punish those offenders, adding that the government is doing its best to tackle economic problems and is committed to lifting Nigerians from poverty through some incentive-based loans and other programmes.

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