By Chinwendu Obienyi
It has been 150 years and more since Charles Dickens wrote in “Little Dorritt” where he mentioned investors in London succumbing to the fraudulent investment schemes of Mr Merdle’s bank.
However, trusting victims especially Nigerians are still tempted by such get-rich-swindles in today’s world is rather intriguing .
These get-rich-quick swindlers that come in different names like Ponzi schemes, MMM scheme, Twinkas and or Ultimate Cylers among others, have always left a negative impact on the Nigerian economy.
The term “Ponzi Scheme” was coined after a swindler named Charles Ponzi in 1920. Under the heading of his company, Securities Exchange Company, he promised returns of 50 per cent in 45 days or 100 per cent in 90 days. Instead of actually investing the money, Ponzi just redistributed it and told the investors they made a profit.
Little wonder, Investopedia defined a Ponzi scheme as “a fraudulent investing scam promising high rates of return with little risk to investors”.
For instance, in November 2015, the Mavrodi Mundial Moneybox (MMM) scheme, founded by Sergei Mavrodi, a convicted Russian fraudster, was launched and Nigerians were fleeced of billions of naira.
Others like Twinkas and Ultimate Cycler were later introduced between that time and 2016, but they all crashed like badly stacked packs of cards in 2017. According to investigations done by Daily Sun, over 160 ponzi schemes operated in Nigeria in 2016 due to the recession seen by its economy.
Just recently in November 2022, FTX collapsed leaving many Crypto investors in despair. FTX, owned by Sam Bankman-Fried who was the third largest Crypto Exchange in the world before its demise; was valued at $32 billion. It was later learnt that he diverted investors’ funds to Alameda Research (another company owned by him).
This has been a recurring challenge and has of late grown aggressively as more Nigerians have fallen and are still falling victims to such schemes despite awareness efforts by the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Economic and Financial Crime Commission (EFCC), Corporate Affairs Commission (CAC) and the Nigerian Police Force of whom are under an inter-agency committee on illegal fund managers.
Many analysts are of the opinion that rising inflation, financial losses from the capital market, as well as the ineffectiveness of monetary policies have exposed Nigerians to Ponzi schemes and related frauds.
At a recent 2022 workshop for financial correspondents and business editors which held in Port Harcourt, the NDIC revealed that Nigerians have lost about N911.45 billion in the last 23 years.
Delivering a paper titled; Rising Ponzi Schemes and Investment Scams in Nigeria, the Director of Bank Examination Department at the NDIC, Michael Oladele, revealed that N700 billion has been trapped in private placement in Nigeria, investors have been swindled over N18 billion, N171 billion and N22.45 billion from the Mavordi Mundial Moneybox (MMM) scheme, MBA Forex and Nospecto scheme, resulting into a total of N911.45 billion.
Modus Operandi
Generally, these schemes have an offering of abnormal higher returns on investment, desperate search for new investors that will sustain the scheme, payment of investment returns out of new investments made by new entrants and advocates for continuous re-investment to sustain the life span of the scheme. Most times, these schemes are endorsed by celebrities and this pushes people into the scheme as they see these celebrities as “successful people” while on the other hand, greed, financial hardship, bullish risk appetite, regulation arbitrage amongst others can be seen as enablers of these schemes.
Tackling the menace
According to Oladele, Nigerian youths remain more susceptible to the schemes as they become desperate in a bid to get rich quickly.
He added that the Federal Government in collaboration with SEC and Central Bank of Nigeria (CBN) has implemented strategies to prohibit these activities.
“Yes, we are in constant discussions with other agencies to see how best we can reduce these schemes from thriving. We, ourselves have encouraged the public to report such “wonder banks” via our website”, Oladele said.
Also speaking, Senior Economist at the International Monetary Fund (IMF)’s Western Hemisphere Department, Hunter Monroe, said the lack of a strong regulatory response, along with under-developed formal financial institutions, has allowed Ponzi schemes to develop and continue operating even after many red flags have been raised, and is a reflection of a broader problem.
“Many regulators in developing countries lack the necessary enforcement tools, resources, and sometimes political independence to cope with financial misconduct, including the operation of Ponzi schemes. In a global financial market, regulators must be able to exchange information and cooperate with one another. This has proven critical in combating unregulated schemes, given their demonstrated ability to relocate from one jurisdiction to another. But for many developing country regulators, legal limitations mean such cooperation is still beyond their reach.
Ponzi schemes are a concern around the world, but especially in countries whose relatively less developed regulatory frameworks may be unable to contain their exponential growth. The key lesson is to act early before schemes gain momentum and imperil unsuspecting investors”, Monroe said.
For her part, Founder, The Green Investment Club (TGIC), Tomie Balogun, tasked the Federal Government to unify the country’s exchange rate to reduce production costs. According to her, the economic fallout from events such as the global market crash, economic recession and COVID-19 pandemic has pushed young Nigerians into the Ponzi camp
To her, multiple exchange rates lead to arbitrary fees, production costs, and higher prices for goods and services. “The government should help SMEs and the manufacturing sector to increase their production in order to boost gross domestic product. The COVID-19 pandemic, despite the challenges, came with many investment opportunities for savvy investors,” she added.