Romanus Okoye, [email protected]
Recently, the Economic and Financial Crimes Commission (EFCC) declared war on fraudulent Ponzi scheme operators. It also warned the public to stop patronising the get-rich-quick schemes.
Despite the warning and tales of woe and agony that usually follow loss of money to the “money-doubling” schemes, also known as Ponzi or Crypto transaction, many Nigerians still take a chance and end up with stories that touch the heart, after losing their hard-earned money to scammers.
In the South-East, the EFCC zonal head, Usman Imam, recently warned all operators of Ponzi schemes in the zone to stop their criminal activities or relocate to other places. Worthy of note is that the commissioner at the Ministry of Human Capital Development and Monitoring, Ebonyi State, Uchenna Orji, named some outfits, including Immaculate Charity Foundation, Shekinah Empowerment, Genesis Empowerment, Family Joy and Trust as well as Arocom Foundation, and urged residents to be wary of fraudsters who disguise as poverty alleviation agents just to fleece them.
Orji blamed the electronic media for aiding and abetting the act. He was particular about radio stations that offered platforms to the operators who posed as genuine businesses, without investigating the authenticity of the claims being advertised on their medium.
In April last year, 27,400 Nigerians lost about N7 billion to the chief executive officer of Galaxy Transportation and Construction Services Limited, Babagana Dalori. He was alleged to have defrauded them through promises of mouth-watering returns on their investment in his companies. The EFCC recently arrested Dalori, who was said to have paid investors 200 per cent interest on their deposits in his companies, which he later reduced to 135 per cent, before the scheme crashed in 2018.
Dalori took his game a notch higher to lure as many unsuspecting victims as possible into his net by engaging in massive advertisements on radio and television, in addition to a movie, aimed at convincing members of the public to invest in his companies. The EFCC said the bubble burst when a victim lamented the frustrations of investors who were unable to get their funds back. The commission, accusing Dalori of committing criminal acts, moved to have all bank accounts belonging to his company frozen.
In the same vein, in Kano, the anti-graft agency arrested Garba Iliyasu and Umar Iliyasu for allegedly running a Ponzi scheme under the name MGB Global Market. Wilson Uwujaren, EFCC’s head of media and publicity, stated that their arrest was sequel to intelligence that the organisation had lured many people to invest in the scheme through irresistible returns on investment of up to 50 per cent in two weeks.
According to Uwujaren, on getting the information, the EFCC called at the office of MGB Global on Sabo Barkin Zuwo Road, Tarauni Local Government Area of Kano State, and arrested Garba Iliyasu and Umar Iliyasu alongside 16 other employees of the outfit. The employees were later released. Laptops, desktops, POS machines, tokens and other documents were recovered during the raid.
The EFCC said investigation revealed that Mohammed Garba Iliyasu, now on the run, was the managing director of the company, while two of his brothers, Abubakar Garba Iliyasu and Ibrahim Garba Iliyasu, who were also part of the scheme, are equally on the run. The commission has warned the public to desist from patronising get-rich-quick schemes like MGB Global Market.
On August 30, 2019, the EFCC arrested 19 staff of Bluekey Investment Club, a supposed investment company in Port Harcourt, Rivers State, for an alleged N2 billion scam. The culprits reportedly floated a Ponzi scheme to defraud members of the public to the tune N2 billion. Bluekey Investment Club, operating from Sonia Mall, 42 Woji Road, YKC Junction, Port Harcourt, was registered with the Corporate Affairs Commission (CAC) as a software development and general contracting firm, but it allegedly veered into the interest-yielding Ponzi scheme, with 10 per cent weekly returns on investment over six months.
The scheme also promised total return of invested capital after six months. Among those arrested were five principal officers: Princess Tsaroigbara, public relations officer; Onwusa Frances Chineze, accountant; Naabe Gunugu, payment confirmation staff; Tambari Success, customer service; and Anorue Maureen, receptionist. The chairman of the company, Neenwi Swanu, was at large at the time of the arrest.
Tsaroigbara told investigators that her company was into digital, financial and technological services; she said she was not sure if the company was registered with the Securities and Exchange Commission and the Central Bank of Nigeria.
Scores of customers thronged the premises of the company seeking the intervention of the EFCC when the lid blew open. Items recovered from the company included computers and cash amounting to N449,300.
In May 2019, at Ikotun market, in Lagos, traders lost millions of naira to a similar scheme. When this reporter visited the Crypto Transaction office at 8, Ijegun Road, Ikotun, there was no office equipment. In fact, the place looked lifeless, only heaps of transaction papers, abandoned by disappointed customers, littered the office’s floor.
The reporter learnt that some angry victims carted away electronics abandoned by the runaway fraudsters as consolation for their lost funds. The papers on the floor were transaction forms that served as the only proof of contract between the depositors and the receivers. It contained the name of the depositor, phone number, amount deposited, expected returns and date of collection.
The phone numbers of the operators, which have since being switched off, were 09065826017, 09025507937. According to Mama Chioma, one of the victims, she initially deposited N15,0000 and received 50 per cent increment and was motivated to go for more. It was in her second attempt that she lost everything, including her trading capital.
“We just went to their office one Sunday morning, May 26, and discovered they had disappeared. They had operated here for two weeks and we heard they relocated to Port Harcourt. While they were here, they moved from shop to shop in this Ikotun collecting deposits from people,” she said.
Another victim, Mama Seyi, who sold packs of instant noodles, tomatoes and soup spices in the same market, said her husband was not aware she invested in the scheme and might kill her if he ever found out: “I deposited N80,000 and received N120,000. So I deposited N100,000 hoping to get more, before they suddenly closed shop.”
A few days ago, the EFCC arraigned Ayowale Peters Oloje, aka James Williams, for N1.279 billion crypto currency trading fraud. Ayowale was arraigned along with his company, Valborg-Selma Limited, on two counts of fraud before Justice Hakeem Oshodi in Lagos. He pleaded not guilty to all the charges. He was thereafter remanded in Kirikiri Prison until October 10, 2019, when his bail application would be heard.
Writing on why people buy cryptocurrency on his Facebook page before he was arrested, Ayowale stated that one did not have to understand bitcoin to realise that banks, businesses, the bold, and the brash were cashing in on cryptocurrency.
“In 2016, the price of a bitcoin was around $710.09. By July 6, 2019, the exchange rate for a single bitcoin was $11,194.28. It does not take an economics degree to realise that those who invested in bitcoin a few years ago are now patting themselves on the back, but the good news is, it is not too late to get in the game. Knowledge of the game is very important. Save yourself valuable time guess walking,” he wrote.
Similarly, Swizz Gold Ponzi Scheme operator, Lizzy Efah, arrested by Zone Six Police Command, with headquarters in Calabar, Cross River State, was alleged to have gleaned over N1 billion from investors, with promises to pay back the capital with interest of between 50 and 80 per cent in 40 days. One investor, Mercy Salako, lost N8 million, while a petroleum dealer, Justus Austin, lost N11.6 million.
But in recent times, the granddaddy of them all in Nigeria would be MMM. At its peak, the Mavrodi Mundial Moneybox (MMM) had around three million users in Nigeria. It described itself as a “mutual aid fund” and based its racket on its users “helping” and sending each other money; it promised 30 per cent monthly interest. Analysts say MMM, like most Ponzi schemes, thrived on the difficult economic times Nigerians were facing, such that tantalising interest rates lured many.
MMM penetrated the Nigerian market in 2015, with over two million people signing up for the scheme by the time it crashed in December 2016.
Two years after the popular MMM scheme crashed, with millions of naira lost, Nigerians are again flooding Loom, another scheme that promises astonishing returns on investment.
Loom is a peer-to-peer pyramid scheme that involves people being invited to invest between N1,000 and N13,000 to get as much as eight times the value within a short period of time. The Loom pyramid is grouped into four colour-coded levels, purple, blue, orange and red. Whoever is the first to sign up for the group sits in the red level, which is the central level, and gets the payout when the group fills up.
Two people sit in the orange level, while four investors fill the blue level. The purple level takes new entrants with eight spots open. Once the eight spots in the purple level are filled, the group splits into top-half and bottom-half, as the investors in the outer levels move into new levels. The new groups of seven investors each then have to recruit eight new investors to once again break the circles into another two groups.
Investors are typically invited to join a WhatsApp group and advised to get as many other investors as possible because the scheme only works if it keeps a steady flow of new investors to pay the earlier entrants. The more people are recruited into the group, the quicker the breaks and payouts to investors. The initial investment is usually paid to the group admin, who sits in the red level. For instance, if you invest N1,000, you get N8,000; if you invest N2,000, you get N16,000; and if you invest N13,000 you will get N104,000.
Observers believe that despite knowing that these schemes do not really do any investment, people still fall prey due to extreme poverty, and economic challenges confronting Nigerians.
Sandra, a polytechnic student, invested N1,000 in Loom because she spent her school fees on a business venture that was yet to yield returns and hoped to make a profit from Loom instead.
“The payment of my school fees is due next week, so I am desperate to get money,” she said.
Even though she was promised a payout 48 hours after investment, she was yet to get anything after four days and was desperately trying to recruit her close friends and social media followers to invest in the scheme too.
Over the years, government had issued several warnings to Nigerians to stay away from investing in Ponzi schemes that involve unregistered investments, unlicensed sellers, and secretive and complex strategies. Despite the warnings, many still invest because a few people make money and it appears to be legitimate for a while. Eventually, more unsuspecting people join and it grows to a stage where it collapses, causing those that joined late in the life of the scheme to lose money.
Some capital market operators told the News Agency of Nigeria in Lagos that, in a bid to make huge returns, ignorance has contributed to investors patronising the schemes.
The chief executive officer of Sofunix Investment and Communications Limited, Mr. Sola Oni, said most people were easily lured to Ponzi schemes due to the level of economic hardship and poverty in Nigeria.
He said, “As the economic recession bites harder, it is easy to lure unsuspecting but gullible people to fall prey to these wonder schemes.”
Oni explained that there were three categories of investors that patronise the schemes: those who fall prey out of ignorance, those who were taking uncalculated risk, and those who want to make abnormal profit.
He called on the authorities to intensify supervision and regulatory roles and ensure that culprits face the wrath of the law.
“There should be more awareness created on these schemes to prevent the innocent from falling victim,” Oni said. “The Securities and Exchange Commission has enough rules to outlaw Ponzi schemes.”
On his part, the president of Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, blamed the Corporate Affairs Commission for the activities of the Ponzi schemes in the country. Okezie said there should be proper scrutiny before the registration of any company by the commission, adding that regulators should clamp down on the companies to protect innocent investors.
He also called for better enlightenment of investors through the mass media.
While he was the head of the SEC, Mounir Gwarzo called on investors to be weary of Ponzi schemes in the country. Gwarzo said that, even if the company was registered with SEC, potential investors should endeavour to find out from the commission whether the commission had approved the company’s activities.
He said the SEC was collaborating with the police and other law enforcement agencies to check the activities of the operators of such schemes.
The acting director-general of SEC, Ms Mary Uduk, warned Nigerians to desist from investing in schemes operated by persons or organisations that were not registered to carry out fund management functions, and schemes with tempting returns. Uduk urged Nigerians to be wary of any investment proposing a return level that was unreasonably high.
She urged the public to always ascertain whether such fund managers and their products were registered with the SEC while emphasizing that the capital market was properly positioned to provide benefits to Nigerians and the SEC had been doing a lot in terms of investor education to assist people understand issues surrounding the capital market.
She said, “This is for the all-important purpose of ensuring that the gains of your participation, be it dividends, proceeds from share sales/transfers, etc, accrue to you seamlessly without sweat and in the shortest time possible. The purpose is also to ensure that you do not fall victim to the antics of fraudsters who purport to be able to double any amount of money you make available to them as investment value.”
The SEC boss noted that the promoters of Ponzi schemes were like false prophets of the investment environment.
“They are the ill wind that blows no good and at whose sight you must flee. They are to be avoided,” she advised. “This is one message you must keep spreading to family, friends, relations and acquaintances in order to save them from the agony of loss of their hard-earned money. Please, note that anyone that subscribes to these illegal activities does so at their own risk.”
Like SEC, the Nigeria Deposit Insurance Corporation (NDIC) has warned Nigerians to keep off the popular and the fast-rising digital currencies known as bitcoin trading and its relations as it was not yet authorized in the country by the Central Bank of Nigeria, adding that it was not backed up by any law in Nigeriaís Constitution.
Dr. Joseph T. Wells, in Encyclopedia of Fraud, described the characteristics of a Ponzi scheme as an illegal business practice, in which new investor’s money is used to make payments to earlier investors. He noted that, in accounting terms, money paid to Ponzi investors, described as income, was actually a distribution of capital. Instead of returning profits, the Ponzi schemer is spending cash reserves, all for the purposes of raising more funds.
He clarified that, where a basic investment scam raises money and disappears, the Ponzi scheme stays in business by circulating investor funds. There are usually little or no legitimate investments taking place. Most of the funds are used by promoters for expensive lifestyles and transferred into property or offshore accounts.
In his book Frankensteins of Fraud, Wells details the story of Charles Ponzi, after whom the scheme was named. He wrote, “Known as the Father of the Ponzi scheme, Charles Ponzi, or Carlo Ponzi, was born in 1882 in Parma, Italy. He came from a family of hoteliers and was sent to Rome for a university education. But a string of gambling debts and criminal charges for theft and forgery cut short his schooling and prompted his family to send him to America.
“Never judge the suspected fraudster by your own standards,” he wrote. “They will do things that would appear absurd to the trained professional. If you hear yourself think, ‘they wouldn’t do that,’ get that thought out of your mind. It’s your job to investigate, verify and confirm all of the facts to ensure no fraud is involved.”