Ogechi graduated from the University of Benin last year and has been on her National Youth Service in Calabar for about four months. Like other Corp members, she’s on a monthly allowance of 33,000 Naira from the Nigerian government. A friend just added her to a Whatsapp group with other corp members where someone randomly sends a message about investing. Here’s what the text says: “Hi, group. I invested 40,000 Naira in Chinmark investment group last month, and the company has just paid my returns of 100,000. That’s 140,000 Naira and over a 100% increase from my initial investment. This company is a tested and trusted investment platform, and like me, many people have cashed out. Check out their website and handles on social media.”

Ogechi sees this and becomes interested as everyone has been hammering about saving and investing. She has also been thinking about ways to invest. And here, at her doorstep, is what she’s been looking for. Ogechi reaches out to someone from the group, who then tells her that the company works this way: each investor has to bring in two or more people who will register under them, and each of them, in turn, brings in other people. Also, the number of people registered under each investor and how much they invest determine the level the investors reach.

They also tell Ogechi that the company runs different businesses, which is how they get returns to pay out to investors. She seems to like the idea, so she invests what she’s been saving from her allawee for three months, 100,000 Naira.

After her investment, she gets a whopping return of 300,000 Naira. “Wow! That works. It’s real.” So she tells her family and friends and puts more money into the company. Six months later, the news reveals Chinmark group as a Ponzi scheme after its crash, and Ogechi is left with nothing and even in debt, as she borrowed from friends and family to invest.

What Happened to Ogechi’s funds?

Ponzi happened to Ogechi’s funds.

Ponzi schemes in Nigeria date as far back as the 1980s and early 1990s, over two decades ago. The earliest recorded ones were the famous Umana-Umana investment platform in Port Harcourt and Calabar, which began in the 80s, the Planwell scheme in Edo State, and the Nospecto in Lagos. And despite the number of failed Ponzi schemes in Nigeria and the losses it has caused, people continue to fall victim to it.

Image credit: researchgate.net

Just a little over five years ago, many Nigerians fell victim to another famous Ponzi scheme in Nigeria, MMM, subjecting them to unexpected hardships after its sudden suspension. MMM was first launched in Nigeria in February 2015, describing itself as a Mutual Aid Fund where people could help one another while making returns of 30% every month. Although that worked for a while, it came crashing down.

What are Ponzi Schemes?

Ponzi schemes are fraudulent investment scams that promise high return rates to investors, with little risk involved. They do this by using funds from recent investors to pay profits to earlier investors while maintaining the illusion of legitimate and sustainable businesses like sales of products and transportation. However, these schemes collapse when there are no more new investors to keep the fraudulent triangle going.

Let’s imagine a triangle of the story of Ogechi above: Ogechi is required to bring in at least two other people who are expected to pay a certain amount of money as an investment or commitment fee, which is then used to pay earlier investors within a certain period. The more people join, the larger the triangle gets. These fraud schemes are primarily successful because their founders front them as legitimate businesses. However, when these schemes run out of new investors whose funds are used to sustain them, they come crumbling down. Situations like this are like robbing Ogechi to Pay Tunde and robbing Tunde to pay Usman.

Why People Keep Falling Victim to Ponzi Schemes In Nigeria.

As mentioned earlier in this article, Ponzi schemes have always been around and have proved to be fraudulent and unsustainable as they continue to fail. Yet, they continue to thrive in the midst of all this. People attribute it to the exacerbating problem of unemployment and the persistent widespread poverty in the country.

Public endorsement and ambassadorship by famous and respected figures for some of these Ponzi schemes is also a significant enabler which has facilitated the loss of money for many people. There is some level of trust and respect for these figures as many look up to them and expect them to have verifiable information about the companies they are endorsing.

For Nigerian investors, the rising inflation rate and poor returns on investment in the Nigerian capital market and government securities are why they participate in Ponzi schemes. They believe this scheme to be the quicker and easier way for them to grow their wealth, so long as they can pull their funds out before it crashes.

How To Identify A Ponzi Scheme

Unrealistic or high returns with little to no risk

If it’s too good to be true, then it probably is. Promises of high and unrealistic returns are the easiest and most reliable ways to identify Ponzi schemes, especially if the level of risk involved is nothing compared to the guaranteed returns. This is because many legitimate investments have a level of risk associated with them, of which the higher the returns, the more risks involved. In the case of Ponzi schemes, they offer high, incredible yearly, monthly, weekly, or even daily returns with little or no risks to their investors. So when an investment platform guarantees you a “too-good-to-be-true” return with little or no risk involved, watch out as you may be onto something.

Unregistered and unlicensed investment schemes

One of the legal requirements for investment firms and professionals is registering under federal, state, or international regulators. In the case of Nigeria and many countries, the Security and Exchange Commission (SEC) is the primary agency responsible for regulating investment companies and advisers; and providing the necessary information about the companies’ products and services to its users. It also issues the proper licences to them. However, many Ponzi schemes are not registered and regulated by the necessary bodies and do not have the rights to run investment companies. So if, as an investor, you come across a platform that is not registered and regulated, beware as it is most likely a fraud.

Ambiguous business model and investment processes

Another good way to identify a Ponzi scheme in Nigeria is its ambiguous business model. Ponzi schemes often follow a particular structure: a triangle with processes too complex to understand. Although they claim to have businesses they put investors’ money into, there is rarely evidence of said businesses or legitimate ways they generate returns for investors. Hence, it is crucial to avoid any scheme or platform that does not have verifiable information and a transparent business model.

Regular and consistent returns on investment

Investment markets are often unstable, especially volatile ones like stocks and crypto, so, typically, your investment will experience some fluctuations. Regardless, they gain back momentum and grow over time. However, this spells different for Ponzi schemes because, despite the market conditions, they consistently generate high returns.

Dependency on referrals

As mentioned earlier, Ponzi schemes are a triangle; they survive on their ability to bring in new investors whose investments are used to pay off earlier investors. Often, investors, or shall we call them victims, are asked to bring in new people who register under them, pushing them to a certain level. According to each of these platforms, these levels have different names: gold, silver, bronze, etc. Without referrals, investors are sometimes not paid. So when the triangle runs out of new streams of investors, it wraps up.

Ways you can avoid Ponzi schemes in Nigeria

Do your research

Thanks to the internet, you can virtually get whatever information you seek. So before you begin investing, it is essential to carry out the necessary research and ask the right questions. Ask if it’s registered under the suitable bodies and has the licences required to run an investment company, testimonies about its operations, and processes from previous and current investors. What does it say about itself? Is its model of operation clear enough? If your information isn’t satisfactory, you may want to look elsewhere.

Only invest in trusted financial platforms and companies

It is likely a trusted investment if you can satisfactorily answer the above questions. One meaningful way to know a trusted financial firm is by checking if it’s registered with the Securities and Exchange Commission. You can ask for paperwork or check the SEC’s, state security, or other necessary databases to access this information.

Risevest, which deals in dollar-denominated assets like US stocks, real estate and fixed Income, is a trusted financial institution you can use.

Seek the advice of financial advisors and professionals

Employing the help of qualified financial advisors is an excellent way to avoid falling victim to Ponzi schemes in Nigeria. They have the proper knowledge and will guide you through making the right financial decisions, even if that comes with a fee. 

Follow your instinct 

Again, if it’s too good to be true, it is too good to be true. Any investment that looks too shady, enforces some urgency in you, or calls you out of the blues without prior contact, thereby sparking some doubts, is a significant bleeding red flag; avoid it.

However, you can be a good investor and easily avoid the troubles associated with Ponzi schemes using these easy steps. Risevest is also here to help you invest and grow your wealth in dollar-denominated assets like US stocks, real estate and fixed income. You can start here.