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Business News of Wednesday, 27 July 2022

Source: www.punchng.com

How economic hardship pushes Nigerians into Ponzi schemes

SEC DG, Lamido Yuguda SEC DG, Lamido Yuguda

In recent years, thousands of Nigerians have fallen prey to the devious antics of money-doubling platforms, popularly known as Ponzi schemes. DEBORAH DAN-AWOH looks at the trend and how Nigerians are yet to learn from painful history

Since the official declaration of economic recession in early 2016, Nigeria has experienced a proliferation of the world’s oldest scam, the Ponzi scheme.

In the wake of the economic crunch of 2016, the Central Bank of Nigeria and the International Monetary Fund had stated that Nigeria’s economy had slipped into recession. The effect was evident through the country’s significant decline in economic activities, such as increased hardship, unemployment, low output, and rising inflationary pressures.

At that juncture, some Nigerians began to seek alternative means of income via schemes that looked viable on surface value but fraught with potentially tragic consequences in the long run.

Hence, when the unorthodox financial system, Mavrodi Mundial Movement, a Ponzi scheme launched in 2011 by Russian politician and conman Sergius Mavrodi, made its way to Nigeria, many Nigerians embraced it as the system that would finally help to secure their financial freedom.

Historically, Ponzi schemes in Nigeria were common in the 1980s and early 1990s. The earliest in the recall were the Umana-Umana investment platform in Port Harcourt and Calabar, the Planwell scheme in Edo State, and the Nospecto in Lagos.

Ponzi schemes, also known as pyramid sales schemes, are a money laundering system where investors are lured in with the promise of high returns on investment after a specified period. The system runs in a somewhat cyclic fashion by paying old investors with deposits of new investors. Usually, this cycle becomes unsustainable when the backlog of old investors eligible for payments exceeds the investments coming into the system.

According to a report by Independent.co.uk, MMM swept throughout Africa with campaign promises of a “30% per month” return, including other acquirable bonuses. It reigned supreme between 2016-2017 as a mutual aid fund. In the first few months, 2.4 million people had signed up to join the scheme.

The massive subscriptions to this financial system caught the attention of Nigeria’s Economic and Financial Crimes Commission, which confirmed that it was monitoring the scheme.

In 2016, three million Nigerians lost N18bn when MMM crashed, according to Nigeria’s Securities and Exchange Commission. These and many became the fate of Nigerians who took a deep dive into the deceptive financial scheme.

The Lagos State Emergency Management Agency had its hands full with suicide attempts and pleaded with Lagosians to dial their emergency numbers if they spotted anyone trying to commit suicide.

According to the Nigeria Electronic Fraud Forum, the Nigerian investing public also lost another N11.9 billion to the MMM scheme. The CBN disclosed that investors lost N12 bn.

Unfortunately, not even the disastrous outcome of the MMM scheme was able to deter Nigerians from falling prey to Ponzi schemes.

In recognition of the unsustainable nature of traditional Ponzi schemes, many of these scams have evolved to masquerade their platforms either as affiliate marketing campaigns or as out-and-out investment platforms with tangible business interests capable of generating profit in the long run.

Today, over the last five years, Nigerians have lost over N300bn in Ponzi schemes, according to a report generated by the Norrenberger Financial Investments scheme.

When Racksterli, an investment platform introduced by Michael Chidiebere Oti, also known as Black Gold, crashed earlier this year, hundreds of Nigerians were disheartened. Adeola Olakunle, 28, was one of the victims.

The platform exploited the 2020 COVID-19 crisis that forced a lot of Nigerians to search for alternative investments with significant returns.

Racksterli offered an irresistible deal which was called the Racksterli Package. For example, an investment of N14,000 was a guarantee of N21,600. The highest investment category, ‘Topaz’ would earn an investor N9.3m who invested N20m. Others included Diamond, Ruby, Platinum, and Emerald, amongst others.

“It happened in January 2021. I invested 100k. To make a daily return on investment on the website. I have to log in to the site daily and share on my WhatsApp so that my ROI can increase daily; it was going well until day 15.

“The website started misbehaving, we could not log in for almost two days, and later it came back. But the ROI was not increasing, and then everyone started drama of all sorts. The guy will do IG live videos to calm people and ensure their funds are safe. In summary, I lost my money.”

Mrs. Olakunle’s testimony is one of many victims who have fallen prey to Ponzi.

86FB or 86Z, an Abu Dhabi-based company that owns Manchester City Football Club in England, is a gambling investment platform that claims affiliations with William Hill, a global online gambling company based in London, England, and City Football Group.

However, it is not listed among CFG’s football business investments. A victim of the platform, Mark Henry, said he walked into the Ponzi trap hoping that he could outsmart the system and make cash before it crashed.

“My best friend introduced me to it, and I thought that the best time to enter into a Ponzi scheme was in the beginning. So, I started with N10,000 and was getting 3 per cent of the money daily. But I wanted to earn more profit, so I invested N100,000. I planned that I would take out the initial investment when I doubled the money. I made a profit and withdrew, but I thought that since the platform had not crashed yet, I re-invested N200,000.

“It started with payment delays. I was doing it through Binance USDT. That’s how I was paid. They didn’t pay me for three days, and the withdrawal process was cancelled. I made about N500,000 that I couldn’t withdraw, and I lost over N100,000.”

Binomo Investment is another fraud trap engineered by Ponzi masterminds, but yet again, numerous Nigerians fell for it.

Another victim, Israel Olaire, said that he ventured into it because of his close friend whom he trusted.

“It was one of my close friends that introduced the scheme to me, though he was also a new participant.”

According to Olaire, his friend assured him the platform was legitimate.

“That was the first time in my life to do such a thing. It happened in 2019; my friend introduced me to the man, and the minimum investment was N100,000, but I started with N300,000. According to the platform, it will take 21 days to one month to get my capital and interest. I was supposed to get 20-30 per cent interest. The Binomo platform was a trading system.

“The week I was to get my profit was when the trouble started. They said the gateway for payment had a problem, and that’s how they delayed my payout till it dawned on me that I had been scammed. I almost attempted suicide.”

According to experts, Ponzi schemes are not difficult to detect, but due to the get-rich-quick syndrome, many have been led to the slaughter table of swindlers.

The Former President, Institute of Software Providers of Nigeria, ISPON and Director-General, Delta State Innovation Hub, Chris Uwaje, said that Ponzi schemes were like phishing that clamped down on gullible individuals. “They put a hook because they know people are gullible. People look at the information without checking for the authenticity of the platforms.

“It is the gullible aspect of humanity that is being exploited.”

“If there is one way to identify Ponzi schemes, it is that they have no official registration. For instance, a bank says it will give you 300 per cent interest, but people will take everything without verifying. What makes a bank authentic? A bank must be registered; it must have an address; it must have a license from the Central Bank, and must have insurance.

“The susceptible nature of individuals has driven government intervention such as a lottery. The lottery system is straightforward and regulated.

Individuals should ask questions before engaging with any platform.”

Uwaje told The PUNCH that the recent success of bitcoin had made people embrace these risky ventures. “People delve into cryptocurrency bitcoins, and they are not registered. They just evolved digitally, and people believe in them. So, people lose money, and people make money. But the best way, as I said, is the authentication process.”

According to Uwaje, commerce was governed by innovation, labour, and reward. “You don’t just put money and expect millions. It is not authentic.”

He explained that technology and data availability had made it easier for Ponzi scammers. “Then the fluidity of the online data, what they call the big data, is driving fake authentication.”

Also speaking, Emeka Orijani, a Cyber security expert and CTO of NAJLO, said identifying Ponzi traps was quite easy, noting that “every website has a register, a footprint online. Someone is telling you to put N5000 and make N50m. If you check when it was registered, you would find out it was launched three days ago. This is a red flag.

“Another way is to ask Google about the website’s legitimacy and it will pull out news and information about the site.”

Orijani said that continuous sensitisation must be put in place as well as regulations to curb this menace.

“For instance, crypto and NFT are being bought and sold for a whopping sum of money. Yet it is powered by volatile demand and supply. Greed is a major factor to why people fall victim.”

However, the Director of Research and Strategy at Chapel Hill Denham, Tajudeen Ibrahim, had a different perspective on why victims fell for Ponzi advances.

Ibrahim blamed “high poverty and unemployment rates in Nigeria” as major culprits.

“There are also, low financial education in Nigeria and few investment products that are appealing to retail investors.”

Uwaje accentuated the need for a verification platform to build a community as well as influencers to drive the narrative of the dangers of Ponzi schemes.

“We need sociologists to educate people to avoid these traps, that’s where actors and entertainment come in to sensitise the public about Ponzi schemes.”

Against the backdrop of the thriving illegal financial schemes, the Federal Government, in collaboration with SEC and CBN, has implemented strategies to prohibit these activities.

Recall that the House of Representatives passed for second reading, a bill to repeal and re-enact the Nigerian Capital market, Investments, and Securities Act.

The bill seeks, among other things, to prohibit Ponzi schemes and other pyramid investments.

The CBN and the SEC have championed campaigns against Ponzi schemes and collaborated with security operatives to tackle perpetrators.

However, their efforts have proven futile as more Ponzi schemes spring up.

When contacted, the spokesperson of the SEC, Efe Ebelo, declined to comment on the ongoing plans of the commission to further clamp down on illegal schemes.