Ponzi Schemes, threat to investor Protection- SEC

The continued activities of Ponzi schemes have been described 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 at large.

Director General of the Securities and Exchange Commission, Mr. Lamido Yuguda stated this during the opening of a two-day webinar organised by the Attorney General Alliance-Africa in collaboration with the Securities and Exchange Commission, Tuesday.

Yuguda said the devastating impact of the Covid-19 pandemic on the Nigerian economy, the low-interest rate environment, coupled with the increased use of online services to interact and transact, has helped the proliferation of Ponzi schemes. 

He said Ponzi schemes operators have capitalized on the harsh economic climate to offer unrealistic returns on investment to unsuspecting investors. These illegal schemes have also been able to solicit new investors and expand their operations through the increased use of online services.

Yuguda however stated that the SEC has a statutory duty to promote investor education and the training of persons in the capital market, saying that the programme is organized in furtherance of that statutory mandate. 

According to him, “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 new ways of approaching, assessing and tackling the growing problem of Ponzi Schemes”.

He described the theme of the programmeas apt, and its organization timely, in view of the contemporary challenges confronting the Nigerian financial sector and its regulators, by the activities of Ponzi Schemes. 

“The pervasiveness of Ponzi schemes undermines regulatory efforts in developing the capital market, and also negatively impacts investor confidence.

“Ponzi schemes operate with unsustainable operating models that ultimately lead to huge losses for investors. Following the collapse of the MMM Ponzi scheme, the Nigerian Deposit Insurance Corporation (NDIC) had estimated that over 3 million Nigerians lost about N18 billion Naira. Several other illegal investment schemes have cost Nigerians their assets and life savings” he stated. 

The SEC Boss said the Commission’s efforts in addressing Ponzi schemes are therefore geared towards investor protection and preserving market integrity, emphasising that the Nigerian capital market should be a safe destination for investors. 

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

In his remarks, Mr. Markus Green, AGA-Africa Board Member, stated that due to the pandemic, businesses are operated online and criminals have taken advantage to attract people to Ponzi schemes, adding that the seminar 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, Mr. Abubakar Malami, Attorney General of the Federation and Minister of Justice, said there is no underlying investment for Ponzi scheme, so it 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, the sophisticated people. 

“They are usually people who are very good at what they do and they thrive on trust and friendship promising easy cash in the short term and financial succour to the naïve.  Ponzi scheme is an operational, social and economic risk and the fight against it is now a war, and in fact a full blown war. It is everywhere, not peculiar to us.

“The investment climate is not simplistic, it can be highly sophisticated and that is why the law regulates the space to ensure that the requisite duty of care by operators is not breached in any way, that there is a proper disclosure as required by law and that there is a generally level playing field for all stakeholders” he added.

Malami added that the nation has relevant laws to ensure that offenders are punished, stating that the government is doing its best to tackle economic problems and committed to ensuring that Nigerians are lifted from poverty through a number of incentive-based loans and a number of programmes.


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