• Friday, December 08, 2023
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Ponzi schemes: Investors’ greed or dearth of investible products?

Ponzi schemes:  Investors’ greed or dearth of investible products?

While Nigeria’s apex capital market regulator continues the “catch-up play” with the growing number of illegal fund managers also called Ponzi Schemes, investors who are eagerly looking for higher returns should also factor in risking their ‘investments’ amid regulatory clamp down on the Ponzi merchants.

Ponzi schemes are ‘investment’ schemes that promise unrealistic returns which ordinarily should be treated with caution. The merchants target greedy investors in their push to grow their pyramid schemes which pay returns to their investors from capital paid to the operators by new investors, rather than from profit earned through legitimate sources.

Ben Llewellyn-Jones, The British Deputy High Commissioner to Nigeria had in February during a meeting with the Securities and Exchange Commission (SEC) canvassed the need for the SEC to create more alternative options for investments for all classes of people as one of the ways of pulling people away from unregulated space.

“The more you can create alternative options the easier it is to pull people away from unregulated space and that is why the Sandbox is so attractive to us and why we encourage it. We come across these fintech players and they are formidably driven in their vision,” Llewellyn-Jones said.

The SEC while reaffirming its commitment to making the capital market attractive to Nigerians of all ages and economic status said the Commission is implementing various initiatives to ensure that products and offerings in the market are accessible to both the young and old whom he said would further deepen the market.

“In this market what we have seen is that where people do have ready access to interesting products in the regulated market, they then gravitate towards the parallel markets and the Ponzi schemes and really the task of the Commission is to as much as possible move money away from Ponzi schemes to the regulated market,” said Lamido Yuguda, the director-general of the SEC.

To the apex regulator, investors are always advised to confirm if the investment product, scheme, or company is registered with the SEC before investing. This could easily be done through the SEC website: www.sec.gov.ng or via email to [email protected]; or from other regulatory authorities.

According to SEC DG, “When we assumed office, we were shocked to know that the average age of the Central Securities Clearing System account holder was over 50 years. The CSCS is a depository so if you are investing in equities you must have a CSCS account.

“The average age of that account holder was over 50, and that indicated to us that the young people were not participating in this market and when young people are not participating in any market, that market is doomed to fail. And young people today prefer to do things on their phones. If you have to fill a stack of forms manually young people won’t do it. We want to make investing in the capital market a fun experience.

“The capital market experience starts with a bank account and eventually the distribution has to hit a bank account as well. So we decided to look at the whole process and find out what is turning young people off. We have started the process and seen how the tech companies are providing much-needed relief to the kind of bureaucracy that happens in the capital market.

He stated that with e-offers, a lot of Nigerians would be happy to invest in the capital market and that would dissuade people from patronising illegal schemes thereby leading to the development of the capital market and the Nigerian economy.

“But we get a sense they need to work with regulators to make it work and they recognise that it’s the right way to be attracted to investment and grow the way they want. They are formidably talented and it is really encouraging. We are very keen to work with you and your approach and that’s very heartening and the appetite for innovation is what has attracted us to that the most,” Llewellyn-Jones said.

The Securities and Exchange Commission recently sealed the premises of Oxford International Group/Oxford Commercial Services, Farmforte Agro-Allied Solutions Limited/Agro Partnerships as well as Vektr Capital Investment/Vektr Enterprise for illegally engaging in capital market activities.

Read also: Nigeria’s relevance waning among foreign investors

The SEC said the offices of the companies in Lagos, Port Harcourt and Abuja were shut down for carrying out investment operations that fall within the ambit of fund management without registration with the apex regulator contrary to the provisions of the Investments and Securities Act 2007.

“These companies do not have registration of the SEC to conduct fund management activities and have been found to promise exorbitant rates of returns to lure investors. The SEC has exercised its powers under Section 13 (w) Investments and Securities Act 2007, to shut them down. The Commission hereby notifies the investing public that none of these entities or their investment platforms are registered by the SEC,” SEC noted.

Lamido had at the opening ceremony of a National Fact-Checking Course organised by the National Orientation Agency (NOA) said SEC is engaging NOA as well as regulators of public agencies to curb the activities of illegal operators. Yuguda, who was represented by the executive commissioner corporate services of the SEC, Ibrahim Boyi, stated that Nigeria’s investment climate has continued to witness the proliferation of illegal fund managers (Ponzi Schemes) as the promoters of these schemes continue to defraud millions of citizens, by promising them mind-boggling returns on investments.

“Such schemes with all the illegality and promises of unrealistic returns have burnt the fortunes of many ambitious investors, from Yuan Dong Ponzi to Galaxy Transport, Famzhi Interbiz Limited, Cowlane and Durell, and the infamous Mavrodi Mundial Movement (MMM).

“The upsurge of these schemes has undermined the reputation of the capital market and dampened investors’ confidence, among other things. This has created a considerable challenge to the growth of our market, and the Commission is striving to change the narrative by instilling a fair, transparent, and orderly market,” he said.

“Investments enable growth in wealth, thus while encouraging more retail investments, we urge you to invest in investment classes and products approved by the SEC, which can be confirmed through the channels provided above,” the SEC stated.

The National Assembly is proposing a Bill that will empower the SEC to impose stiffer punishment on promoters of Ponzi Schemes and other unregistered investment schemes. This move by the National Assembly is aimed at combating the menace of Ponzi Schemes and ensuring that the regulator of the capital market is well equipped to stop it. This is part of an amendment to the Investment and Securities Act (ISA) 2007, being proposed by the House of Representatives.

The second reading of the Bill was done on Thursday, January 20 at the House of Representatives by Babangida Ibrahim representing MalumFashi/Kafur Federal Constituency in Katsina State.

The amendment is titled “A Bill for an Act to Repeal the Investments and Securities Act, 2007 and Enact the Investments and Securities Bill to Establish Securities and Exchange Commission as the Apex Regulatory Authority for the Nigerian Capital Market as well as regulation of the market to ensure capital formation, the protection of the market to ensure capital formation, the protection of investors, maintain fair, efficient and transparent market and reduction of systematic risk; and for related matters,”

The SEC continues its campaign against illegal operators in the capital market, especially Ponzi Schemes and has adopted multi-level engagements with media platforms and regulators of publicity agencies in order to curb the reach and activities of these illegal operators.

“While we continue our activities towards resolving complaints that have been forwarded to the Commission, it is important to reiterate to the investing public to be wary of unscrupulous schemes that promise unrealistic returns on investment.

“We will like to use this opportunity to reiterate our commitment towards zero tolerance for market infractions. We urge every capital market operator to operate within the market functions approved for it by the Commission. The Commission will not hesitate to deal decisively with any operator who carries out any activities outside the function(s) approved for it by the Commission. No capital market can grow without discipline and adherence to laid down rules and regulations,” Yuguda told journalists after the second capital market committee meeting in 2021.