• Saturday, April 20, 2024
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Wonder banks where money can’t make money

SEC asks young Nigerians to avoid Ponzi Schemes

In the last couple of months, I have not heard from my Angolan friend, Dave Jedodo. A theatre arts professional, Dave called me a few days ago. After exchanging pleasantries, my friend started lamenting on phone. At a stage in our conversation, my friend was speaking in tongues.

“What happened Dave?” You need to calm down”

“Calm down? “My entire savings is gone.” “I signed up for an FTX account last year summer. Did I tell you? I knew of the crypto exchange because my in-law in Boston recommended it and also through aggressive advertising in Africa, I was convinced that some interests and trading opportunities would be available to me.

“As a retiree, I wasn’t making as much. But I knew surely that my money could make money,” Dave said.”

“So, tell me how much did you make?”

“My friend, I was told the FTX has collapsed. So, I quickly checked my account which I thought contained about $3,000 but to my surprise the account was frozen and inaccessible.”

I feel like I should have known better. This experience is a little bit gut wrenching! FTX filed for Chapter 11 bankruptcy.

What? So, the firm has gone down?

“The fillings indicate the firm owes over $3 billion to more than one million creditors. The ripple effect is shaking the whole world. From Las Vegas to Singapore to Ontario Teachers Pension Plan.” Africa is not spared.”

“Oh no! Teachers pension has gone down the drain? Thank goodness Africa will not be affected.”

“Which Africa? From information available to me, Africa is significantly affected as FTX and its founder had invested heavily in the continent eyeing the huge crypto market.”

“Anyway, the population is there in Africa. Even in Nigeria we have the population. No wonder, the Nigerian crypto company Nestcoin counted itself among the crash”s victims. The firm has not been able to unlock wealth with crypto. That was why it announced layoffs after its FTX account was frozen following the platform’s bankruptcy. Crypto’s collapse is a setback for the region.

FTX’s books were solid as promised, sent the market into a panicked sell-off and suddenly was unable to repay all the customers who wanted to pull their money from the exchange, and halted withdrawals. I am sure that many people have lost massively after the FTX crash.

“So many Nigerians who invested in FTX had lost their entire life savings.”

In order to survive the economic hardship, some Nigerians sought alternative means of income via schemes that looked attractive on the surface but fraught with potentially tragic consequences in the long term

FTX has gone the way of Ponzi Schemes. It is just a pity. For many years, many Nigerians have fallen victim to the devious antics of money-doubling platforms popularly known as Ponzi Schemes. Ponzi Scheme, named after Italian businessman Charles Ponzi who was a swindler and con artist operated in the USA and Canada during his lifetime. It is a fraudulent scheme with painful history “that involves paying existing investors in a nonexistent enterprise with the funds collected from new investors.” It is a very misleading investment scheme that has many Nigerians onboard due to economic hardship.

Some call it “Wonder Bank” others refer to it as “pyramid investments aka “everybody come inside.” Anytime the media writes about the Ponzi Scheme, those who invest in it show emotional reaction condemning such reports. This writer will not be surprised if those who have invested in the scheme will not be condemning this article as unnecessary.

Since we had our last economic recession in 2016 till date, Nigeria has experienced a proliferation of the world’s oldest scam popularly called the Ponzi Scheme. The effect of economic recession was evident in the country’s decline in economic activities such as unemployment, rising inflation and low production in the formal and informal sectors.

In order to survive the economic hardship, some Nigerians sought alternative means of income via schemes that looked attractive on the surface but fraught with potentially tragic consequences in the long term.

You may recall that when Mavrodi Mundial Movement (MMM), which has the trappings of a Ponzi Scheme launched by a Russian politician and conman, Sergius Mavrodi, made its way to Nigeria, many Nigerians fell in love with the scheme. The end of the romance was disaster.

Some of my friends have not forgotten the Umana Umana investment platform in Port Harcourt and Calabar in the 1980s and 1990s. These schemes can be likened to a money laundering scheme where investors are lured in with a promise of high returns on investment after a specific period. How does the system work? The system runs by paying old investors with the deposit of new investors.

Read also: Crypto-obsessed Nigerians reel as FTX collapses

Unfortunately, not even the disastrous outcome of MMM and Umana-Umana schemes have been able to discourage Nigerians from falling prey to Ponzi schemes. Many of the schemes exploited the Covid-19 crisis which forced a lot of Nigerians to search for alternative investments with significant returns. But in most instances, it is all disappointment!

The case of Omopeninu is pathetic. “It happened in February 2021. I invested 50K to make daily return of investment on the website. I must log in to the website daily. The arrangement was going well daily until day 14 when the system failed. The website started malfunctioning and customers could not log in. I was very much disappointed. It was a sorry case as we started seeing drama of all sorts. In summary, I lost my money.”

Some ventured into “wonder banks” because their friends whom they trusted introduced them to these treacherous banking schemes. According to Olodo, his friend assured him the platform was very legitimate. “That was the first time in my life to do such thing.” The minimum investment in 2020 was N100,000. But I engaged with N400,000. According to the scheme, it will take three weeks to one month to get my capital plus interest.” The week my account was to be credited with profit, the gateway for payment had a problem and that is how it dawned on me that I had been scammed.” The rest is history!

People look at the information without checking the authenticity of the platforms. The guys behind the false schemes exploit the gullible aspect of humanity. If there is one way to identify Ponzi schemes, it is that some do not have official registration. When a platform promises 300 percent interest, people will take it hook line and sinker without verifying.

The question to ask is: What makes a bank authentic? In answering this question, some experts have stated that a bank must be registered; it must have an address; it must be licensed by the Central Bank of Nigeria, and must be insured. We can blame high poverty and high unemployment rates as major factors for investing in these Ponzi schemes, but financial education of local investors is compulsory to avoid these traps.

The CBN and the Security and Exchange Commission should continue to champion campaigns against these Ponzi schemes while collaborating with security operatives to tackle perpetrators of this heinous crime. Nigerians should cultivate the habit of asking questions before engaging any platform. Thank you.