• Friday, March 29, 2024
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Here’s what you need to know about Ponzi schemes

How to identify a Ponzi scheme

They promise their potential investors jaw-dropping returns in few days and in some cases weeks. Sadly, investors fall into their trap without doing their due diligence.

The Securities and Exchange Commission (SEC) has alerted stakeholders and the investing public against the activities of some unlawful/unlicensed market operators and promoters of other fraudulent schemed.

SEC in a circular, said the investing public is advised against dealing with 12 fraudulent Ponzi scheme operators with their bogus investment and return claims.

Read also: SEC says committed to fight Ponzi Scheme promoters 

According to SEC, these activities are perpetrated by suspected promoters of Ponzi and other fraudulent schemes under the following identities: Loom Nigeria Money; Box Value Trading Company Ltd; Now-Now Alert; Flip Cash Investment; Result Investment Nigeria Limited; Helping Hand and Investment; No Failure Development and Empowerment Nig. Ltd; MBA Forex and Investment Ltd; Federate Investors Trading Company; Jamalife Helpers Global Ltd; Flexus Global Solutions and Investment Ltd; United Capital Investment Company Limited

How to identify a Ponzi scheme

A notable feature of Ponzi schemes is that the returns promised participants are attractively high and based on this, investors are promised early returns in the hope that the early investors will spread the “good news”, thereby inviting more contributors to the scheme.

Once new contributors join the scheme, their cash would be used to pay out high returns to older investors.

Also, Ponzi schemes by nature do not have any underlying assets that the money is invested in.

The only way they can guarantee consistent returns is the recruitment of new members. Once the rate of growth of new members starts to drop, the likelihood of the Ponzi collapsing gets higher.

Unlike most investment schemes such as mutual funds, pension funds, ETF’s, etc., which are all recognized and regulated by the Security and Exchange Commission (SEC), Ponzi schemes do not have such oversight. As such, investors do not have any form of recourse, exposing them to the risk of losing their entire investment when it collapses.

Investors must note that by virtue of the provisions of Section 38(1) of the Investments and Securities Act (ISA) 2007, only persons registered with the Commission can engage in capital market activities, thus making the actions of these entities listed above unlawful.