HOW TO DETECT PONZI SCHEMES IN NIGERIA

Sometime in July 2021, the Vanguard newspaper headline bore the caption “ Victim of Ponzi Scheme commits suicide”. According to the article, the man the young man in question was a student who borrowed money from his friends in addition to his school fees to secure his investment in what turned out to be a fraud.

It would interest you to know that the investment company in question, was registered with the Corporate Affairs Commission and as a result, the unsuspecting investors had no reason to question whether or not the activities of the company were legitimate. But when it comes to the economics of receiving and trading in investments for the benefit of members of the public, the Corporate Affairs Commission has little or no role to play in it. It is therefore your responsibility to conduct due diligence before making an investment with any company.

Sadly, the number of such fraudulent companies continues to be on the rise. More so, with the declining economy in Nigeria, these fraudulent schemes might remain appealing to unsuspecting individuals. It’s significant to note that almost all major Ponzi Schemes recorded in history have similar patterns not different from what we have today. So, how do investors detect Ponzi schemes?

HOW TO DETECT PONZI SCHEMES.

Below are four major patterns to look out for in Ponzi Schemes;

1. UNREGISTERED INVESTMENTS.

Before rushing into investment in a scheme, it is important to confirm whether the investment company is registered with the Securities and Exchange Commission in Nigeria and other regulators.

The Securities and Exchange Commission is charged with the responsibility of regulating investment and securities business in Nigeria. Investment and securities business is carried out in the capitals market.

The importance of registered investments by investment companies, is to enable every investor can have access to such company’s information to determine whether or not it is legitimate.

2. SECRETIVE AND SOPHISTICATED STRATEGIES.

Avoid investments that are too complex to understand. Statements such as; “We invest in Oil and Gas, Real Estate” e.t.c are vague as well. When trying to invest, look out for detailed information on; what product or service they sell, regulatory framework within such sector as it affects your investment, their financial track record or history, how they make profit, who are the decision makers of such companies?

In all cases, Ponzi schemes are known for having unsustainable operating models which results in huge losses for investors.

3. GUARANTEES CONSISTENT HIGH RETURNS ON LITTLE RISKS.

Every investment comes with some degree of risk. If someone offers an investment of high returns consistently and few risks, it’s likely to be too good to be true deal.

4. FOCUSES ALL ITS ATTENTION ON LURING NEW INVESTORS.

There’s a place for marketing in every business. But when luring new customers is the sole basis for which such scheme exists, that’s a red flag.

The idea behind that is to use funds from new investors to pay former investors as “returns” so as to create a convincing perception in the minds of the public.

Now there you have it, practical tips to identifying Ponzi Schemes.

On the other hand, if you’re an entrepreneur looking to secure investments, this post demonstrates the fact that having your business registered is one out of many requirements. There’s more to gaining the confidence of seasoned investors than company registration.

Got any questions about securing investments for your Startup or making investments? Contact us HERE or at info@lexpraxisng.com, we look forward to hearing from you.

Cynthia Tishion
Cynthia is a lawyer and currently serves as Head of Corporate / Commercial Services at LEX – PRAXIS. With her passion for business and entrepreneurship, she is actively engaged in creating awareness on the legal aspect of businesses through various platforms such as writing, public speaking engagements.

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