Warning! How to spot Ponzi scheme trap


Ponzi Scheme

Mr Lamido Yuguda, the Director General, Securities and Exchange Commission (SEC) recently spoke at the Second quarter (Q2) virtual post Capital Market Committee (CMC) meeting which was held virtually. Apart from revealing how the commission is fighting to rid the capital market of Ponzi schemes, he added that it is not difficult to recognize the scam in whatever way  it appears.

A Ponzi scheme, as defined in Investopedia, is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.


Below are excerpts of Yuguda’s interview:


What is the Commission doing to stem the tide of Ponzi schemes?

The SEC has been fighting a serious war against Ponzi schemes, we have been alerting people. We have said that investors should only deal with registered operators that have the registration of the Commission, we have their list on the SEC website and we have always said that if you go to an operator or when an operator approaches you, you must confirm that he is a licensed operator with the SEC. We have our numbers on how to reach our offices in the zones and we have done a lot of sensitizations in terms of seminars, and webinars all to discourage people from going to Ponzi schemes. Unfortunately, a lot of people continue to patronize these Ponzi schemes, we have had cases that have been reported to us, and our enforcement department and the police unit have been on many of these cases trying to resolve the cases that have been reported to us.

I will like to use this opportunity to say that it is not very difficult to recognize a Ponzi scheme and the people that go into Ponzi schemes many of them are probably aware that there is a type of risk that they are taking because when somebody tells you that I will pay you a 10 per cent per month on your investments, that means if you invest a million naira, every month you get 10per cent of that which is N100,000.00. If you see something like this, it is probably too good to be true. Because when you compound the annual rate of return, you find out that it is way higher than any decent investments can give you. Some people think they can be amongst the first people to go in and probably go out before it collapses but you may be taking a huge risk because you do not know if you are the first, maybe the 1000th and could be that it is your own money that could get trapped.

It is important for our investors to understand the tale-tell signs of a Ponzi scheme and to alert the commission if they need some clarity, we have contact numbers you do not have to come to us, you can send a WhatsApp, email or walk to any of our offices that are close to you.

Is the SEC working with other agencies to contain the activities of Ponzi schemes?

We have been working with other agencies of the government in terms of reducing the access of Ponzi schemes to the advertising platforms that we have whether it is on the internet or the print media or electronic media i.e. the radio and television. This is very important because Ponzi schemes are cancers to the capital market, a lot of money has been lost and it is unacceptable to continue to have this kind of investment loss by people.

In terms of the synergies between the Commission and law enforcement in the fight against Ponzi schemes, I can say that there is very good synergy and harmony between the SEC and the law enforcement agencies. It is worthy to mention that the SEC has a detachment of the Nigerian Police working directly with the SEC on capital market matters including Ponzi schemes and we have a good collaboration with the Nigerian Financial Intelligence Unit, the EFCC, especially in the fight against money laundry and Ponzi schemes.

The collaboration between the organizations is very strong and we are always talking between ourselves. We are expanding to other organizations that have control over our airwaves and internet systems because you still see a lot of adverts for Ponzi schemes on these. We have very strong collaboration and engaging continuously with these agencies to eliminate all Ponzi scheme operations in our market.

Are there plans to take enlightenment to the streets?

For enlightenment to the street, it is a good question; we have been working with various bodies to make sure that our message gets to the streets. We are on the board of the advertising practitioner’s council. We are on the council because we thought that we should bring to the council the concerns of the capital market because of the issue of Ponzi Schemes.

We have recently signed an understanding with the Lagos State Signs Authority in terms of having Bill Boards at very strategic locations in Lagos state, warning the citizens about the ills, the risks, and the dangers of Ponzi schemes. These are some of the things we do and we will continue to fund across the entire length and breadth of this country, working with various state government, local government and different agencies of government including non-governmental organizations to make sure that the message gets to the nooks and crannies of our country.

This is something that is depriving a lot of households of hard-earned money. Money that could be used for a lot of other meaningful activities and needs is now surrendered to fraudsters essentially. When they come to you trying to convince you, they come in the form of very honest people, giving you all sorts of promises in terms of financial return but once they get your money the story begins to change.

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What has the SEC been doing about the unclaimed dividend?

The Commission has done a lot about the unclaimed dividend, by working with the registrars to be sure that dividends are now distributed electronically through the bank accounts of investors rather than through dividend warrants that used to be the case. The problem is that people need to mandate their accounts you need to provide your account details to the registrars so that the registrars can credit your account directly with these dividends. We observed that there are issues with that process; right now unfortunately you will still need to go to every registrar that you deal with to give the same information. Right now what we are doing is to try to get one point of supplying that information because you give it to one registrar you do not need to provide that information across all the other registrars and these registrars, of course, will automatically get your details.

The second thing we have done is enlightenment; people need to be enlightened, a lot of changes have happened in the market and the fact that many people have not mandated their accounts means that many people are unaware of this e-dividend management mandate system.

Also, companies have changed their names, companies that used to be called one name have changed to another and not all investors are aware that these companies have changed their names and if they are having papers reflecting the old name you find out that they may be confused and unaware of where to go. What we are doing is trying to create more awareness of the way the capital market is organized so that investors can get their dividends back.

What is the exact figure of unclaimed dividends as of today?

The number of unclaimed dividends that we have for the end of last year was about N177 billion, unfortunately, this is an increase over the number at the end of 2022. At the end of 2020, we had about N168 billion.

What does the Commission plan to do especially to stakeholders that are reported to be frustrated with the process?

In terms of the e-dividend, I earlier mentioned that the Commission works through a variety of sanctions and the capital market operators know that we said that whoever is frustrating the e-dividend Mandate Management System will face the SEC sanctions.

Can you elaborate more on the revised Master Plan?

The revised capital market master plan will be presented at the next CMC meeting. As you know, the master plan is a 10-year document that was launched in 2015. You will agree that between 2015 and now, a lot of things have changed, and a lot of the assumptions used in designing the 1st master plan have changed. So the mid-term review was just an attempt to revise the document so that the assumptions that would be relevant for the next 5 years are used and the structure of the capital market and the corporate world as we know it today has significantly changed from what it was in 2015.

So it is all these new things have been added and put into the revised capital market master plan to make it more relevant to allow the SEC to realize the goals of the capital market master plan as quickly as possible. For more details, attend the launch if you can or join online so that you can get the details of the course as soon as it is available, we will have the master plan on our website, the full edition of the master plan and anyone with interest can download and study. You then concentrate and focus on the area of the capital market that they want to focus on.

Before now, corporate bonds enjoyed tax exemption but that has now been re-instated by the government. How does that affect investments in the capital market?

The exemption we mentioned and the effect of this exemption have been on the investments in Corporate Bonds. It is important to note that for any asset class investment, whether investors invest in that asset class or not is a function of many considerations and tax is only one part of the consideration. Although it is only one, it is also an important consideration, especially when the tax rate is high, but for now, given that there are so many other considerations, we have liquidity as a consideration, the return, the risk, the time horizon of the investor, the liquidity preference of the investor, and any unique circumstances that may be faced by the investor. So considering all these factors and the fact that this happened early this year, it is very premature to start to draw inferences in terms of whether the decline or increase in corporate bond investments has something that has to do with the tax rebate or not. However, that is just about that, it is too early to give you more information, but the tax is a very important part of the process which is why we believe that tax rebates should be reinstated and the market also believes that. We have been working with the tax authorities and the physical authorities to advocate for the return of the status quo.

What is the state of the review of the ISA?

The SEC has been working with the National Assembly on this and it has passed the second reading at the House of Representatives the house is currently on recess but we expect that once the house resumes the other processes required in terms of the public hearing and other things will be done quite quickly. We appreciate the support of relevant committees of the National Assembly and the entire leadership in this process and we expect to have the ISA revised and enacted into the new law possibly by the end of this year.

There have been various visits by securities Commissions from Ghana and Zimbabwe. What were the visits about?

The visit of SEC Zimbabwe staff is a familiarization exercise. Different capital market regulators face challenges in their markets and they might be unaware of what other regulators do in their respective markets. They organize these visits so that they can come and learn what we are doing and see how they can apply these lessons to their domestic market. So we have had the SEC Ghana and Zimbabwe and typically when they come they come with quite a several people representing different aspects of their organizations so that they can learn from us. We also do the same to other regulators to learn from them. This is a very normal kind of engagement.

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