Ponzi schemes in Nigeria: How to identify and avoid

Multiplying money legitimately is an important part of becoming rich. However, many unscrupulous persons have taken the desire of the average Nigerian to make money, as an avenue to enrich themselves. Dressed in clean suits and ties, they often pose as investment/financial experts to unsuspecting investors. All in a bid to scam people of their hard-earned money.

First things first.

What is a Ponzi scheme?

A Ponzi scheme (also called pyramid scheme) is a fraudulent investment platform that uses funds paid by new investors to pay existing investors. In other words, a Ponzi scheme cons people into fraudulent investments by promising high returns with little or almost no risks. Whereas, in actuality, there is no real investment, only a recycling of funds.

Ponzi schemes became popular in the 1920s for Charles Ponzi, a well-known criminal who swindled many people in the United States.

How does a Ponzi scheme work?

Ponzi scheme operators use funds from new investors to pay interests to earlier members while keeping some for themselves. The point is to use them (early investors) as bait in evangelizing their scheme to others.

With this kind of setup, Ponzi schemes need a constant flow of new recruits to remain in business. Since they do not have any legitimate source of revenue, when it becomes difficult to find new investors the system will crash.

How long do Ponzi schemes last?

Usually, pyramid schemes do not last for very long. Whenever a good number of investors withdraw their money or when it becomes difficult recruiting new members, these schemes end up folding up leaving investors dry.

How do you identify a Ponzi scheme?

In Nigeria, as at Q3 2021, it was reported that investors lost more than N300 billion to pyramid schemes across the country. This could be because of ignorance, or the ordinary desire to make wealth faster and lead opulent lifestyles. However, listed below are common signs to know when an investment opportunity is fake.

Ponzi schemes red flags in Nigeria:

  • Unusually high returns on investment 
  • No legal paperwork
  • There is no genuine office address
  • Shady investment business portfolio
  • Little or no risks attached
  • Short timeframe for maturity of investment
  • No sign of being registered with a regulatory authority 
  • There are no standard protocols involved

 Lets dive into these one by one.

1. Unusual high returns on investment

One good signal of a Ponzi scheme is the above-average amount promised in returns. This is a tactic of fraudulent organizations, to pull the greed card by promising unrealistic interests under a short time frame. Investment schemes like double-your-money in 12, 24, or 48 hours all fall under this category.

Note that, any genuine investment will always follow market trends and conditions. It is normal for the investment market to fluctuate due to many reasons, therefore, any platform that offers guaranteed fixed returns is worth questioning.

Most get-rich-schemes in Nigeria do not require standard paperwork that documents their transactions. Be wary of any investment that has no documentation or worse, falsified documents.

3. There is no real office address

This may not be the case in all situations but most Ponzi schemes in Nigeria are conducted online. Oftentimes, they cannot be traced to an actual physical address.

When there is no registered office to make complaints directly to. Or the channels of communication with an operator become strained after depositing your money, then such a platform becomes suspicious.

4. Shady business investment portfolio

A pyramid scheme operator uses the funds paid by later investors to pay the interests of earlier investors. There are no other earnings coming in from any external investment as they usually suggest.

So one should be careful in knowing the exact business an investment company claims to invest in.

5. Little or no risks attached

Be skeptical of any investment scheme that promises little or no risks on investment. Note that all investment types carry a certain level of risk.

Some are moderate, some very high. Usually, the higher the risk involved, the higher the returns. A legitimate investment will generate average returns according to market conditions. 

6. Short time span for maturity of investment

Investors should be wary of any investment scheme that makes bogus promises within a short maturity timeframe.

Ponzi schemes always guarantee that investors can withdraw their earnings within a very short time of investing.

7. No sign of being registered with a regulatory authority

Another signal that an investment is a Ponzi scheme is the lack of registration with SEC or any other government-recognized regulatory body.

8. There are no standard protocols for making investments

The Nigerian capital market, for instance, has some laid down protocols all investors must pass through. Things like getting a stockbroker to trade for you and such. 

Though, it is true that nowadays there are online brokers who will make the process much easier. Yet, the lack of anything standard being done before making an investment should trigger suspicion in the platform.

It is worthy of note that, there are also Ponzi schemes that parade themselves as ‘online brokerage firms’. Hence, investors should be extra careful so as not to fall victim.

How to avoid falling victim of Ponzi schemes

If an investment platform seems suspiciously fraudulent for any reason, here are a few tips to verify its authenticity:

  • Ask for documents proving the company’s legal existence: According to Nigeria’s Companies and allied matters Act(C.AM.A) as amended 2020, all legal entities in Nigeria must be duly registered with the Corporate affairs commission. This way, you can be sure of some level of legality if anything goes wrong. 
  • A license for operations must be issued by the Nigerian securities and exchange commission (SEC) to show it is regulated under the Nigerian law for investment. Ensure you see one before committing to the investment scheme.
  •  Don’t be quick to share your contact information with anyone in response to investment ads. Instead, you can do a thorough background check first.
  • Protect your data and sensitive details online.
  • Understand how Ponzi schemes work and generally steer clear of investment deals that are not straightforward.
  • Clearly understand what is being invested in before putting your money. For example, investing with a company that claims to invest in Blockchain securities. This is not bad on its own but if you have no idea of what is being invested in, it becomes easy to dupe you.
  • Be extremely cautious of shady investment deals. It is very important to read all contracts carefully before agreeing to them.
  • Consult other experienced financial experts before making investment on any online platform.

What to do when you realize you’ve been scammed by a Ponzi scheme

At this point there isn’t much to be done except to take precautionary measures against being scammed again. You can try try either of these:

  • Contact your bank to temporarily block your account and ATM cards. This will prevent further access to your bank accounts.
  • Make official complaints to your bank, with any luck there might be a way to reverse the transaction.
  • Report the scam to relevant authorities to prevent others from falling victim.

There are several fraudulent investment schemes operating in Nigeria. Some of which are:

  • Twinkas
  • Liberty funds
  • Donation hub
  • Loom Ponzi scheme 
  • Zigma 
  • 247helpers
  • Loopers club
  • NNN Nigeria

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Joy Gabriel

Joy Gabriel

Joy Gabriel is a business strategist and content creator for MakeMoney.ng. Her passion is creating solutions to entrepreneurship problems. She loves to read and teach others whenever she's not working.

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