The newly amended Investment & Securities Act (ISA) has broadened the definition of securities to include investment contracts. It has also brought digital asset operators, exchanges, and related service providers under regulatory supervision to ensure robust investor protection, SILVER NWOKORO reports.
Recently, President Bola Tinubu signed the Investments and Securities Act (ISA) into law. The ISA 2007 amendment saw the introduction of key reforms aimed at boosting investors’ confidence, strengthening market oversight, and aligning Nigeria’s financial markets with global best practices.
It also saw the expansion of the definition of securities to cover investment contracts and digital assets, even as the Act classifies securities exchanges into composite and non-composite exchanges, with the former allowing all categories of securities while the latter focuses on specific types of financial instruments.
Additionally, stricter measures were also introduced to combat Ponzi schemes, while stringent jail terms and sanctions were prescribed for promoters of fraudulent investment programmes.
Before the new Act, the Nigeria Deposit Insurance Company (NDIC) estimated that Nigeria’s investment market lost about N911.45 billion to different Ponzi schemes and other related frauds in the last 23 years as of December 2022.
Another report by the Norrenberger Financial Investments Scheme also estimated that as of 2022, Nigerians had lost over N300 billion to Ponzi schemes in five years.
On its parts, Proshare research survey suggests that Nigerians have lost about N70.24 billion to some of the most popular schemes within the last 10 years.
An extrapolation of the losses across the nearly 200 schemes suggest losses of over N500 billion, matching a significant portion of the total listings on the Nigerian bourse.
Another study showed that about 60.3 per cent of Nigerians engaged in Ponzi schemes due to the current economic conditions associated with recession. About 19.3 per cent attributed their participation to the quick turnover in investment within a short period.
After the infamous crash of the Mavrodial Mondial Movement (MMM), several online investment schemes have sprung up, such as Loom, Twinkas, Donation Hub, Get Help Worldwide, Smile2Charity, Ultimate Cycler, Givers Forum, I-Charity, Crowd Raising, Clarrita, and Help2Get.
Other schemes such as MyBonus2u, RackSterli, Quintessential Investment Company, Inks Nation, and Wales Kingdom Capital Limited preyed on Nigerians’ quest for financial freedom, and their founders/managers disappeared with the money invested by citizens.
With the old provisions of the law and the recurring frequency of people falling prey, many Nigerians are still adamant because they want to make quick money.
A businesswoman, Chinyere Emeka-Atu, was recently arrested following an accusation of defrauding traders and market women of over N600 million in Lagos State .
The woman used her company, Family Food Support Association, to gather unsuspecting members of the public, including petty traders, to part with N9,000 every month to get a higher return on their investments.
The victims were promised a return of N200,000 cash and N90,000 worth of foodstuff after nine months of investments in the association’s scheme.
But when Emeka-Atu started defaulting in the payment of the promised money and donation of food items to those who invested in the scheme, the aggrieved victims reported the matter to the police.
A scriptwriter, Juwon Adekola, who invested thousands of naira in MMM said that he decided to take the risk despite knowing that the scheme could be a scam.
“Before investing in it, I took it plainly as a risky gamble where I decided to either double it up or face the loss like a financial fall. But when the scheme collapsed, I moved on and stopped dwelling on it, as well as avoiding unnecessary conversations about the scheme,” he said.
Nigerian blogger, Noble Igwe, was one of the thousands of Nigerians who lost their savings to MMM. In one of his social media posts, he said that he invested N16 million in the scheme after his barber convinced him.
Also, some management staff of Oak and Timber Resources Limited, Uzoma Ofong and Onyinye Ofong, were allegedly scammed by Adama J Adama, owner of Farm 4 Me Agricultural Limited and Viable X agricultural businesses.
The couple were invited by Adama to invest in his business on June 15, 2020, and promised an attractive return on the investment. Subsequently, the couple met physically with the company representative, Mr. Adama J. Adama and staff in their Lagos office and visited their farm in Benue State. Telephone conversations, WhatsApp messages and other correspondences were exchanged, and a business relationship was established.
The couple sourced funds from associates and invested over N600 million in different investment plans, which were paid into the Viable X Agribusiness Ltd account and the Farm 4 Me Agricultural business account. It was after the investment plan matured to N873,000,000, but was not paid by the promoter, that the bubble began to burst.
Obliviously disturbed by these unsavoury developments, the Securities and Exchange Commission (SEC) proposed stringent jail terms and other severe sanctions for operators of Ponzi and pyramid schemes.
The commission stated that promoters and operators of Ponzi schemes in Nigeria now risk stricter penalties under the newly enacted ISA 2025.
It prescribes a minimum fine of N20 million and a prison sentence of not less than 10 years for offenders. The new law marks a major shift in Nigeria’s regulatory framework, empowering the SEC to take decisive action against fraudulent investment schemes that have defrauded millions of Nigerians.
The Director-General of the SEC, Dr Emomotimi Agama, said that the commission lacked the legal authority to prosecute Ponzi scheme operators effectively before the amendment.
According to him, that loophole allowed fraudsters to thrive, deceiving unsuspecting investors with promises of unrealistic returns.
He stated, however, that with the ISA 2025 now in effect, the SEC has been granted sweeping powers to investigate, prosecute, and impose severe penalties on those engaged in illegal financial schemes.
Agama stated that additional sanctions, including disgorgement, would be enforced beyond the N20 million fine and the minimum 10-year prison term.
This means that any funds obtained through fraudulent schemes must be fully recovered from convicted operators, to ensure that victims are not left empty-handed. “It is not just about the quantum of fraud; it is about creating a deterrent strong enough to prevent individuals from engaging in these illegal activities in the first place,” he said .
The director-general added that a major highlight of the ISA 2025 is its expanded enforcement capabilities, which allows the SEC to access phone records and other electronic communications of suspected fraudsters, adding that the provision enhances the commission’s ability to track, investigate and build solid cases against Ponzi scheme operators, ensuring that they face the full weight of the law.
Iwuagwu emphasised the futility of relying solely on punitive measures, such as stiff sanctions and jail terms, to deter such practices. “People don’t pursue Ponzi schemes because they want to, but because these schemes offer the illusion of hope and opportunity in a system that often fails to provide a fair and objective means to participate in the common good,” he said.
Iwuagwu pointed out that the Nigerian Constitution, specifically in Chapter Two, underscores the importance of governance in ensuring the socio-economic well-being of the people.
He, however, lamented that government policies and activities frequently fall short of creating structures and systems that foster equitable opportunities for all.
“Jail terms have always been there as deterrents, but people still take risks because survival is their priority. The problem isn’t the absence of sanctions; it’s the absence of hope and legitimate opportunities. Until the root causes of inequality and systemic deficiencies are addressed, people will continue to fall for these schemes,” he said.
He criticised the “knee-jerk” approach to governance, calling for a fair system that redistributes opportunities and benefits, allowing individuals to thrive based on their abilities.
“Ponzi schemes thrive because people are desperate. In the absence of legitimate opportunities, any illusion of hope will be pursued, no matter how unrealistic. Instead of intimidating the populace with sanctions, the government must focus on creating structures that provide real opportunities and give people hope for a better future,” Iwuagwu added.
He urged the government to shift its focus from punishment to proactive policies that address socio-economic factors fueling the problem.
The President of the Admiralty Society of Nigeria (ASN), Angus Chukwuka, who said that the challenge lies not in legislation, but in implementation, noted that while jail terms for Ponzi scheme operators was commendable, the country’s legal framework already contains sufficient provisions to prosecute such offenders.
“Nigeria always has well-crafted laws, but these laws are often implemented in the breach. Most of what is required to prosecute Ponzi scheme operators is already embedded in our criminal code and anti-corruption laws, such as the Economic and Financial Crimes Commission (EFCC) Act. We have an almost exhaustive set of laws dealing with financial crimes,” Chukwuka said.
He argued that rather than creating new legislation, which would unnecessarily duplicate existing laws, Nigeria should focus on conducting thorough research and leveraging the legal tools already available.
“Why waste taxpayers’ money and burden the legislature with more laws when suitable enactments already exist? The judiciary and prosecutors need enlightenment and preparation to enforce these laws effectively.”
Chukwuka also called for a systemic overhaul of Nigeria’s criminal justice and law enforcement systems stressing: “The system is often sabotaged with criminals collaborating with law enforcement officers to frustrate justice. Even with the best laws, we cannot achieve efficacy when the system is compromised.”
He underscored the importance of inter-agency collaboration, urging financial institutions, the Central Bank of Nigeria (CBN), commercial banks, the SEC, and other regulatory agencies to work together as a unified front against Ponzi scheme operators.
“There is a need for synergy of operations. These institutions must collaborate with cybersecurity experts and law enforcement agencies to tackle Ponzi schemes effectively. Without systematic improvements in social media security and Nigeria’s cyber network, the fight against Ponzi schemes will fail,” he said.
He further urged the SEC and other regulatory bodies to invest in continuous cybersecurity and social media research to clamp down on fraudsters.
“Judges and stakeholders need training on handling Ponzi scheme cases. Legal experts should also review and discuss existing laws to ensure quicker results.”
While opposing new legislation, Chukwuka acknowledged that existing laws could be reviewed and amended to address specific contingencies. “Relevant laws can be fine-tuned to address particular issues, but creating entirely new laws would be counterproductive,” he said.
Another lawyer, Deji Fasusi, disclosed that in the past three years, there has been a surge in the number of Ponzi scheme operators defrauding unsuspecting and often gullible Nigerians.
“As a lawyer, several Nigerians who did not see a return on their investments briefed us to help them recover their funds, which were trapped in several faceless, but multi-level investments,”
he said.
Fasusi attributed part of the difficulty in recovering these funds to the absence of a robust regulatory framework. “In that sense, many Nigerians jumped on the bandwagon to double their investments basically on trust, and with scant regard for the existence of a legal framework,” he added.
However, he noted that the newly enacted ISA 2025 provides a major shift. “Under the new law, the SEC now has the power to prosecute Ponzi scheme operators. This feature was not present in the 2007 Act. One of the main objectives of the new law is to introduce reforms that will promote market integrity, transparency, and growth,” Fasusi explained.
According to him, under previous policies, crypto traders were forced to rely on underground operations and what is called Peer-to-Peer (P2P) exchanges. “Because of this loose arrangement, it appeared as though, as was speculated during the early days of the current administration, that terrorism activities were funded using cryptocurrency.”
The new law provides a legal framework to regulate these digital assets, with Section C of the ISA 2025 recognizing virtual and digital assets as securities. This, Fasusi emphasised, is an innovative move to enhance investor protection and curb abuse.
He also highlighted a significant development regarding corporate governance.
“No public company can now undertake a scheme, transaction, or arrangement or even issue securities about corporate actions and restructuring without prior approval from the SEC,” he stated.
