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Why Ponzi scheme thrives in Nigeria

By Olusuyi Adaramewa
09 February 2023   |   1:25 am
The emergence of “Ponzi Scheme” in the annals of investment’s Lexicon albeit a globally notorious phenomenon, was not a recent development. Its historical antecedent was set in motion with the celebrated Charles Ponzi scheme ...

The emergence of “Ponzi Scheme” in the annals of investment’s Lexicon albeit a globally notorious phenomenon, was not a recent development. Its historical antecedent was set in motion with the celebrated Charles Ponzi scheme which came to the fore in the 1920s. Perhaps, it may not be trite to assert that the scheme slipped quietly into the financial eco-system without any inkling on the part of its preys that the strategic initiatives of Charles Ponzi were disguised by investments jiggery-pokery.  

Be that as it may, from the available financial memoir, it has been enunciated with profound lucidity that the progenitor of the scheme was an Italian business man, named Charles Ponzi. Indeed, Ponzi’s escapades, as well as his atrocious moves on the investment landscape were huge and monstrous. As at the last count, investors in the Ponzi’s Scheme lost about $15million. He was not just the grandmaster of the art, but also an octopus per excellence in the game. Thus his posture and sobriquet as the grandfather of Ponzi schemes has remained incontrovertible by any one till date.
Additionally, it was classically chronicled that in the 1920s, his notoriety and craftiness in misrepresentation of facts on financial re-engineering, dovetailed into scamming investors via a scheme that they were investing in international mail coupons. In luring his clients, he made irresistible and mouth watering promises to the numerous preys masquerading as investors. Put starkly, a 50% return on their investments after few months was considered then and even now as not only mouth watering, but irresistible to his gullible cohorts or better still, investing audience. Thus, some investors with a knack for innoxiousness took the plunge. The victims might have relied most heavily on their insatiability instincts as well as their inexpertness which culminated in their capitulation to the roguery and the patent sleaze of Charles Ponzi.  
For the avoidance of doubt, it could be stated that Charles Ponzi was never keen in turning around the financial fortunes of his clients or even at home with investments wizardry that could bolster their profits. Pathetically, he was not involved in any productive venture or rendering any financial service to the public. Despite this investment oddity, he was perfidious enough by basically using the funds from new entrants or investors to pay opaque “returns” to earlier investors. After some time, he reneged on his promises, defaulted and investors lost their wealth spectacularly.
Ever since, most schemes that emerged were now dubbed “Ponzi.” Suffice it to say that the schemes have been growing in leaps and bounds. It has come in several names, shapes, coloration and even added some flavour to investment activities globally.
To underpin this fact, one of the greatest Ponzi schemes in history happened recently. It involved the celebrated Bernie Madoff, an American fraudster and Wall Street financier who defrauded “the largest, possibly most devastating Ponzi scheme in history, defrauding thousands of investors of about USD64.8billion.”  He was later prosecuted and sentenced to 150 years imprisonment where he died in 2021 at the age of 82.
At this juncture, can we pause and ruminate on this poser: Are the average Nigerian investors ring-fenced from the vicissitudes of Ponzi? Your guess is as good as mine. In Nigeria, the metamorphosis of the schemes are legion, but they include but not limited to: Umana-Umanah, Forum, Deception or Advance fee Fraud otherwise called 419, Yahoo Yahoo or G boys, Yahoo Plus or even multiplication. Some financial analysts had opined recently, that it was advancing into the remit of the real estate sector of our economy. 

After a thorough and detached analysis of the scheme, the following factors may have galvanized the interests of its patrons in our own economic milieu. Firstly, there is lack of due diligence on the part of investors. Most of the Nigerian investors who usually get their fingers burnt via Ponzi schemes fail to do proper due diligence in their investment activities. The legal maxim of “caveat emptor” (Buyers beware) holds sway here. Most investors who fall victims of the Ponzi scheme do not ask pertinent questions such as: what is the track record of the company promoting the scheme? What is their business model? Are they into manufacturing or playing in the service sector? Who are the key members of the Board? Are there key Central Bank of Nigeria’s (CBN’s,) Securities and Exchange Commission’s (SEC’s,), approvals or licences for the scheme? What is the purpose for which funds are being raised? Is it a debt or equity instrument? Is there a cap or ceiling on the money being raised? What is the return on the investment (ROI)? Is 20% per month (ROI) or 240% per annum under an inclement economic climate like ours realistic? Is the company rated by any of the reputable rating agencies such as Fitch, Moddy or even our own Augusto? Once these and other posers cannot be satisfactorily answered, then, there is a red flag and it is incumbent on the investor to be circumspect.
To be continued tomorrow
Dr. Adaramewa, a Lawyer and an ex-banker wrote from Lagos. 

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