Communication, stronger regulatory oversight as panacea to wonder banking menace

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By Amaechi Ogbonna

About five years ago when octogenarian, Pa John Adebiyi, invested his retirement benefits with an investment outfit in Lagos that promised 100 percent return over three months, his dream of a life of comfort that his terminal benefit could not guarantee him under a Nigerian economy buffeted by galloping inflation was fabulous.

But a promised time of harvest suddenly turned out a nightmare full of regrets, pain and anguish as the shock of losing everything to a wonder bank threw him into a coma he never recovered from.

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Adebiyi’s pitiable story sums up the experience of many gullible Nigerians who in their quest for higher returns have ended up in the infamous net of some illegal financial operators .

However, as part of its statutory mandate of ensuring sound financial system stability, the Central Bank of Nigeria (CBN) has never relented in warning Nigerians periodically about the dangers of doing business with Illegal Financial Operators (IFOs), otherwise called Ponzi schemes or wonder banks.

But whether such advice are taken for what they are or jettisoned on the altar of greed and avarice by such investors is yet to be ascertained.

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IFOs by definition entails financial entities and transactions that are not regulated by the CBN or the Securities and Exchange Commission (SEC).

Characteristically, operators in this segment of the financial space, prey on the ignorance of uninformed investors through the promise of mouth -watering returns and incentives to compel them to part with their hard -earned deposits.

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But studies around their operations have shown that in many of the schemes, the operators end up defrauding their victims..

In most cases they could also deploy creative accounting devices to cook the books, including falsifying accounting entries, fabricating insider transactions, misapplying generally accepted accounting principles (GAAP), particularly those of accrual accounting, not reporting or underreporting liabilities, inflating asset values, capitalising expenses, accruing interest on defaulted loans and fictitious sales.

But despite the sustained and consistent efforts of the Central bank of Nigeria, the Economic and Financial Crimes Commission and the Securities and Exchange Commission (SEC) among other agencies of government to dissuade Nigerians from patronising such devious ventures, it is obvious that many greedy and gullible folks within the population have continued to fall prey to their antics over the years, with the loss of an estimated N300billion to these operators.

In line with apex bank’s mandate, its Director of Corporate Communications Department, Mr Osita Nwanisobi, recently reiterated CBN’s warning against illegal financial operators in Akure, the Ondo State capital, during its Fair Team Lead Programme, noting that IFOs use the offer of unrealistic returns on investments to lure unsuspecting members of the public into their track.

Speaking at the enlightenment programme that focused on the CBN’s policies and interventions, Nwanisobi said, “As a Nigerian, you have a role to play in stopping some of these Ponzi institutions that we see around.”

According to him, “You must be conscious of any institution that asks you to bring your money with an extremely very high interest rate. CBN licensed institutions are recognised and regulated.

The advice came after the Securities and Exchange Commission (SEC) for its part warned the public against the activities of FinAfrica Investment Ltd and Poyoyo Investment, where it stated that the companies were not accredited by it to run investment related activities but were merely operating as Ponzi schemes..

Regrettably, the long list of the Ponzi schemes operating across the country under various guise to defraud hapless people have continued to impose untold hardship on the citizenry.

Among the most notorious entities before a regulatory spotlight was cast on them included such outfits like Loom Nigeria Money, Box Value Trading Company Ltd, Now-Now Alert, Flip Cash Investment, Result Investment Nigeria Limited, Helping Hand and Investment, No Failure Development and Empowerment Nigeria Ltd., Others included MBA Forex and Investment Ltd, Federate Investors and Trading Company, Jamalife Helpers Global Ltd , Flexus Global Solutions and Investment Ltd and United Capital Investment Company Limited

Members of the public were advised to note that by virtue of the provisions of section 39(1) of the Investments and Securities Act (ISA) 2007, only persons and companies registered with the financial market regulators can engage in capital market and fund management activities.

The increasing patronages of their business by some ignorant investors have often emboldened these fraudsters who have taken their trade further by placing advertisement on radios, podcasts and other social media platforms, calling for participation in their companies’ with offer of various investment plans, including logistics/bike investment, customer relationship management investment, education virtual reality for students’ investment, location sponsorship investment, real estate and independent investment, with incredible returns of between 60 to 100 percent.

Not even the EFCC Special Fraud Unit (SFU) investigations of some Ponzi scheme operators have stopped their trade.

As part of efforts to address fraudulent financial activities characters, the management of the Central Bank of Nigeria (CBN) warned the public against patronising unlicensed institutions in the country.

Reacting to the avalanche of illegal financial operators dotting the nation’s fund and investment management space, Chief Research Officer, Investdata Limited, Mr Ambrose Omordion, stated, “In the first place, people who fall victim to these schemes are people who are either greedy or do not have knowledge of other certified investments. They also do not know much about the capital market and how they can get returns on investment from it. The SEC has been preaching against it for years now and so the onus is on Nigerians to be very careful about investing in these fraudulent outfits or wonder banks. The FG should keep working and finding out the culprits behind these schemes and they also have to make the capital market more liquid by creating the awareness on the benefits of investing in the capital market.

Also commenting, President, Association of Capital Market Academics of Nigeria (ACMAN), Prof Uche Uwaleke observes that

Ponzi schemes tend to flourish during periods of economic downturn and are prevalent in societies with high rates of unemployment and poverty.

According to him, the first step is to even check whether the firm is registered with the SEC because operators of Ponzi schemes tend to bypass the SEC given that their real intention is to swindle the unsuspecting public. “The CBN and the SEC should intensify the awareness campaign on the dangers of patronising ponzi schemes because of its potential to erode investors’ confidence, which is detrimental to current efforts at increasing financial inclusion in the country.

For his part, Chief Executive Officer, Centre for Promotion of Private Enterprises (CPPE) and Economist, Dr Muda Yusuf said “The scheme is an undesirable phenomenon. It calls for very tight regulatory action.

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It calls for a tighter regulatory regime in the financial sector. I know that the Security and Exchange Commission (SEC) has a much bigger role to play, because this is about inviting people to invest and get returns. The CBN has been doing quite a lot in this area. There should be much greater consequences for those committing infractions in the name of investment.”


There is also the aspect of citizens themselves. They get carried away by the so-called returns on investment. They refuse to learn from the experiences of the past. Investors should be less greedy, be more cautious in investing and be more realistic in their expectation of the return on investment so as not to fall prey to these schemes. Before investing, it’s good cross check first from due diligence about those companies asking people to invest. Many of them are not registered, they are not under the regulatory radar of the regulatory institutions. So, citizens have a part to play in safeguarding their own interest.

He said “Within the economy more and more people are losing their money. It’s like fraud. It’s a crime. When you offer people returns that are not sustainable, its an act of criminality and any act of criminality has an impact on the economy. So there has to be consequences. If the rules are not tight enough, let us tighten the rule so that any body caught will face the law. Once people know that there are consequences for flouting the rule, they will sit up.”

The problem in the country is that people commit crime and get away with it. If we have a more effective consequences management system, it will ensure there are consequences for infractions, so that we don’t create room for people to rip people of their money and go free.

Yusuf advised Investors to be conservative in their expectations of returns stressing that they should moderate their expectations, and regularly google the website of SEC to find out a list of genuine businesses and companies that are registered before investing, so that if any issue arises, there will be a fall back position. He said the investing public has to be up and doing.

Also reacting, Chairman, SMEs Group, Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie, The question we should ask is why is this Ponzi scheme existing and their activities increasing.

“The situation in the country, the challenges and general state of the economy make people want to get money quick and by all means. That is why some investors fall into the hands of these fraudulent schemes.

The ponzi scheme is under the financial crimes, that means it comes under the purview of the Economic and Financial Crimes Commission (EFCC). As a matter of fact, it is contrary to section 8 ( a) 1, 2 of the Advanced Fee Fraud or other related offenses of 2006 as amended form of section 419 of the criminal code.” It was reframed and incorporated in the 2006 Act . It’s actually a financial crime. As at June last year, the EFCC said it was getting about 1,000 petitions a month from ponzi schemes victim. The question now is why do people still go for this scheme when they should know how fraudulent they are and that they will lose their money.

Well like I said earlier, it’s the situation of things in the country and some people in the bid to make ends meet, try to deal with all kinds of businesses to meet up .

Investors want to invest and have good returns on investment. But every investor knows that it’s best to invest in governments securities.

The return on investment may be very low, but some investors want to go to where they will get up to N1 million in one week so that that is part of the problem.

Actually returns on investment in treasury bill is low, but safe.

That is why when they get higher offers they rush into it”.

On how to checkmate the incidence of wonder banks activities, Dickson-Okezie said that part of the solution was for the CBN, EFCC and the SEC to intensify their enlightenment Programme without relenting

“The public should be enlightened. They need to know that they should steer clear of investment opportunities that sound so good to be true.

On the part of investors, before they invest there is need to know when to invest and when not to invest. Investors need to be well educated and enlightened about investment, you don’t just come up with money and you invest any how. That means every investor needs to seek such knowledge , expecially from experts and trustworthy fellows. That can contact the EFCC and other regulatory financial bodies or institute for advice where they are not too sure about where to put their money especially when the amount involved is high.

A background check of the history of the organisation is important for every investor before diving into investment, this is fundamental.

“Any entity offering a high percentage on returns is a red flag, they need to be careful. Just like offering 40percent returns in 6 months, it’s ridiculous. What do they stand to gain because it’s not easy to offer 40 percent in 6 months, the offer is risky.

So far, it appears that 90 percent of the job of the EFCC has been reactive, as it has not been proactive in fighting the issue of Ponzi schemes in Nigeria. They only wait for the crime to be committed, then someone will have to write a petition before they can start working on the petition.That is a major problem. The EFCC is the main agency that handles financial crimes, so it should be proactive more proactive moving to cases to investigate the owners of these schemes and save the public and investors the troubles of losing their money to these fake operators.

Even when the sponsors of the schemes are caught, it requires diligent prosecution of these cases. But this is it so, Sometimes when victims petition the EFCC, they get frustrated over the matter. Whether it is Ponzi or not the law says 10 years imprisonment for any defaulter. In saner societies, when a crime is committed they are sure of imprisonment but in our society reverse is the case.

The loopholes in our legal system is not helping matters.

Sometimes defaulters go free. So how can the society be sanitised. The judicial system is part of the problem.

If only government can improve the system and make sure serious criminals are prosecuted, the situation will continue. The loophole scares investors.

A system infested with bribery corruption and all manner of fraud scares away investors because anything can happen. When such things abound people are afraid to invest locally and this reduces government’s revenue because confidence is eroded.

To checkmate these schemes, regulatory agencies should be proactive. Depositors and investors should not be too greedy. Although business is about taking risk , let investors be cautious and run away from the red flag. The higher the return on investment the more cautious they should be. Contact experts and agencies when not too sure about the particular investment. government should enlighten the public through the organised private sector and relevant bodies. Investors generally in Nigeria expect too much that is why they fall prey to these traps. Investment education is important for guidance.