- Calls for Vigilance to Safeguard Investors, Economy
The Securities and Exchange Commission (SEC) has sounded a renewed warning on the dangers of Ponzi schemes, highlighting their devastating impact on investor confidence, financial stability, and the Nigerian capital market.
This was the central theme of a paper titled “Ponzi Schemes: Avoiding the Pitfalls of Illegality” presented by Head of the Enforcement Department of the SEC, Dr. Sa’ad Abdulsalam at the Capital Market Enlightenment Programme organized by the Capital Market Correspondents Association of Nigeria (CAMCAN).
Abdulsalam noted that the proliferation of fraudulent investment schemes continues to erode public trust in formal investment platforms. By offering unrealistic returns and operating outside the regulatory framework, destabilized investor sentiment and undermined participation in legitimate capital market activities.
“The erosion of market confidence caused by Ponzi schemes leads to significant volatility and reduced investor engagement,” he said.
“The fallout not only damages individual finances but also tarnishes the reputation of regulatory institutions tasked with protecting investor interests.”
Beyond the capital market, Abdulsalam emphasized that the social and economic consequences of Ponzi schemes are far-reaching.
Household financial losses, often involving life savings or borrowed funds, intensify socio-economic stress and threaten community cohesion.
“These losses are not just figures on a balance sheet,” he explained. “They represent broken trust, devastated livelihoods, and increased poverty in affected communities.”
Nigeria has a long and troubling history with Ponzi operations. According to Abdulsalam, from the infamous Umanah Umanah scheme in the 1990s to Nospecto in the early 2000s and the widespread MMM craze of the 2010s, fraudulent fund managers have repeatedly exploited regulatory gaps and economic vulnerabilities.
Abdulsalam noted that over 400 unlicensed fund managers were uncovered in 2010 alone, underscoring the scale of the threat.
He attributed the rise of Ponzi schemes to several factors, including limited financial literacy, the lure of quick returns during periods of economic hardship, and the rapid spread of misinformation through social media.
Abdulsalam who admitted that curbing the menace has proved difficult for regulators, especially in the face of evolving digital platforms and increasing sophistication of fraudulent actors, explained that resource constraints remain a significant hurdle for the SEC and other enforcement agencies.
“Ponzi schemes are multiplying geometrically, and our response must evolve at a similar pace,” he said. “The lack of investor education and the impact of economic downturns are making more people susceptible to these traps.”
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