Ponzi schemes threaten investor protection, says SEC

The Securities and Exchange Commission has said the continued activities of Ponzi schemes are a threat to the protection of investors, the functioning of a fair and orderly financial market as well as the development of the economy at large.

The Director-General, SEC, Mr Lamido Yuguda, said this on Tuesday during the opening of a two-day webinar organised by the Attorney General Alliance-Africa in collaboration with the commission.

Yuguda said the devastating impact of the COVID-19 pandemic on the Nigerian economy, the low-interest rate environment, coupled with the increased use of online services to interact and transact, had helped the proliferation of Ponzi schemes. 

He was quoted in a statement as saying Ponzi schemes operators had capitalised on the harsh economic climate to offer unrealistic returns on investment to unsuspecting investors.

He said these illegal schemes had also been able to solicit new investors and expand their operations through the increased use of online services.

According to Yuguda, the SEC has a statutory duty to promote investor education and the training of persons in the capital market.

He said the programme was organised in furtherance of that statutory mandate, adding, “This capacity building programme will afford participants the opportunity to learn contemporary and innovative ways of combating and curbing the menace of Ponzi schemes in Nigeria. 

“I believe the knowledge gathered from this programme will provide participants new ways of approaching, assessing and tackling the growing problem of Ponzi Schemes.”

The pervasiveness of Ponzi schemes undermines regulatory efforts in developing the capital market, and negatively impacts investor confidence, according to Yuguda.

He said, “Ponzi schemes operate with unsustainable operating models that ultimately lead to huge losses for investors. Following the collapse of the MMM Ponzi scheme, the Nigerian Deposit Insurance Corporation had estimated that over three million Nigerians lost about N18bn.

“Several other illegal investment schemes have cost Nigerians their assets and life savings.”

According to him, the commission’s efforts in addressing Ponzi schemes are therefore geared towards investor protection and preserving market integrity.

Yuguda emphasised that the Nigerian capital market should be a safe destination for investors. 

He said the SEC would continue to apply innovative measures to combat the activities of Ponzi schemes while seeking the cooperation of relevant stakeholders.