Business
Booming Ponzi schemes pose systemic risk to Nigerian economy
By OBINNA EZUGWU
When in 2019, a firm claiming to have expertise in forex trading established a branch office near her house in Enugu, Nigeria, Tina Robert, a young entrepreneur, saw an opportunity for her big break, or so she thought.
The firm, MBA Forex and Investment Ltd, had promised a whooping monthly 15 percent return on investment. And eager for a cash spinning investment, she could not resist. Any thought of possible fraud was dismissed because after all, they had an office and couldn’t therefore run away.
Tina was further convinced when she was assured by the firm’s promoters that it was duly registered by the Corporate Affairs Commission (CAC). That was enough, she first committed N100,000, which was a promo package, and for the first six, the going was good.
“When they first came, they offered a promo investment programme in which you invest N100,000 to get N15,000 return monthly for six months, and at the end of the six months, you can then withdraw your initial capital,” Tina narrated.
It was a trap, set up to lure unsuspecting investors, and she fell for it.
“I Invested N100,000 initially, for that six months. Each month I was paid N15,000 and I was happy,” she said. “Then when the six months period elapsed, I was given the option of reinvesting or withdrawing my capital. However, this time, because the promo had ended, they pegged the investment at between N360,000 or $1,000 and N5 million.
“Because I had seen how it works, and wanted to make more money, I invested another N500,000, bringing my total investment to N600, 000. That was when problem started. After the first month, I was paid N90,000, but then they stopped paying.”
Determined to find out why she didn’t get paid after the second month, Tina went to the office to make inquiries. But she was assured that it was only a temporary hiccup that would soon be rectified.
But when another month passed and still no payment, she suspected foul play and went to the office more frequently.
“I started disturbing them for my money; that was when they became so arrogant. One of them asked how much did I even invest to be disturbing them. This was around October last year. Obviously, many others invested more money. After going there for some time, I stopped. That was how my money went.”
Tina is not alone. She was one of the over 70,000 Nigerians, from Enugu to Port Harcourt and elsewhere, said to have been duped by Maxwell Weli Odum, the now notorious CEO of MBA capital, who allegedly swindled as much as N171 billion out of investors.
Maxwell Odum
Mr. Nnaji Kenneth, a resident of Amechi, Enugu who lost nearly N1million is one of them. A graduate of Mass Communication from the University of Nigeria, he conceded that he should have known better. Nnaji said he was, however, convinced, among other people, by a close associate who had invested and was being paid.
“It was not actually one person that convinced me to invest. A close associate of nine was doing it. Another close friend of mine was also doing it,” Nnaji said. “But the main person that convinced me was one of the members of the firm’s staff who told me that they had a large reservoir of funds which would make it impossible for them to the default.
“He also told me that they were paying people during the Covid-19 lock down, and therefore couldn’t default after the lock down. This was early October last year. Actually, they were paying people during that lock down. So, I was convinced that if they could pay at that time when most businesses were down, they would continue to pay.”
Nnaji was further told that the firm had a team of experts and robots coordinating its forex trading and thus, there no chance of losing investment.
“He also told me that they had a team of experts who were doing the forex trading and that they never fail. He equally said that they are constantly making profit. They pegged the investment at $1000 but they made it 360,000. The idea was that if you invest the money, they will be paying you 15 percent every month between six months and one year depending on the category you invested in. So he was like, if I put N1 million, I’d be paid N160,000 every month for six months,” he said.
“Then after the six months, I can withdraw my capital. But if I wanted to withdraw my capital before the expiration of the six months duration, they will deduct 10 percent from the value of the funds invested.”
Nnaji, now full of regrets, said he loved the idea and fall for the trick.
“Initially, I invested N360,000. This was on October 6, 2020. Then subsequently on October 16th, I invested another N500,000, making it N860,000. Unfortunately, that was the same month they stopped paying. I didn’t get a penny. And even after they stopped paying, they were still sending us messages that they would soon sort out the problem. They were still collecting money from people. The messages were always very, very convincing.”
Both Tina and Nnaji, though ended up being duped, could still count themselves slightly lucky. Many lost millions, life savings and fund raised from selling properties. And while they gnash their teeth, Odum lived in affluence; bought several landed property in priced locations in Port Harcourt, and donated generously to the church.
He was said to have been one of the biggest donors in his church, Christ Embassy, last year, donating as much as N1billion to the church, which celebrated him as some sort of investment expert.
“He leveraged on the church to get customers,” a member who didn’t want his name in print disclosed. “People trusted him because his business was also promoted in the church.”
But Odum is only one of many dupers using fraudulent investment schemes to swindle unsuspecting Nigerians, a massive network of scams that have become an epidemic in the country.
Early last year, another scheme, Chy Mall E-commerce which prided as a Malaysia based online supermarket, that “is a unique company that offers that you have been looking for network market; a new retail concept that causing tornado worldwide in network industry, asked investors to buy shops to make residual income “daily, weekly and monthly for you [sic] financial freedom.”
Among other vague benefits, the firm which has no known physical office in the country, promised investors store profits, new retail direct promotion award, direct sharing profit of 20 percent, service profit profit of 12 percent daily, chain service profit of 20 to 100 percent, as well as incentives of smart phones, luxury cars and international travel.
The apparently fraudulent outfit offered various investment options categorized into different VIPs from VIP-1 to VIP-7 with price ranging from a few hundreds of thousands to over a million naira.
Many invested hoping that they were buying spaces in a Malaysia based mall that would bring profit, but it inevitably turned out to be a hoax.
“How it works is that you buy one of their shops. There are different VIPs. I bought VIP-5, which at the time, was N638,400. I bought three of them,” Wanaga Irunna.
“Then I also brought VIP 7 for about N1.2 million, now everything is trapped. I have up to N7 million investment trapped and very frustrated because of that. It’s very sad.”
Chy Mall promised investors returns
This writer tried to reach out to promoters of Chy Mall through the phone number provided on its Facebook page, but the number had been switched off.
The firm continues to promote various items such as perfumes, clothes, cameras, among others on its website https://chymall.net/. But Google notifies that there is no information on the page, which means that “the website prevented Google from creating a page description, but didn’t actually hide the page from Google.”
It has all the trappings of fraud and many Nigerians like Irunna, who invested huge sums of money in the scheme are having to lick their wounds.
The progenitor of today’s scam schemes was the wonder banks of the 70s whose promoters used to swindle many of their hard earned money.
Known in finance parlance as Ponzi, named after Charles Ponzi, an Italian swindler and con artist who plied his trade in the U.S. and Canada, the scams are sustained by using funds of latter investors to offset the investment of earlier investors. It collapses when new investments are no longer sufficient to pay out due interest of previous investors, by which time the promoters would have made their fortune.
The schemes continue to come in different shapes and forms. They gained prominence between 2014 and 2016, during the MMM rave.
MMM, dubbed the world’s largest Ponzi schemes of all time, first launched in 1989 by convicted late Russian fraudster, Sergei Mavrodi, swept across Africa between 2010 and 2017, making and breaking thousands of investors in Nigeria, Zimbabwe, South Africa and elsewhere on the continent.
Earlier investors made substantial amounts, but latter investors bore the brunt. Many lost millions of naira. The collapse of MMM in December 2016, surprisingly paved the way for the emergence of similar Ponzi schemes such as Givers Drive, Loopers, Loom Nigeria Money, among others, all of which attracted thousands of investors by promising to double investments in one week.
Charles Ponzi (1882-1949)
While the lesson of MMM had been learnt, many still bought into new schemes hoping perhaps to cash out before they, collapse, inspired by “profits” reaped by early investors in MMM. Many got their hands burnt.
“The funny thing is that a lot of people go into these schemes knowing that they are fraudulent. But they do it in the hope that they will quickly cash out before the scheme goes bad,” said Andrew Esene, Associate, Corporate Finance at Futureview Financial Services Ltd.
“There was actually a study that found out that a lot of people who invested in these schemes knew that they were fraudulent and not sustainable, but they wanted to quickly take their own share before it collapses.”
The “popularity” of straight out of the chute Ponzi schemes such as MMM, Loopers and several others that followed, however, began to wane with time, as many internet fraudsters adopted it as a means of making quick money. As more and more people lost fortunes, others became weary and the dupes sought other strategies.
One of the new strategies adopted became “forex trading,” “cryptocurrency trading,” “real estate investment,” “oil and gas investment,” among others. Investors are promised mouthwatering returns of as much as 15 to 60 percent monthly, and encouraged to invest in firms ostensibly involved “legitimate trading.”
The fraudulent schemes are thus promoted, strangely, on radio stations and churches. The fraudsters behind the schemes feature in phone in programmes on radio stations where they promote the schemes. Some have also been featured in newspapers as some investment experts, all of which help to convince the unsuspecting public that the investments are genuine.
Then, the promoters do well to use part of the funds committed by the investors to pay out the huge returns for a number of months to encourage more people to invest, and then abscond when funds accumulate.
Over the past few years, many of such fraudulent trading platforms as, Box Value Trading Company Ltd, Now-Now Alert, Flip Cash Investment, Result Investment Nigeria Limited, Helping Hand and Investment, No Failure Development and Empowerment Nig. Ltd, MBA Forex and Investment Ltd, Federate Investors Trading Company, Jamalife Helpers Global Ltd, Flexus Global Solutions and Investment Ltd, United Capital Investment Company Limited, Brisk Capital Limited, among others, have been used to swindle thousands of unsuspecting investors.
The scammers are in the prowl. In late May, Special Fraud Unit (SFU) of the Nigerian Police in Lagos, arrested the Managing Director/Chief Executive Officer of Brisk Capital, Dominic Ngene Joshua, for allegedly diverting over N2 billion in investor funds, after his victims raised the alarm.
Joshua, 21, had promised investors 60 percent return on investments in real estate, forex, oil and gas.
The Commissioner of Police in charge of the fraud unit, Anderson Bankole, said the funds which belong to over 500 investors were diverted to sponsor extravagant lifestyle, parties, exotic cars, luxury watches and real estates in Abuja, Lagos and Port Harcourt.
“Some of the properties/items purchased with the diverted funds have been recovered as exhibits while the suspect will be charged to court as soon as the strike by Judiciary Staff Union of Nigeria (JUSUN) is called off,” Bankole had said, while advising the public to be wary of investment/ portfolio managers that promise very high returns on investments.
Joshua’s arrest was yet followed up by the arrest, by the Economic and Financial Crimes Commission (EFCC), of Amos Olaniyan, for allegedly defrauding people of over N128 million through similar shady investment scheme which offered monthly 30 per cent returns.
EFCC’s spokesperson, Wilson Uwujaren, who announced the arrest of the 42-year-old Olaniyan on May 28, he perpetrated the alleged fraud through his company, DHIL Nigeria Limited popularly known as Crime Alert Security Network Investment.
He said the petitioners described in their petition to the commission how they were allegedly persuaded by Mr. Olaniyan through his firm “to invest in a network scheme which offered a monthly 30 per cent returns.”
They were convinced to invest in the scheme “after listening to the suspect’s weekly radio programme,” the commission said. “However, after investing their monies they neither received the promised interest nor get a refund of their capital since 2020.”
Apart from buying airtime on radio and bribing their ways into being featured in the newspapers, another trick the promoters of the fraudulent investment schemes use is that they register the companies with the CAC, and then use such registration to convince the uninitiated that the platform is real.
“The EFCC has been doing a lot to increase awareness about these fraudulent schemes, but people still fall victim,” said Mr. Esene. “They are still preponderance because a lot of them that have come have been ‘successful.’”
Esene noted that companies succeed mostly by telling people that they are registered with CAC, which he says, excites ignorant investors.
“A lot of these companies come and say they are registered with the CAC. I don’t know why that excites ignorant investors. Anybody can get registered with CAC. But it is the Security and Exchange Commission (SEC) that regulates investment platforms. So, the investors should try and find out if the company asking them to invest is registered with SEC and has license to operate.
“Somebody can register as a distributor with CAC and then come out to use the CAC registration to ask people to invest their money with them. Perhaps, such investors should even go a step further to find out what the company is registered to do.”
For Esene, the best way to avoid falling victim is always to seek advice from investment experts. But he notes further that investors must always be weary when promised return is something out of the ordinary.
“If they will return is something extraordinary, then it is likely fraudulen,” he said. “If you’re getting returns, you look at government instruments in a similar area, then you add a premium. But when somebody is offering 15 percent or 20 percent monthly, that should raise a red flag. You should just know that this is not realistic.”
