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Why investors are patronising Ponzi Schemes

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By Chinyere Joel-Nwokeoma

Investors’ return to Ponzi Schemes has been attributed by some capital market operators on Wednesday to the ongoing economic recession in the country.

They told said in Lagos that sheer ignorance in a bid to make huge returns, contributed to investors’ patronage of the scheme.

Ponzi scheme (also a Ponzi game or a Ponzi) is a fraudulent investment operation where the operator, an individual or organisation, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources.

A Pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does, on a mistaken belief in a non-existent financial reality.

Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments in form of short-term returns that are either abnormally high or unusually consistent.

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Mr Sola Oni, the Chief Executive Officer, SOFUNIX Investment and Communications Ltd., said that people were easily lured to the scheme due to the hardship in the country.

“As the economic recession bites harder, it is easy to lure unsuspecting but gullible people to fall prey to these wonder schemes,’’ Oni said.

He said that there were two categories of investors that patronise the wonder schemes whose Return On Investment (ROI) was off efficient frontier.

Oni explained that the first set were those who fall prey out of sheer ignorance and those who were taking uncalculated risk.

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According to him, desire to make abnormal profit is peculiar to the two categories.

He, however, called on the relevant authorities to intensify their monitoring exercise and ensure that culprits face the wrath of the law.

“There should be more awareness creation on these schemes to prevent the innocent ones from falling victim,’’ Oni added.

Oni said that the Securities and Exchange Commission (SEC) had enough rules that outlawed Ponzi Schemes.

Mr Boniface Okezie, President, Progressive Shareholders Association of Nigeria (PSAN), blamed Corporate Affairs Commission (CAC) for the activities of the scheme promoters in the country.

Okezie said there should be proper scrutiny before registration of any company by the commission, adding that regulators should clamp down on these companies to protect innocent investors.

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He called for proper enlightenment of investors through the mass media, both print and electronic, to save innocent investors from falling prey.

Mr Mounir Gwarzo, SEC Director-General, recently called on investors to be weary of Ponzi Schemes operating in the country.

Gwarzo said that even if the company was registered with SEC, potential investors should endeavour to find out from the commission whether the company’s activities had been approved by the commission.

He said the commission was collaborating with the police and other relevant law enforcement agencies to check the activities of the operators of such schemes.

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