WHAT YOU SHOULD KNOW ABOUT INVESTMENT SCAMS
Introduction.
Investment scams have become a major problem in Nigeria, with many people losing significant amounts of money due to fraudulent schemes. These scams take various forms, but the Nigerian Securities and Exchange Commission (SEC) has identified four major forms of investment scams in the country: Ponzi schemes, pyramid schemes, advance fee fraud, and cryptocurrency scams.
Ponzi scheme
Ponzi schemes, named after Charles Ponzi who became infamous for using the technique in the early 20th century, are investment scams that promise high returns with little or no risk. They typically involve the use of funds from new investors to pay returns to older investors, creating the illusion of profitability. this can continue for a while, but eventually, the scheme collapses when there are not enough new investors to pay returns to the existing ones. Ponzi schemes are particularly prevalent in Nigeria, with many individuals falling victim to these fraudulent schemes. According to the Securities and Exchange Commission (SEC) Nigeria, between 2010 and 2019, Nigerian investors lost over N60 billion to Ponzi schemes. some popular Ponzi schemes in Nigeria include; MBA Trading & Capital Investment Ltd (2020), Wales Kingdom Capital Ltd (2020),Imagine Solutions Ltd (2020), and MMM (2015). E.t.c
Pyramid Scheme
The second type of investment scam is the pyramid scheme which is similar to Ponzi schemes except that in a pyramid scheme, participants are promised returns for recruiting new members into the scheme, rather than for any actual investment or sale of a product. These schemes are often disguised as legitimate businesses, such as multi-level marketing companies, and often collapse when the recruitment of new members slows down and existing members are unable to recoup their investments. According to the SEC Nigeria, pyramid schemes in Nigeria such as have defrauded investors of over N20 billion between 2010 and 2019.
Advanced Fee Fraud (419)
This is one of the oldest types of scams in Nigeria and involves a person being promised a large sum of money, such as a lottery win or inheritance, in exchange for paying a small fee or providing personal information. However, once the fee is paid or the information is provided, the scammer takes the money and disappears, leaving the victim with no chance of recouping their losses. According to the Economic and Financial Crimes Commission (EFCC) Nigeria, advance fee fraud in Nigeria has defrauded investors of over N90 billion between 2010 and 2019.
Binary option
The fourth type of investment scam is the binary options scam. In a binary options scam, a person is promised high returns for investing in binary options, which are a form of financial contract that pays out a fixed amount if a certain condition is met. However, these schemes are often run by unregulated and unlicensed entities, and the returns are not guaranteed. According to the Central Bank of Nigeria (CBN), binary options scams in Nigeria have defrauded investors of over N30 billion between 2010 and 2019.
Conclusion
In conclusion, investment scams are a major problem in Nigeria, costing investors billions of Naira every year. The Nigerian SEC reported that in 2020, about NGN11.4bn ($31m) was lost to investment scams in Nigeria, affecting over 20,000 people which is a significant increase from previous years, highlighting the need for increased awareness and action to combat investment scams in the country.
The most common types of scams include Ponzi schemes, pyramid schemes, advance fee fraud, and binary options scams. The SEC and other regulatory bodies have been working to raise awareness about investment scams and provide education on how to spot and avoid them. However, it is important for investors to be vigilant and to do their due diligence before investing in any scheme. It’s also crucial for government regulators to take proactive steps to protect consumers from these fraudulent schemes.
