Why Nigeria is Fertile Ground For Ponzi Schemes

From the “wonder bank” era to "online investment” platforms, history hasn’t been very kind to some easy-investment-seeking Nigerians as they have been repeatedly plagued by the phoenix of Ponzi schemes.

The truth, however, is that Nigeria has always provided a healthy ecosystem for these fraudulent schemes to thrive, and the reasons are not farfetched.

Ponzi schemes are generally described as fraudulent investments that offer enormous returns to investors based on proceeds from new recruitments. The scheme is named after Charles Ponzi – an Italian immigrant in the USA, who ran a Boston-based financial scheme he called “security and exchange commission”. After him, there have been many adaptations of this scheme all over the world, including the historical Madoff Securities, which defrauded people of about 50 billion dollars.

The Evolution

As far back as the eighties, Ponzi schemes (known as “wonder banks”) began operation on Nigerian soil when the famous “Umana-Umana” scheme held sway in Port Harcourt and Calabar. Other wonder banks began to emerge such as the “Planwell” scheme in Edo state, and the Nospetco Oil and Gas scheme in Lagos State.

Photo: Nospetco Victims Crying for Justice 

Ever since then, the boom and bust stories have been pretty much the same. They always come promising mouth-watering profits/interest rates beyond the range of commercial banking, while assuring investors that their funds are completely safe. People rush in and make money, the early adopters make some money but the latecomers part with their hard-earned cash and the scheme collapses in a cloud of dust. Then the owners disappear into thin air while depositors lick their wounds.

Back in 2007, a company named Pennywise was the rave of the town, especially in South-West Nigeria. With investments as low as N5000 back then, people were promised rewards as high as 100% of their investment within two weeks of investment. Nigerians reportedly lost about  N1.93 billion to Pennywise alone between 2006 and 2008. Considering the value of the naira as of that time, this was terribly devastating.

In July 2010, a total of 560,882 claims amounting to N106.9 billion were submitted by members of the public against 440 wonder banks, according to the Central Bank of Nigeria. Interestingly, some of them were schemes that had previously existed and liquidated years before such as the infamous Nospetco.

A new era was born around 2015 when Ponzi schemes began to leverage more on the internet, a wave pioneered by the notorious Mavrodi Mondial Movement (MMM), which is to date Nigeria’s largest internet-based Ponzi scheme. Several other schemes came into the country, also owned by foreigners such as Ultimate Cycler, iCharity among many others. Most of these schemes ran as peer-to-peer money-cycling systems, which made them look like they had nothing to gain directly from the big pot.

After the collapse of these big players, several small-scale Ponzi schemes have flooded the Nigerian internet space, mostly leveraging on social media platforms like Telegram and Facebook.

The year 2020 was another great awakening for Ponzi schemes in Nigeria, but this time, it was masked under businesses seeking investors. Several companies emerged promising juicy returns on investments to the public, convincing them that they were helping them invest their funds in businesses such as real estate, agriculture, transportation, and most commonly forex. Investment companies such as Loom, MBA Forex, Quintessential, The Map, among others were the biggest players in the pandemic Ponzi bubble.

Photo: MBA Forex CEO Maxwell Odum in his Office

In several cases, Nigerians became participants of Ponzi schemes, while they were aware that it was just a bubble waiting to pop, but simply wanted to gain from being early participants.

Every fraudulent investment relies on greed and ignorance to thrive, but in Nigeria’s case, there’s more to it than meets the eye...

Poverty: The Need for Some Fresh Air

With almost half its population living below the poverty line, the average Nigerian is dangerously exposed to these predatory schemes.

The 2016 boom of Ponzi schemes found smooth-sailing after the Central Bank and the International Monetary Fund officially declared that the country had officially plunged into recession.

After being choked by the drop in economic growth rates and significant decline in economic activities in the country, resulting in increased hardship, rising unemployment, low output, the decline in the availability of credit, illiquidity, and rising inflationary pressures, it only made sense that Nigerians began to seek some sort of coping mechanism.

Ponzi schemes crept in, offering a breath of fresh air to the common man from the incessant hardships he was forced to deal with — a chance to finally hedge against the system.

In 2020, Ponzi schemes boomed again, this time taking the forms of “holding” companies that could help investors gain consistently high returns such as MBA Forex, Racksterli, Quintessential, etc. This was at a time when the country was plunged into another recession following the coronavirus pandemic which had forced several businesses to close down for longer than they could bear. Also, a multitude of Nigerians was rendered jobless as companies could no longer afford to maintain their staff, but that wasn’t all...

During the lockdown, several citizens cried out concerning the government’s negligence of their survival needs as they were barely catered for while being ordered to remain indoors.

With survival chances being increasingly narrowed, people had to ensure that their residual funds were going to last long enough to keep food on the table. Since there weren’t so many apparent business options offering certainty and stability, it was easy to lure people into money-multiplying schemes.

Interestingly, most of these Ponzi schemes stayed functional throughout the heated phase of the pandemic, and it is safe to say that a lot of Nigerians were only able to pull through the pandemic period because they had invested their savings with one Ponzi-scheme company or the other.

Dead Karma: Corruption and the Absence of Justice

Nigeria’s rather weak approach to dealing with fraudsters has helped in no small way to make it an attractive venture.

Several known fraudsters who have siphoned money at large scales are still walking freely today, while some even return to the markets after a while. 

The fact that most of the large-scale Ponzi scheme fraudsters were never apprehended does not seem to be a coincidence, as the story has been the same almost every time. 

Recently, after a ton of people cried out over losses from the infamous Racksterli, it didn’t even take up to two months for its CEO, Michael Oti Chidiebere (nicknamed Black Gold) to make a public reopening. Blackgold was never arrested, or even declared wanted.

Photo: Racksterli's "BlackGold" with Nigerian singer Davido after an endorsement deal

Several Ponzi schemes crashed when their “CEOs” were declared wanted, but in most cases, the search died a natural death. An example was the Umana Umana wonder bank, which collapsed after  Umana was declared wanted. He was, however, never found by law enforcement.

It’s no news that Nigeria is deeply infested with corruption. One could easily say, in fact, that the law was only made for the poor man. As long as you can pay, you have the law in your hands.

This is even more evident in the way corrupt politicians have been treated over the years, as most cases get swept under the carpet shortly after being filed.

The number one risk factor a criminal considers is the law. But once he knows he can bypass it, he becomes unstoppable.