Why Investor Education Is Key Combating Ponzi Schemes
In this report, Chris Ugwu writes that there is a need for capital market regulators to sustain investors’ enlightenment on the activities of illegal fund managers in order to protect investors and save the market from Ponzi schemes.
The resurgence of Ponzi schemes in Nigeria’s financial landscape has become a source of grave concern for regulators, market operators, and investors alike.
With the recent collapse of platforms like Crypto Bridge Exchange (CBEX), which reportedly defrauded Nigerians of over ₦1.3tn, the urgency of protecting investors from fraudulent schemes has never been greater. These scams continue to thrive by preying on economic hardship, digital anonymity, and widespread financial illiteracy.
Despite repeated warnings and regulatory interventions, many Nigerians—especially first-time and small-scale investors—still fall victim to get-rich-quick offers disguised as legitimate investments.
The allure of unrealistic returns often overshadows the basic principles of due diligence and risk assessment. Market analysts believe this trend reflects a fundamental gap in investor knowledge, one that unscrupulous operators are increasingly exploiting.
As digital financial products evolve and new forms of fraud emerge, experts are calling for a national shift in strategy—one that prioritizes sustained, structured investor education.
Empowering the public with financial knowledge is no longer optional; it is essential for building a resilient capital market, restoring investor confidence, and safeguarding the economic future of countless Nigerian households.
The collapse CBEX sent shockwaves through Nigeria’s financial ecosystem, leading the Securities and Exchange Commission (SEC) to sound fresh alarms on the deepening vulnerability of investors—particularly in times of economic hardship.
But this is not an isolated incident. Rather, it is the latest chapter in a long history of financial deceit that continues to thrive in the shadows of limited investor education, weak enforcement, and unchecked digital marketing. The CBEX scandal underscores a troubling truth: without sustained education, stronger deterrents, and coordinated oversight, Ponzi schemes will continue to multiply at an alarming pace.
The Echoes of MMM and the 2008 Market Crash
Long before CBEX emerged, Nigeria had already endured painful lessons. One of the most infamous examples was the Mavrodi Mundial Moneybox (MMM), an online Ponzi scheme that swept through the country in the 2010s. Despite repeated warnings from regulators, over three million Nigerians lost ₦18bn, according to the Nigerian Deposit Insurance Corporation (NDIC).
The roots of these disasters run even deeper. Between 2005 and 2008, as Nigeria’s capital market boomed, fraudulent fund managers peddled high-return investments that lured both seasoned and first-time investors. When the market crashed in 2008, the SEC was inundated with complaints—many from people who had lost everything. It was a crash partly fueled by unchecked illegal operators and widespread financial ignorance.
Same Pattern Of Exploitation
Dr. Sa’ad Abdulsalam, Head of the Enforcement Department at the SEC, reflects on the country’s enduring struggle with fraudulent investment schemes. From the Umanah Umanah scheme of the 1990s to Nospecto in the early 2000s and the MMM frenzy that followed, Ponzi operations have long exploited Nigeria’s regulatory gaps and socio-economic vulnerabilities.
“These schemes are not new,” Abdulsalam noted. “What’s alarming is their persistence, and our collective failure to close the education and enforcement gap that allows them to flourish.”
Financial experts argue that Ponzi schemes are thriving due to a toxic combination of greed, poor financial literacy, and widespread neglect of due diligence. The promise of unrealistic, fast returns continues to seduce many, despite recurring losses and public warnings.
Managing Director of Arthur Steven Asset Management and former President of the Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe in an exclusive chat with THE WHISTLER emphasized the lack of awareness about regulated investment options.
“People bypass licensed operators and take risks with informal schemes that offer flashy rewards,” he said. “We must start from the basics: verify a company’s registration with the SEC or licensing with the CBN before investing even a single naira.”
The absence of regulation around many digital assets further compounds the risk. As Amolegbe noted, many crypto offerings promoted online lack oversight, which means that when things go wrong—as with CBEX—investors have no legal recourse.
The Psychology of Risk: Chasing High Returns at High Cost
Managing Director of AIICO Capital and a Chartered Financial Analyst, Dr. Femi Ademola believes the real fuel behind Ponzi schemes is the unchecked desire for extraordinary returns without understanding the associated risks.
“Investment is about balance. If the return sounds too good to be true, it probably is,” Ademola said. “A responsible investor aligns potential returns with their risk profile. Otherwise, the inevitable collapse can wipe out everything.”
Managing Director of HighCap Securities, Mr. David Adonri has taken a more controversial stance. He argues that the victims of Ponzi schemes are not always blameless.
“We need to stop treating victims as entirely innocent. Many ignore clear warnings and knowingly enter suspicious schemes out of greed,” he said. “This behavior perpetuates financial crime and undermines legitimate market structures.”
According to Adonri, holding both perpetrators and willing participants accountable is necessary to break the cycle.
SEC’s Renewed Warning
The SEC has responded with renewed urgency. Speaking at a recent Capital Market Enlightenment Programme hosted by the Capital Market Correspondents Association of Nigeria (CAMCAN), Dr. Abdulsalam reiterated that Ponzi schemes not only destroy individual finances—they corrode public confidence in Nigeria’s financial system.
“The erosion of trust damages participation in legitimate markets,” he warned. “Investors are left with scars, regulators with a damaged reputation, and the entire economy suffers.”
More than just numbers on a balance sheet, the fallout from these schemes often represents a total breakdown of household financial stability and social cohesion. Life savings vanish. Dreams are dashed. Families are pushed further into poverty.
Digital Deception and the Case of Punisher Coin
Even as traditional Ponzi schemes persist, the digital era has ushered in new and sophisticated variants. One recent example is “Punisher Coin” or $PUN, a cryptocurrency flagged by the SEC for lacking authorization or a viable project.
Described as a “meme coin” with no intrinsic value or use case, Punisher Coin’s value is driven solely by hype—making it highly susceptible to market manipulation through “pump-and-dump” tactics.
Promoters inflate the coin’s value through deceptive hype, then sell off their holdings, leaving investors with worthless tokens.
In a public advisory, the SEC stated: “Neither Punisher Coin nor its promoters are registered in any capacity within the Nigerian capital market. Any individual investing in this coin does so at their own risk.”
The Education Imperative: A National Call to Action
While enforcement and warnings are essential, experts agree that real change begins with education. A financially literate public is the best defense against fraudulent investment schemes.
Abdulsalam explained that the SEC has embedded investor education into school curricula, organized workshops, and launched radio and TV programs to spread financial literacy. Social media campaigns also target different demographics with practical tips on how to verify investment opportunities.
“Investor protection starts with awareness,” he said. “We are doing our part, but the public must also make informed decisions.”
Beyond awareness, enforcement remains a priority. The SEC continues to shut down illegal operations, pursue civil and criminal litigation, and collaborate with other regulatory bodies such as the Central Bank of Nigeria (CBN), Corporate Affairs Commission (CAC), and Nigeria Deposit Insurance Corporation (NDIC) through the Financial Services Regulation Coordinating Committee.
“Ponzi schemes don’t respect jurisdictional boundaries,” Abdulsalam said. “Our enforcement strategy must be just as integrated.”
Highlighting the lessons of past crises, Group Managing Director and Chief Executive Officer of Crane Securities Limited, Mr. Mike Eze called on the Securities and Exchange Commission (SEC) and the Nigerian Exchange Limited (NGX) to collaborate more closely with market operators in launching a robust and well-structured public awareness campaign.
According to him, the goal is to arm the investing public—particularly retail and first-time investors—with the knowledge they need to avoid illegal operators and prevent a recurrence of the widespread losses experienced during the 2008 capital market crash.
Eze emphasized the urgency of a coordinated campaign led jointly by the SEC, NGX, and key stakeholders in the capital market. He stressed that such a partnership is crucial for the effective education of shareholders and the long-term protection of their interests, especially those of small-scale investors who are often the most vulnerable.
“The average Nigerian investor suffered immensely during the 2008 financial crash,” Eze said. “Many of those affected were first-time investors who had little understanding of the schemes they got involved in, and unfortunately, they paid the price for that lack of knowledge.”
Eze urged Nigerians to exercise skepticism toward any investment scheme that relies on new investors’ funds to pay returns to existing investors—a hallmark of Ponzi operations. According to him, many of these schemes can be identified and avoided with a little diligence.
“Whether you are a first-time investor or someone with years of experience, there are fundamental questions you must ask before committing your hard-earned money to any investment,” he advised.
He noted that many investors could have avoided significant financial losses had they taken the time to verify the legitimacy of investment opportunities through independent and reliable sources.
“When considering your next investment opportunity,” Eze added, “start with these globally recognized questions: Is the seller licensed? Is the investment registered? How do the risks compare to the potential rewards? Do I understand how the investment works? And where can I go for independent advice or verification?”
Eze warned that without targeted and sustained awareness efforts, many unsuspecting Nigerians may remain exposed to the manipulative tactics of illegal fund managers.
“In a climate of growing digital financial offerings and economic uncertainty, industry stakeholders agree that protecting investors must go beyond reactive enforcement. It requires proactive education campaigns, clear communication from regulators, and a culture that prioritizes due diligence over promises of fast profits,” he said.
A Market Worth Protecting
The Nigerian capital market has the potential to be a powerful engine for economic growth, wealth creation, and financial inclusion. But it can only thrive in an atmosphere of trust and transparency.
The fight against Ponzi schemes must not be reactive. It must be relentless, strategic, and inclusive. Educating investors isn’t just a regulatory obligation—it’s a national imperative. Without widespread investor enlightenment, enforcement alone cannot defeat the hydra-headed monster of financial fraud.
If Nigeria is to build a resilient investment culture, all hands—regulators, media, schools, market operators, and investors themselves—must be on deck.
ENDS
Why Investor Education Is Key Combating Ponzi Schemes is first published on The Whistler Newspaper
