Senate probes Ponzi schemes in Nigeria, loss of N1.3trn by Nigerians to CBEX

The Senate has directed its Committees on Capital Market, Banking, Insurance and Other Financial Institutions, Anti-Corruption and Financial Crimes, as well as ICT and Cybersecurity, to jointly probe the continued proliferation of fraudulent financial platforms in Nigeria despite the presence of regulatory agencies tasked with monitoring financial activities in the country.

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The resolution was sequel to a motion jointly sponsored by Adetokunbo Abiru (APC, Lagos East) and Osita Izunaso (APC, Imo West), during the plenary on Wednesday.

Ponzi schemes have repeatedly caused financial devastation in Nigeria. In 2016, over three million Nigerians reportedly lost about N18 billion to the then-popular Ponzi scheme, MMM, which later crashed.

In a more recent case, the collapse of a digital investment platform, popularly known as Crypto Bullion Exchange (CBEX), made Nigerians lose about N1.3 trillion (equivalent to $847 million), making it one of the most catastrophic financial scams in the nation’s history.

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These schemes typically promise unusually high returns and operate by using funds from new investors to pay earlier ones, creating a false sense of profitability, a method similar to pyramid schemes. Both rely on continuous recruitment of new participants to sustain payouts.

Despite existing regulatory bodies such as the Securities and Exchange Commission (SEC), the Economic and Financial Crimes Commission (EFCC), the Central Bank of Nigeria (CBN), and the Nigerian Financial Intelligence Unit (NFIU), the schemes continue to operate unchecked.

In 2021, Director-General of SEC, Lamido Yuguda, revealed that three million Nigerians lost N18 billion to Ponzi scheme operators.

The SEC, under the supervision of the Federal Ministry of Finance, is responsible for overseeing capital markets, ensuring fair and transparent transactions, and preventing insider trading violations.

The motion

Mr Abiru, while presenting the motion, questioned how CBEX and other fraudulent platforms managed to operate on such a massive scale without being detected or sanctioned by any of Nigeria’s financial regulatory agencies.

The senator attributed the vulnerability of Nigerians to several factors, including widespread poverty, unemployment, low financial literacy, and limited access to legitimate investment opportunities.

He, therefore, called on the Senate to mandate relevant committees to hold investigative and public hearings to determine how regulatory agencies failed to prevent the fraud and to recommend measures to strengthen oversight mechanisms.

Contributions from lawmakers

The Senate Chip Whip, Tahir Monguno, seconded the motion.

Mr Monguno, who represents Borno North Senatorial District, lamented that the trade in Ponzi schemes in the country have become alarming and that they are undermining national economic growth.

He said the scheme operators are taking advantage of vulnerable Nigerians and urged his colleagues to investigate how the schemes are perpetrating the act despite existence of the regulatory bodies.

Sadiq Umar, the senator for Kwara North Senatorial District, stressed the need for the Senate to not only investigate the scam operations but also hold regulatory bodies accountable for dereliction of duty.

Ogun West Senator, Olamilekan Adeola, emphasised the continued failure of Nigeria’s regulatory institutions to clamp down on Ponzi schemes.

“They have taken advantage of us because the regulations aren’t there. We have so many other online transactions that are not mentioned. We need to find out from the Central Bank of Nigeria. Nigeria can no longer afford to be defrauded. We need to find out what they are doing. Are we saying Nigeria is that porous to have said Nigeria has lost millions in dollars?” he said.

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Adamu Aliero, the Kebbi Central senator, blamed victims of the schemes for ignoring red flags and being swayed by the promise of quick and unrealistic profits.

“Nigerians that patronise these Ponzi schemes are also at fault because they look at the tempting offers that promise quick returns and easily fall prey,” he said.

On his part, Bauchi Central Senator, Abdul Ningi, lamented the apparent silence and inaction of regulators, insisting that millions of Nigerians have been defrauded without any meaningful response from those mandated to protect the public.

Contributing to the debate, the Senate President, Godswill Akpabio, condemned the activities of Ponzi operators and expressed disappointment at the failure of regulatory bodies to safeguard Nigerians.

Mr Akpabio recommended organising financial literacy campaigns across the country to educate citizens on the risks associated with unregulated investment platforms.

After the deliberations, the senate president put the motion to vote and majority of the senators supported it through voice votes.

Mr Akpabio thereafter directed the Committees on Capital Market, Banking, Insurance and Other Financial Institutions, Anti-Corruption and Financial Crimes, as well as ICT and Cybersecurity, to jointly investigate the issue and report back in four weeks.