Abstract
A Ponzi scheme in Nigeria is a fraudulent investment scam promising high returns with little risk. It operates by using funds from new investors to pay returns to earlier investors, creating the illusion of a profitable business. These schemes often collapse when new investments stop, leading to massive financial losses. In Nigeria, Ponzi schemes like MMM and others have exploited economic hardship and poor financial literacy, drawing in millions with promises of quick wealth. Despite warnings from authorities, such schemes persist, often rebranding to deceive more people. Their rise reflects systemic issues like unemployment, distrust in banks, and economic instability.
INTRODUCTION
In recent years, Nigeria has witnessed a surge in investment schemes promising extraordinary returns, often orchestrated by private companies. Many of these schemes have been identified as Ponzi schemes, raising significant concerns about their legality and impact on the Nigerian financial landscape. This article explores the nature of Ponzi schemes, their operation in Nigeria, their legal status, and the regulatory stance of the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) regarding their registration, regulation, and operation within the Nigerian capital market.
DEFINING A PONZI SCHEME
A Ponzi scheme is a fraudulent investment operation that lures investors with promises of high returns with little or no risk. Named after Charles Ponzi, who popularised this scam in the 1920s in the United States, it operates by paying returns to earlier investors using the capital contributed by newer investors rather than generating legitimate profits through business activities. The scheme relies on a continuous influx of new investors to sustain payouts, making it inherently unstable. Once the flow of new investors dries up or existing investors demand their funds, the scheme collapses, leaving most participants with significant losses (Investopedia, 2023) [1].
In Nigeria, Ponzi schemes often masquerade as legitimate investment opportunities, exploiting economic vulnerabilities, financial illiteracy, and the desire for quick wealth. They typically promise unrealistic returns, sometimes as high as 50% or more within months, without disclosing the risks or the true nature of the investment.
OPERATION OF PONZI SCHEMES IN NIGERIA
Ponzi schemes in Nigeria have evolved, adapting to local contexts and regulatory gaps. Historically, schemes like MMM (Mavrodi Mondial Moneybox) in 2016-2017 gained widespread popularity, defrauding millions of Nigerians by promising 30% monthly returns through a peer-to-peer “donation” model (Akinyemi, 2017) [2].
More recently, private companies have emerged, offering seemingly tangible investments in agriculture, forex trading, cryptocurrency, or real estate, yet operating on the same Ponzi principles. For instance, companies such as Farmforte, Racksterli, and MBA Forex have been accused of running Ponzi schemes, attracting investors with promises of high returns, sometimes 15%-50% monthly, before collapsing when new investments slowed (Nairametrics, 2020) [3].
These schemes often operate online, lack physical offices, and use aggressive marketing tactics, including social media and WhatsApp groups, to recruit participants. In many cases, they register with the Corporate Affairs Commission (CAC) to gain a veneer of legitimacy but fail to comply with financial regulatory requirements, a loophole that allows them to operate temporarily before detection.
On March 24th, the Economic and Financial Crimes Commission (EFCC) uncovered a Ponzi scheme academy in Gwagwalada, Abuja, with at least 133 suspects in a raid. The academy identified as Q University also known as Q-net specialized in recruiting young Nigerians into the fraudulent investment scheme. The EFCC spokesperson Dele Oyewale stated that the program organizers enrolled recruits in a deceitful training called “New Generation Billionaires”. From the raid in this academy, electronic devices were retrieved.
ARE PONZI SCHEMES LAWFUL?
Under Nigerian law, Ponzi schemes are illegal, though they are not explicitly named as such in most statutes. Their illegality stems from their fraudulent nature and failure to adhere to regulatory frameworks governing financial operations. The primary legal instruments addressing such schemes include:
Investments and Securities Act (ISA) 2007 [5]: Section 67 prohibits private companies from inviting the public to invest in securities unless they are public companies registered with the SEC. Section 153 defines legitimate collective investment schemes, which must be registered and regulated by the SEC. Ponzi schemes, which lack genuine investment activities, violate these provisions (Federal Republic of Nigeria, 2007) [6].
Banks and Other Financial Institutions Act (BOFIA) 2020 [7]: This law mandates that only entities licensed by the CBN can engage in banking or financial services, including accepting deposits or managing funds. Ponzi schemes operating without CBN approval contravene this statute (Federal Republic of Nigeria, 2020) [8].
Criminal Code and Penal Code: Fraudulent schemes fall under general fraud provisions, such as obtaining money under false pretences, punishable by imprisonment. In December 2024, the Nigerian Senate passed the Investments and Securities Repeal and Re-enactment Bill, 2024, which explicitly prohibits Ponzi schemes, imposing penalties of up to 10 years of imprisonment and fines of N20 million (approximately $12,000). While awaiting presidential assent as of March 2025, this bill signals a stronger legislative stance against such operations (Nairametrics, 2025a) [9].
POSITION OF THE CBN ON REGISTRATION, REGULATION, AND OPERATION
The Central Bank of Nigeria, as the apex regulator of the banking and financial sector, has taken a firm stand against Ponzi schemes. The CBN does not register or license entities operating Ponzi schemes, as they do not meet the criteria for legitimate financial institutions under BOFIA. In its “Advisory on Illegal Financial Operators in Nigeria,” the CBN warned the public against dealing with unlicensed operators promising extraordinary returns, emphasising that such activities undermine financial stability (CBN, 2022) [10].
The CBN collaborates with agencies like the Economic and Financial Crimes Commission (EFCC) to crack down on illegal operators. For example, in 2021, the CBN reported recovering N95.2 billion for victims of Ponzi schemes, highlighting its efforts to mitigate their impact (Vanguard, 2022) [11]. Regarding the capital market, the CBN’s role is indirect, focusing on foreign exchange and monetary policy, but it ensures that only licensed entities participate in financial transactions, excluding Ponzi schemes from legitimate operations.
POSITION OF THE SEC ON REGISTRATION, REGULATION, AND OPERATION
The Securities and Exchange Commission is the primary regulator of the Nigerian capital market, tasked with protecting investors and ensuring market integrity under the ISA 2007. The SEC explicitly prohibits unregistered entities from offering investment products or soliciting funds from the public. Ponzi schemes, which often pose as investment firms, are neither registered nor authorised by the SEC, rendering their operations illegal (SEC Nigeria, 2022) [12].
The SEC has consistently issued warnings against Ponzi schemes, listing registered operators on its website to help investors verify legitimacy. In 2020, it identified 12 fraudulent operators, including No Failure Development and Empowerment Nigeria Ltd., as Ponzi schemes (Nairametrics, 2020) [13]. More recently, on March 11, 2025, the EFCC, in collaboration with the SEC, named 58 companies, such as Wales Kingdom Capital and Crowdyvest Limited, as illegal Ponzi operators unregistered with either the SEC or CBN (EFCC, 2025) [14]. The SEC has also shut down offices of non-compliant firms, such as Oxford International Group in 2022, and pursued legal action against their promoters (SEC Nigeria, 2022) [15].
In the capital market, the SEC regulates securities offerings, ensuring they comply with disclosure and operational standards. Ponzi schemes, lacking legitimate revenue streams, cannot operate within this framework. The SEC’s Director-General, Dr. Emomotimi Agama, emphasised in March 2025 that the commission would enforce “zero tolerance” for unregistered operators, reinforcing its regulatory oversight (Tribune Online, 2025) [16].
In addition, the Securities and Exchange Commission (SEC) plays a vital role in protecting investors from fraudulent schemes, including Ponzi schemes. The SEC has taken a strong stance against Ponzi schemes, considering them a serious threat to investors and the integrity of the financial markets (Tajti, 2019) [17]. The SEC’s Enforcement Division has made combating Ponzi schemes a priority, using various tools and strategies to detect and prosecute these schemes.
Enforcement Actions
The SEC (2022) has taken numerous enforcement actions against individuals and companies involved in Ponzi schemes. These actions include:
1. Civil lawsuits: The SEC files civil lawsuits against individuals and companies alleged to be operating Ponzi schemes, seeking injunctions, disgorgement, and civil penalties.
2. Administrative proceedings: The SEC brings administrative proceedings against registered investment advisers and broker-dealers alleged to be involved in Ponzi schemes, seeking sanctions and penalties.
3. Criminal referrals: The SEC refers cases to criminal authorities, such as the Department of Justice, for prosecution.
Investor Education and Awareness
The SEC also plays a critical role in educating investors about the risks of Ponzi schemes and how to avoid them. The SEC’s Office of Investor Education and Advocacy provides information and resources to help investors make informed investment decisions and avoid fraudulent schemes.
CHALLENGES AND REGULATORY GAPS
Despite these efforts, regulatory gaps persist. The CAC registration process does not screen for financial legitimacy, allowing Ponzi schemes to operate under the guise of legal businesses. Weak enforcement, financial illiteracy, and banks’ occasional complicity in handling illicit funds further exacerbate the problem. The SEC and CBN have called for increased financial education and inter-agency collaboration to close these loopholes (Nairametrics, 2025a) [19].
CONCLUSION
Ponzi schemes operated by private companies in Nigeria are unequivocally unlawful, violating the ISA 2007, BOFIA 2020, and broader fraud laws. The CBN and SEC do not register or regulate these schemes, classifying them as illegal financial operations outside the Nigerian capital market’s framework. While both regulators have intensified efforts to combat Ponzi schemes through warnings, prosecutions, and legislative reforms, their persistence underscores the need for stronger enforcement and public awareness. Nigerians must exercise due diligence, verifying investment opportunities with the CBN and SEC, to avoid falling prey to these predatory schemes.
Footnotes
[1] Investopedia. (2023). “Ponzi Scheme.” Retrieved from www.investopedia.com.
[2] Akinyemi, T. (2017, December 15). “MMM Nigeria: The Rise and Fall of a Ponzi Scheme.” The Guardian Nigeria. Retrieved from www.guardian.ng.
[3] Nairametrics. (2020, April 1). “SEC Discovers 12 Ponzi Scheme Operators, Warns Investing Public.” Retrieved from nairametrics.com.
[4] EFCC raids Ponzi Scheme Academy. themetrolawyers.com(https://themetrolawyers/com/efcc-raids-ponzi-scheme-academy-in-abuja-arrests-133-suspects/)
[5] Investments and Securities Act, 2007. Federal Republic of Nigeria.
[6] Federal Republic of Nigeria. (2007). Investments and Securities Act, 2007. Abuja: Government Printer.
[7] Banks and Other Financial Institutions Act, 2020, Section 2.
[8] Federal Republic of Nigeria. (2020). Banks and Other Financial Institutions Act, 2020. Abuja: Government Printer.
[9] Nairametrics. (2025a, March 12). “SEC Intensifies Fight Against Ponzi Schemes.” Retrieved from nairametrics.com.
[10] Central Bank of Nigeria (CBN). (2022, May 30). “Advisory on Illegal Financial
[11] Operators in Nigeria.” Vanguard. Retrieved from www.vanguardngr.com, Vanguard. (2022, May 31). “CBN Pushes Strategic Communication Against Ponzi Schemes.” Retrieved from www.vanguardngr.com.
[12] Securities and Exchange Commission Nigeria (SEC Nigeria). (2022, March 14). “Investment Scam.” Retrieved from sec.gov.ng.
[13] Nairametrics. (2020, April 1). “SEC Discovers 12 Ponzi Scheme Operators, Warns Investing Public.” nairametrics.com.
[14] Economic and Financial Crimes Commission (EFCC). (2025, March 11). “EFCC Alerts Nigerians on 58 Illegal Ponzi Scheme Operators.” Retrieved from www.efcc.gov.ng.
[15] Securities and Exchange Commission Nigeria. (2022, March 14). “Investment Scam.” sec.gov.ng.
[16] Tribune Online. (2025, March 24). “Capital Market Operators Engaged in Illegal Activities Will Be Punished — SEC.” tribuneonl ineng.com.
[17] Tajti, T. (2019). Pyramid and Ponzi Schemes and the Price of Inadequate Regulatory Responses: A Comparative Account of the Diverging Regulatory Responses of China, Europe, and the United States. Texas Tech Business and Bankruptcy Law Journal, 5, 19.
[18] Securities and Exchange Commission Nigeria (SEC Nigeria). (2022, March 14). “Investment Scam.” Retrieved from sec.gov.ng.
[19] Nairametrics. (2025, March 12). “EFCC Alerts Nigerians on 58 Illegal Ponzi Scheme Operators.” nairametrics.com.