Ponzi Schemes in Nigeria: Legal Status and Regulatory Oversight by CBN and SEC

Abstract

Ponzi schemes in Nigeria, fraudulent investment scams promising high returns with minimal risk, exploit economic hardship and financial illiteracy, costing investors over ₦911 billion in 23 years (WallchartAfrica, 2024). Operating by paying early investors with funds from new ones, these schemes collapse when recruitment slows, causing widespread losses. Despite regulatory efforts by the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC), schemes like MMM and MBA Forex persist, leveraging regulatory gaps and digital platforms. This post examines their illegality, the CBN and SEC’s stance on registration and regulation, and challenges in curbing their operation in Nigeria’s capital market.

Introduction

Nigeria’s economic challenges—unemployment, inflation, and distrust in formal financial systems—have fueled the proliferation of Ponzi schemes, often run by private companies promising quick wealth. High-profile cases like MMM, which defrauded three million Nigerians of ₦18 billion in 2016, and recent schemes like CBEX, allegedly absconding with ₦1.3 trillion in 2025, highlight their devastating impact (SEC Nigeria, 2016; Tribune Online, 2025). This post analyzes the legality of Ponzi schemes, their operation, and the regulatory roles of the CBN and SEC in Nigeria’s capital market, emphasizing enforcement and persistent challenges.

What is a Ponzi Scheme?

A Ponzi scheme, named after Charles Ponzi’s 1920s scam, is a fraudulent investment model promising high returns with little risk. It generates payouts for early investors using funds from new participants, not legitimate profits, requiring constant recruitment to sustain itself. When new investments dwindle, the scheme collapses, leaving most investors with losses (Investopedia, 2023). In Nigeria, schemes often pose as legitimate ventures in agriculture, forex, or crypto, using social media and WhatsApp to lure victims with returns of 15%-50% monthly (Nairametrics, 2020).

Operation of Ponzi Schemes in Nigeria

Ponzi schemes adapt to Nigeria’s socio-economic context, exploiting financial illiteracy and economic desperation. Historical examples include Umana-Umana in the 1980s and MMM, which collapsed in 2016 after defrauding millions with a 30% monthly return promise (Akinyemi, 2017). Recent schemes like Farmforte, Racksterli, and MBA Forex, which defrauded investors of ₦213 billion in 2021, masquerade as crowdfunding or forex trading ventures (ENACT Africa, 2024). A 2025 EFCC raid on Q University in Abuja uncovered a Ponzi scheme academy training youths for fraudulent investments, recovering electronic devices and arresting 133 suspects (Themetrolawyers, 2025). These schemes often register with the Corporate Affairs Commission (CAC) for legitimacy but evade CBN and SEC oversight, operating online without physical offices.

Legal Status of Ponzi Schemes

Ponzi schemes are illegal in Nigeria, though not explicitly named in older statutes. Their illegality derives from fraud and non-compliance with financial regulations:

Investments and Securities Act (ISA) 2007: Section 67 prohibits private companies from soliciting public investments unless registered as public companies with the SEC. Section 153 mandates registration for collective investment schemes, which Ponzi schemes violate by lacking genuine investment activities (Federal Republic of Nigeria, 2007).
Banks and Other Financial Institutions Act (BOFIA) 2020: Only CBN-licensed entities can accept deposits or manage funds. Unlicensed Ponzi schemes contravene this law (Federal Republic of Nigeria, 2020).
Criminal and Penal Codes: Fraud, including obtaining money under false pretenses, carries imprisonment penalties.
ISA Repeal and Re-enactment Bill, 2024: Passed in December 2024, it explicitly bans Ponzi schemes, imposing up to 10 years’ imprisonment and ₦20 million fines. Awaiting presidential assent as of May 2025, it strengthens enforcement (Nairametrics, 2025a).

CBN’s Position on Registration, Regulation, and Operation

The CBN, Nigeria’s apex financial regulator, does not register or license Ponzi schemes, as they fail to meet BOFIA’s criteria for legitimate financial institutions. The CBN’s 2022 advisory warned against unlicensed operators promising high returns, noting their threat to financial stability (CBN, 2022). The CBN collaborates with the EFCC, recovering ₦95.2 billion for victims in 2021 (Vanguard, 2022). While the CBN focuses on banking and forex, it indirectly supports capital market integrity by ensuring only licensed entities handle financial transactions, excluding Ponzi schemes. The CBN urges Nigerians to verify entities via its website, emphasizing public awareness (CBN, 2022).

SEC’s Position on Registration, Regulation, and Operation

The SEC, the primary regulator of Nigeria’s capital market under the ISA 2007, prohibits unregistered entities from offering securities or soliciting investments. Ponzi schemes, lacking legitimate revenue, are neither registered nor authorized, making their operations illegal (SEC Nigeria, 2022). The SEC’s actions include:

Warnings and Alerts: In 2020, it listed 12 Ponzi operators, including No Failure Development, and in 2025, with the EFCC, named 58 unregistered firms like Wales Kingdom Capital (Nairametrics, 2020; EFCC, 2025).
Enforcement: The SEC shut down Oxford International Group in 2022 and pursued legal action, with five convictions and ongoing cases against others by 2025 (SEC Nigeria, 2022; EFCC, 2025).
Legislative Reforms: The ISA 2024 Bill enhances penalties and investor protections, with the SEC vowing “zero tolerance” for fraud in 2025 (Tribune Online, 2025).
Investor Education: The SEC’s Office of Investor Education provides resources to identify Ponzi schemes, urging the public to verify operators on its website (SEC Nigeria, 2022).

The SEC’s Director-General, Dr. Emomotimi Agama, emphasized robust enforcement and market integrity, with plans to strengthen the Investments and Securities Tribunal for swift dispute resolution (PunchNG, 2025).

Challenges and Regulatory Gaps

Despite CBN and SEC efforts, Ponzi schemes persist due to:

CAC Loopholes: CAC registration does not verify financial legitimacy, allowing schemes to pose as legal businesses (ENACT Africa, 2024).
Weak Enforcement: Over 70% of SEC cases involve Ponzi schemes, but slow prosecution and bank complicity hinder progress (ENACT Africa, 2024).
Financial Illiteracy: Many Nigerians fall for high-return promises due to limited investment knowledge (WallchartAfrica, 2024).
Digital Platforms: Social media amplifies scheme reach, with promoters using testimonials to feign legitimacy (WallchartAfrica, 2024).
Economic Pressures: Unemployment and inflation drive desperation, with schemes exploiting the quest for quick wealth (PunchNG, 2022).

Recommendations

To curb Ponzi schemes, Nigeria should:

Strengthen Inter-Agency Collaboration: The CBN, SEC, EFCC, and Nigerian Financial Intelligence Unit should integrate efforts to monitor suspicious transactions.
Enhance Financial Literacy: Nationwide campaigns, like the SEC’s 2025 Dei-Dei market outreach, should educate citizens on legitimate investments (SECNigeria, 2025).
Tighten CAC Oversight: Require financial vetting for CAC-registered firms offering investment products.
Accelerate Prosecutions: Fast-track cases via the Investments and Securities Tribunal to deter operators.
Regulate Digital Platforms: Monitor social media for fraudulent promotions, as urged by recent X posts (SunusiMinjibir, 2025).

Conclusion

Ponzi schemes by private companies in Nigeria are illegal, violating the ISA 2007, BOFIA 2020, and fraud laws. The CBN and SEC neither register nor regulate these schemes, actively combating them through warnings, prosecutions, and legislative reforms like the ISA 2024 Bill. However, regulatory gaps, financial illiteracy, and economic vulnerabilities sustain their prevalence. By enhancing enforcement, education, and digital oversight, Nigeria can protect investors and strengthen its capital market, aligning with the SEC’s 2025 vision for transparency and growth.

Footnotes
[1] Investopedia. (2023). Ponzi Scheme. www.investopedia.com [2] Akinyemi, T. (2017). MMM Nigeria: The Rise and Fall of a Ponzi Scheme. The Guardian Nigeria. www.guardian.ng
[3] Nairametrics. (2020). SEC Discovers 12 Ponzi Scheme Operators. nairametrics.com [4] Themetrolawyers. (2025). EFCC Raids Ponzi Scheme Academy in Abuja. themetrolawyers.com
[5] Federal Republic of Nigeria. (2007). Investments and Securities Act, 2007.
[6] Federal Republic of Nigeria. (2020). Banks and Other Financial Institutions Act, 2020.
[7] Nairametrics. (2025a). EFCC Alerts Nigerians on 58 Illegal Ponzi Scheme Operators. nairametrics.com [8] CBN. (2022). Advisory on Illegal Financial Operators in Nigeria. www.vanguardngr.com [9] Vanguard. (2022). CBN Pushes Strategic Communication Against Ponzi Schemes. www.vanguardngr.com [10] SEC Nigeria. (2022). Investment Scam. sec.gov.ng [11] EFCC. (2025). EFCC Alerts Nigerians on 58 Illegal Ponzi Scheme Operators. www.efcc.gov.ng [12] Tribune Online. (2025). CBEX: Ponzi Scheme Promoters Face 10 Years Jail Term. tribuneonlineng.com [13] PunchNG. (2022). How Economic Hardship Pushes Nigerians into Ponzi Schemes. punchng.com [14] WallchartAfrica. (2024). Notable Scams and Ponzi Schemes in Nigeria. www.wallchartafrica.com [15] ENACT Africa. (2024). Lax Regulatory Systems Make Nigeria Vulnerable to Ponzi Schemes. enactafrica.org [16] PunchNG. (2025). SEC Vows to Crack Down Ponzi Schemes in 2025. punchng.com [17] SECNigeria. (2025). Say No to Ponzi Schemes. X post by @SECNigeria
[18] SunusiMinjibir. (2025). Warning on Ponzi Schemes Disguised as Crypto Projects. X post by @SunusiMinjibir