Nigeria’s Securities and Exchange Commission (SEC) reports that its residents have lost over $218 million to Ponzi schemes. Authorities attribute many of these losses to investor greed and a lack of awareness. Consequently, the SEC is advocating for swift cryptocurrency regulation to combat crypto-based frauds and safeguard investors.
How Ponzi Schemes Operate
Nigeria’s SEC has documented losses amounting to $218 million, equivalent to N316 billion, due to Ponzi schemes. These schemes are fraudulent investment operations that promise high returns to early investors. Perpetrators entice investors with appealing offers, often promoted on social media, that appear too good to be true.
Abdul Rasheed Dan-Abu, Head of the FinTech and Innovation Department at the SEC, highlighted the aggressive marketing tactics employed by fraudsters on platforms like WhatsApp. He explained that these schemes rely entirely on collecting funds from new investors to pay existing participants. Typically, these operations lack any legitimate underlying business but still promise investors unrealistic returns.
Greed and Ignorance Fuel Ponzi Schemes
These schemes often promise monthly returns of up to 30% with minimal risk. The system operates by using funds from newer investors to pay older ones, a practice often described as ‘robbing Peter to pay Paul.’ The schemes inevitably collapse once the inflow of new investor funds ceases. The agency stated that the reported losses were indeed fueled by greed and ignorance.
The Nigerian securities regulator has urged the implementation of robust regulations for the crypto industry to prevent the recurrence of such Ponzi schemes. So far, authorities in the region have shown support for crypto projects. In July, the SEC publicly expressed its support for stablecoin businesses, acknowledging the necessity of regulation and planning to leverage blockchain technology to enhance payment security and efficiency.
US DoJ Sentences Ponzi Scheme Perpetrator
Globally, authorities are intensifying efforts to protect crypto users within their jurisdictions. In the United States, Dwayne Golden, a 57-year-old man from Pennsylvania, was sentenced to over eight years in federal prison for operating a Ponzi scheme. The U.S. Department of Justice (DoJ) announced the sentence on June 28.
Golden collaborated with Gregory Aggesen and Marquis Demacking Egerton to run three fraudulent cryptocurrency firms: EmpowerCoin, ECoinPlus, and Jet-Coin. These entities attracted a significant number of investors by promising high, fixed returns for investments in cryptocurrency markets.