In plain terms, Ponzi Scheme is described as “an investment fraud that pays existing investors with funds from new investors.” The organisers are adept at false promises. They often promise to invest someone’s money and or to generate high returns (sometimes unrealistically high amounts) with insignificant or no risks at all. Financial analysts have discovered that, ‘the money is never invested; rather, the scam artists concentrate on attracting more investors. A growing number of victims is needed to pay out the supposed ‘profits’ being distributed to earlier investors’.

Several Ponzi scheme operators have seemingly had a field day in Nigeria, with a huge number of victims. Operating with very opaque guidelines and some incredibly exaggerated ease of returns, their victims have often turned out as financial ‘Alice in wonderland’. The illusion of easy riches is often the driving force of most victims. Luckily for the Nigerian operators, before now, there were no strict deterrent laws that held the scammers to account.

It is interesting to note that the Ponzi scheme has its origin in the early 20th century America from a ‘swindler’, Charles Ponzi, who duped his way into becoming a millionaire through postal fraud couched as ‘investment opportunity’. Because he operated in a structured system, he was caught and prosecuted, and served time in federal prison.

Despite his fate, some other fraudsters inherited the dubious scheme and it’s seemingly common in many countries, especially the developing countries like Nigeria with very weak systems, poor and often very financially uninformed population ready to skip formalities of the financial world to harvest effortless profits. A lot of otherwise investible capital had gone to waste through these schemes and the effect is the planting of distrust even in genuinely credible financial institutions like the Securities and Exchange Commission (SEC).

We commend SEC that has pushed for a new law that can rein in “the promoters and operators of entities engaged in the prohibited scheme who are now liable to a penalty of not less than N20 million or imprisonment for a term of 10 years or both”. The Director-General of SEC, Emomotimi Agama, said it is one of the provisions of the newly signed Investments and Securities Act 2025 signed by President Bola Tinubu recently. He said the new act would strengthen the legal framework governing Nigeria’s capital market.

However, we are disappointed that one of the most vibrant and consequential SECs in Africa previously lacked the legal power to prosecute Ponzi scheme operators, which had made it difficult to bring offenders to justice. Agama said “the act would help the commission to better protect investors and introduce reforms that would promote market integrity, transparency, and sustainable growth”.

We commend the fact that there are additional punishments beyond the ones expressly stated in the act for both capital and non-capital market promoters or operators implicated in the prohibited scheme. This might just be the first definitive step being taken against a scheme that has had a litany of atrocities in the economic sector in a country that is hungry for development.

No economy develops or attracts investor-confidence without laws that can guarantee discipline and order, especially in the very volatile financial sector. The fact that many of the Ponzi scheme operators defrauded people and were never held accountable not only proliferated the scheme in the country, it negatively impacted the economy. Much hard-earned money went down the drain without contributing to the economy. Many victims either went into depression or became economically lame due to the loss of their ‘investment’.

The government must learn from this tragic scheme and be more proactive, not just in policy formulation but in making sure that laws and guidelines are strictly implemented. The only deterrent is when potential scammers realise that they would be caught and prosecuted even before they profit from their scam.

On the other hand, the media must put more effort in investigative journalism. A Boston Post in the United States was the waterloo of Charles Ponzi. The Nigeria media must take a cue while government acts swiftly too. (The Nation Editorial)