SEC Issues Warning On Ponzi Schemes, Urges Public Vigilance

The Securities and Exchange Commission (SEC) has reiterated its warning about the dangers of Ponzi schemes, emphasizing their destructive effects on investor confidence, financial stability, and the integrity of the Nigerian capital market.

This warning formed the core message of a presentation titled “Ponzi Schemes: Avoiding the Pitfalls of Illegality,” delivered by Dr. Sa’ad Abdulsalam, Head of the SEC’s Enforcement Department, during the Capital Market Enlightenment Programme organized for the Capital Market Correspondents Association of Nigeria (CAMCAN).

Dr. Abdulsalam expressed concern over the continued spread of fraudulent investment schemes, noting that they erode public trust in legitimate financial platforms. By offering unrealistic returns and operating outside regulatory oversight, these schemes destabilize investor sentiment and deter participation in genuine capital market activities.

“The erosion of market confidence caused by Ponzi schemes leads to significant volatility and reduced investor engagement,” he said.

“The fallout not only damages individual finances but also tarnishes the reputation of regulatory institutions tasked with protecting investor interests.”

He went on to highlight that the impact of Ponzi schemes extends beyond financial markets, touching the social and economic fabric of communities. He warned that household losses—often involving life savings or borrowed funds—contribute to wider socio-economic hardship.

“These losses are not just figures on a balance sheet,” he explained.

“They represent broken trust, devastated livelihoods, and increased poverty in affected communities.”

Dr. Abdulsalam also reflected on Nigeria’s long history with Ponzi schemes, citing past examples such as the Umanah Umanah scheme in the 1990s, Nospecto in the early 2000s, and the infamous MMM craze of the 2010s. He said that these schemes have historically taken advantage of regulatory loopholes and economic vulnerabilities.

He revealed that in 2010 alone, over 400 unlicensed fund managers were identified, a statistic that underscores the magnitude of the threat. He attributed the persistent rise in Ponzi operations to multiple factors, including low financial literacy, the appeal of quick returns amid economic difficulties, and the rapid dissemination of misinformation through social media.

Abdulsalam pointed out that the persistent spread of these illegal schemes continues to sap confidence in formal investment platforms by promising improbable returns and operating beyond the law.

“The erosion of market confidence caused by Ponzi schemes leads to significant volatility and reduced investor engagement,” he said.

“The fallout not only damages individual finances but also tarnishes the reputation of regulatory institutions tasked with protecting investor interests.”

He further stressed the deeper implications on society:

“These losses are not just figures on a balance sheet,” he explained.

“They represent broken trust, devastated livelihoods, and increased poverty in affected communities.”

Abdulsalam admitted that regulators face an uphill task in combating these schemes, particularly given the sophistication of digital fraud and resource limitations faced by the SEC and its enforcement partners.

“Ponzi schemes are multiplying geometrically, and our response must evolve at a similar pace,” he said. “The lack of investor education and the impact of economic downturns are making more people susceptible to these traps.”

To address the crisis, the SEC has expanded its investor education campaigns and reinforced enforcement strategies. Regular public alerts and announcements are issued, and the names of registered capital market operators are published on the Commission’s official website, helping investors verify a firm’s legitimacy before investing.

“Educational initiatives have also been integrated into school curricula and segmented across various demographics through workshops, radio campaigns, television programming, and social media engagement. These efforts aim to equip Nigerians with the tools to identify and avoid fraudulent investment schemes.

“When illegal operations are detected, the Commission takes swift action. We do not hesitate to seal off premises involved in unlawful investment activities,” Abdulsalam said.

In addition to administrative crackdowns, he explained that the SEC pursues civil litigation through the Investments and Securities Tribunal (IST) and also works with law enforcement, including the police and the Office of the Attorney General of the Federation (AGF), to initiate criminal prosecutions.

Abdulsalam added that interagency collaboration is now a cornerstone of the SEC’s anti-Ponzi strategy. The Financial Services Regulation Coordinating Committee—which includes the Central Bank of Nigeria (CBN), Corporate Affairs Commission (CAC), and Nigeria Deposit Insurance Corporation (NDIC), among others—has been instrumental in mounting a united front against financial crimes.

“Ponzi schemes do not respect boundaries. Our enforcement must be equally coordinated across regulatory jurisdictions,” Abdulsalam emphasized.

The SEC’s message remains unequivocal: investors must be vigilant, confirm the authenticity of any investment opportunity, and steer clear of schemes that promise returns that seem too good to be true. The Commission reaffirmed its dedication to creating a secure and trustworthy investment landscape but emphasized the role of the public in safeguarding themselves and their communities.

“Capital markets can only thrive in an environment of trust and transparency,” Abdulsalam concluded.

“Together, through vigilance, education, and collaboration, we can shield our economy from the destructive force of Ponzi schemes.”