N'Assembly proposes jail terms for Ponzi scheme promoters

The National Assembly passed the Investment and Securities Bill, which includes provisions for possible prison terms for those who promote Ponzi schemes in the Nigeria. Oluwakemi Abimbola examines the implications of the investment bill during its enactment

The Securities and Investments Services Bill 2023 finally cleared the National Assembly's final hurdle when the Senate passed it on March 29. The bill, which should contribute to the functioning of the capital market and facilitate the economic diversification underway in the country, was passed by the House of Representatives in December. He is only waiting for presidential assent to subscribe to a law.

In plenary session, Senate President Ahmad Lawan said the bill should protect investors, properly regulate the market, reduce systemic risks and provide tougher penalties for operators of Ponzi schemes.

He said: "The Bill to repeal the Investments and Securities Act 29 of 2007 and to enact the Investments and Securities Bill 2023 to serve the SEC as the supreme regulatory authority for the Nigerian capital market as well as market regulation to ensure capital formation, protect investors, maintain a fair, efficient and transparent market and reduce systemic risk and to Related Matters is hereby adopted.”

Speaking as the House of Representatives passed the bill, the chair of the House Committee on Capital Markets and Institutions, Babangida Ibrahim, said the ISB 2023 was capable of transforming the capital market, attracting foreign investors as well as boosting investor confidence, among others.

Ibrahim said: "The bill seeks to repeal the existing Investments and Securities Act 2007 and establish a new market infrastructure and a comprehensive system of investment and securities regulation. securities firms in Nigeria, particularly in the areas of derivatives, systematic risk management, financial market infrastructure and Ponzi scheme and platforms.”

One ​​of the developments brought by the new bill is the prohibition of Ponzi/Pyramid schemes, which have resulted in the loss of billions of naira from the victims and also affected the confidence in the investment climate in Nigeria.

The passed bill prohibits Ponzi/pyramid schemes as well as other illegal investment schemes and provides for a prison term of at least 10 years for promoters of such schemes.

Ponzi schemes, also known as pyramid schemes, are a money laundering scheme in which investors are lured in with the promise of high investment returns after a specified period . The system works somewhat cyclically by paying old investors with deposits from new investors. Usually, this cycle becomes unsustainable when the backlog of former investors eligible for payouts exceeds the investments entering the system.

According to the Securities and Exchange Commission of Nigeria, three million Nigerians lost N18 billion when the popular Ponzi scheme Mavrodi Mundial Movement aka MMM crashed in 2016. In 2022, Nigerians have lost over N300 billion in Ponzi schemes in five years, according to a report generated by the Norrenberger Financial Investments program.

The promoters of a popular investment scheme, Ovaioza Farm Produce Storage Business Limited, are facing lawsuits for luring members of the public to an unregistered collective investment scheme. The promoters, Imu Yunusa and Goodness Omeiza have been accused of defrauding their victims out of up to N2 billion.

Reacting to the introduction of the ban on Ponzi schemes, the Managing Director of Enterprise Stockbrokers, Mr. Rotimi Fakayejo, said that this decision was long overdue and it was a welcome idea.

He said, "I vividly remember that Ponzi scheme that got a lot of people in trouble, MMM. In the end, it's not just about losing money. It is the disinterestedness in investing. First they invested in the wrong window and eventually they won't invest again.

"Some have invested in it foolishly and naively and some have entered it out of ignorance and others out of greed. Those who entered it out of greed know what they were doing, they are simply greedy. But those who go into it out of ignorance, not knowing that such schemes are not authorized by the SEC, are the ones who may never again enter a viable or regulated investment window.Every economy needs investment, so that money flows through profitable channels."

Fakayejo also argued that those involved in Ponzi schemes and their promoters should be punished, although the penalties would be different.

He said, "The person who enters it should receive a small punishment...