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Special Report: Despite high poverty, Nigerians are in love with Ponzi schemes

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by: Yusuf Akinyemi

On Sunday, March 28, 2021, Nigerians on social media expressed their dissatisfaction on Racksterli, a ponzi scheme disguised as an investment platform. This was after its CEO, Micheal Chidiebere Oti, a.k.a Blackgold, spoke to the over 300 thousand subscribers on his Instagram live.

Racksterli celebrated reaching 350 thousand subscribers. Blackgold said that the company was trying to restructure and will refund investor capital without the promised monthly 58.8% Return on Investments (ROI).

This is despite Blackgold publicly assuring investors in a video that the company had enough to pay their subscribers in three-folds. His victims reel in his promise.

Tobi Bolujoko, a postgraduate student at the University of Ibadan, had been running this investment for four months. Tobi said he did not want his money diminishing in the bank because of charges, so he made a resolve to take some financial risks since it is “exactly what my bank will use my money for.”

Tobi wanted his investment to run for six months before getting a new phone, paying his school fees, starting his gas business, and keeping the remaining money in the scheme to keep multiplying. He was two months away from achieving his goals when the crash was announced.

Opeyemi Adebayo, a make-up artist, had a better run. Adebayo profited from the Voltac Group of Companies (VGC) scheme with operations in Lagos, Enugu, Ibadan, and most recently, Abuja. She invested with this company in May, 2020 and only withdrew her RoI twice.

Adebayo’s final withdrawal happened in February before the company revealed it was facing some challenges. On March 5, 2021, the company, which hitherto paid a 20% RoI monthly, announced a delay in the payment of its subscribers because of some “internal audit.” Unlike Raksterli, VGC gives its investors a Memorandum of Understanding.

Adebayo collected her money because she was privy to an internal information that the company was facing a hard time, so she withdrew every kobo she had with them. But that’s only a fraction of the population.

Poverty, inflation and unemployment have roles to play Nigeria’s unemployment rate is currently at 33.3%, the second highest on the global list.

Despite the overwhelming unemployment rate, the inflation rate in the country is at 16.5%. There is little money in the country and the price of commodities keeps increasing.

Dimeji Akintayo, an economist, told NewsWireNGR that “austerity exposes people to bad economic planning because they are focused on getting the next meal and this clouds financial judgement.”

Additionally, with Nigeria’s cemented status as the poverty capital of the world, Nigerians are more vulnerable to get-rich-quick schemes to escape poverty, or a semblance of hope.

Akintayo, speaking further, told NewsWireNGR that “you can’t convince someone who does not know where their next meal is coming from, or when they will pay salary… that is if they even have a job… to not look for easy ways out.”

Greed, financial illiteracy, or prudence

People who take part in these Ponzi schemes have been tagged greedy for falling victim continuously to these schemes. When NewsWireNGR spoke to Adebayo, she mentioned that nothing in Nigeria is guaranteed, “everything is a risk and you can either lose or win in this country.”

She said “you know what people say about making your money work for you, that is what I do. I have fallen victim quite a number of times but I have also gained and that is Life for you. Even the one with small profit is not sure so why not the one with bigger profit?” Opeyemi asked rather rhetorically.

Ponzi Investment analysts, Louis De Koker explained in his blog for CGAP, “A Ponzi scheme is an investment scheme that pays returns to early investors out of money invested by new investors rather than from genuine business profit. This fact is not disclosed to the investors, who believe their funds are used to finance a very profitable business”.

Koker added, that the schemes often offer abnormally high returns to attract investors. “Ponzi schemes collapse when they are unable to secure sufficient new investments to service returns promised to the earlier investors or if they are detected and shut down by regulatory agencies or law enforcement”.

Another victim, Shukroh Dauda, was not as cheerful as Ope when she spoke to NewsWireNGR. Dauda’s first trial in ponzi investment was her last.

Initially cautious, she was convinced to try a ponzi masking as investment, only after her brother profited from the scheme. Shukroh, who is a fashion designer and student, told NewsWireNGR that she “does not trust any investment. I wanted to use the money for my business but because I was busy with something else, that prompted me to invest the money until I was ready.”

Shukroh claimed she did not know she was investing in a ponzi and she never expected them to elope with her money. She clarified: “I did not know that they were ponzi, when my brother did it and they paid him, I thought they were real so I decided to also put my money there. I even saw a video of the CEO telling us our money is safe with them. I felt since they were also investing and doing business with the money, then they are also gaining.”

The CEOs of these companies display luxurious lifestyles on the internet to bait unsuspecting investors that they are financially equipped even in crisis. However, the opinion among victims of these schemes is divided.

When asked if he believes the Racksterli will come back, Mubarak, an unpaid “investor” said “the money of the investors is a small amount of money. The owner has over forty thousand bitcoins [USD2,352,716,000], our money cannot shake him.” Mubarak did not get his figure out of thin air, he was making reference to a video the CEO of Racksterli once posted on social media to assure investors that he was incapable of fraud.

Law and legality

Nigerian laws frown against any form of Ponzi or pyramid scheme. The Security Exchange Commision had warned Nigerians to steer clear of Ponzi schemes.

Section 58 and 59 of the revised Bank and Other Financial Acts (BOFIA), 2020, and some sections of the Investment and Security Act(ISA), 2007 criminalise setting up financial and investment companies without getting licensed by the Central Bank of Nigeria.

In a paper written by O.G. Chukkol, a capital market analyst, he notes that “the combined effect of section 67(1) of ISA and sections 1(5)(a), 58, and 59 of BOFIA is that the ponzi scheme is not only prohibited by law, it is in fact a criminal offense. It is a financial business that is exclusively meant for banks or statutory bodies established for that purpose. Anyone who wishes to carry out such business must seek and obtain a license from CBN before performing the business. Under ISA, punishment for engaging in a ponzi scheme is a fine of N100, 000 and if it is a company that engages in the ponzi scheme, the company shall be liable to pay N500, 000. But under BOFIA, the punishment is 5 years imprisonment or a fine of N1 Million or both.

A student who simply identified herself as Dee was shocked to learn that she can be jailed for partaking in a ponzi scheme. She said “I never knew it was a crime. I don’t even know what a ponzi scheme is. After explaining how Racksterli is a ponzi scheme, she concluded ‘’they should pay me my money and I will not go near them again.”

Will Nigerians stop participating in Ponzi?

The Central Bank of Nigeria and other financial regulatory bodies must go beyond press releases and social media announcements. The proliferation of these schemes under different guises and operations means that operators see a thriving sector and an environment that enables them.

Owners of these companies are often Nigerian citizens with visible presence on social media. The government must evoke fear in these individuals and groups that impoverishing already poor Nigerians is a crime and perpetrators will be dealt with decisively.

Although the continuous downward approach of the Nigerian economy is a trap for many Nigerians, the availability of other factors like the boldness of Ponzi needs to be nipped in the bud.

“If Nigeria does not solve its economic problems, ponzi won’t go away,” Akintayo says.

One Comment

  1. this is a beautiful piece..

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