Ever lost money to a Ponzi scheme in Nigeria?
I have. And so have many people I know.
In fact, nearly everyone in Nigeria has a friend or family member who has lost money to Ponzi schemes.
You may think this isn’t a problem until you learn that Nigerians have lost over 300 billion naira to various Ponzi schemes.
In a country where more than half of the population lives in poverty, losing this huge sum to clever crooks is heartbreaking.
The Morning After Falling for a Ponzi Scheme . . .
When I lost money to MMM Nigeria and MMM United in 2017, I went through the famous five stages of grief.1
1. Denial
When rumors that MMM had crashed filtered around town, I waved it off as nonsensical.
After all, the organizers have come out to say that the platform had some technical glitches, which would be fixed in no time.
Naysayers cannot poison my mind about a platform designed to lift me and many others out of poverty.
But beneath this tough talk was denial. I couldn’t bring myself to accept that the platform had crashed and I had lost all my money.
I still believed I’d get my money back once the organizers fixed the glitches on the website.
To the naysayers who started calling me to say, “I warned you about MMM,” I’d always counter with, “Relax, MMM is coming back. It’s a technical glitch. The web masters will fix it.”
Lying to myself then kept me from losing my mind.
2. Anger
Second, I became an angry young man in an instant.
I’d transfer aggression to friends and colleagues at work.
I’d shout down anyone who tried to talk me into any kind of business venture at the time.
For example, a friend of mine tried to talk me into automating my savings using Piggyvest. But I wouldn’t hear any of it.
I got mad at him over this idea as I thought everything on the internet operated like MMM.
3. Bargaining
Third, I started looking for a way out of the terrible situation I was in.
I remember speaking to more experienced friends in the scheme, asking if there was a way to get back at least a part of the funds.
During this time, I didn’t have the courage to face my family and ask for financial support.
They had warned me about Ponzi schemes. But my stronga head wouldn’t let me listen.
4. Depression
Fourth, sliding into depression proved to be the hardest part, because I lost my entire savings to the scheme,
The money I had saved over the few months I spent on my teaching job, I felt overwhelmed.
Why should I go on living and working when I lost everything?
5. Acceptance
Finally, I had to accept my fate.
Money was invested, and money was lost. Time to move on and put together the broken pieces of my battered financial life.
The first few months after that were tough and challenging, but that’s a story for another day . . .
Lessons from My Ponzi Experience
If I were to turn back the hands of the clock, I’d try to understand what a Ponzi scheme is. As well as the hidden and obvious features of a Ponzi scheme.
This upfront investment in learning would have saved me the grief I felt after I lost all my money.
It would have helped me understand the difference between a Ponzi scheme and an investment opportunity.
Because I can’t turn time backward, I can only use my experience to help others. Help them avoid the pit I fell into.
Here is a free guide on how to tell a Ponzi scheme in Nigeria.
What is a Ponzi Scheme?
There are no get-rich-quick schemes. A get-rich-quick scheme is only someone trying to get rich off you.
Charles Ponzi was the first to do a thing that many people now call a Ponzi scheme or a pyramid scheme.
It is a thing where those who came first get money from those who came later.
Charles Ponzi told people in 1920 that he could make their money twice as much in three months. He said he was investing their money in foreign postal coupons.
Many people believed him and gave him their money. They were happy when they got their money back with more money on top.
But they did not know Charles Ponzi was not investing in any postal coupons.
He was only using the new people’s money to pay the old people.
The scheme did not last long. When no more people came to give him money, he could not pay anyone.
The scheme fell apart, and everyone saw that he was a liar and a thief.
The Common Traits of Nigerian Ponzi Schemes
You don’t need to look hard at a scheme to spot these features.
They are the reasons you decide to invest in the first place.
But they are well-crafted tricks to loosen your guard.
Try to be on the constant lookout for these features2 in any new investment opportunity.
1. A Diverse Profile of Victims
The victims of a Ponzi scheme are not illiterates or people who can’t read and write.
They are often people like you and me, educated even up to PhD level.
None is more vulnerable than the other.
Perhaps there is a sense in which greed does not discriminate based on age, education, or social status.
Never assume an opportunity is not a Ponzi scheme because rich celebrities or university professors have invested in it.
Times are hard. The economy is struggling, and educated and not-too-educated people are using Ponzi schemes to beat the hard times.
Be wary when you see many people discussing an investment opportunity with high returns.
It is probably a Ponzi scheme.
2. A Convincing Story Spreading Fast Among Family and Friends
God made man because He loves stories
Every Ponzi scheme usually has a grass-to-grace story of a few people.
Let’s call these people poster boys or girls of the scheme.
Pastors, family, and friends parrot these stories like they were gospel.
It’s hard to resist these stories. But you want to look beyond stories.
Be on your guard when advocates of an investment opportunity are only keen on sharing stories of people who have made lots of money through the scheme.
It is probably a Ponzi scheme.
3. Consistent Earnings from Early Investors
If someone tells you to put your money in a scheme, you first feel natural skepticism.
But as the days turn into weeks and weeks into months, you start feeling the urge to invest, especially when you see friends and family get weekly bank alerts.
Fear of missing out (FOMO) is real.
It will push you to throw your money into a fraudulent scheme with fake consistent earnings.
Hold back that impulse. You are not missing anything.
It is probably a Ponzi scheme.
4. Calm and Collected (No Pushy Sales Tactics)
People tell you about a scheme and try not to force you to invest.
The usual slogan is, “You can join anytime you want.” Or “the best time to plant a tree was last month. The next best time is today.”
By not pushing you to join through pushy sales tactics, you begin to see reasons to invest and lose your guard.
Be cautious when there is little push from the evangelist.
It is probably a Ponzi scheme.
5. A Good Guy Promoter Who Does Charitable Works
Every Ponzi scheme usually has a face.
When you look hard enough, you’ll see the face or faces of the scheme.
You see them sinking boreholes for poor communities, paying needy students’ tuition, building houses for widows, and even organizing sporting events.
Be watchful. Don’t lose your guard because of these silly old tricks.
A Framework to Spot Ponzi Schemes
Most Ponzi schemes have a familiar structure.
This structure or framework will help you to identify any Nigerian Ponzi scheme.
It is a simple framework that involves answering four key questions about any new investment opportunity.
If a response to any of these questions sounds shady, then it is probable you are dealing with a Ponzi scheme.
1. Is there a constant drive to bring in new investors?
No Ponzi scheme can thrive without your money and that of family and friends you drag into the scheme.
For some, they’ll try to emphasize how you don’t need to bring anyone into the scheme.
But once you have joined and invested, you are inundated with stories of how big money lies in you bringing in people (usually called downlines) into the scheme.
Don’t confuse the referral program of a genuine business with the drive for newer investors in a Ponzi scheme.
Ask the person preaching about the scheme what is in it for them if they bring you in.
Look at the benefits they stand to gain and ask yourself if it is sustainable.
You’re dealing with a Ponzi scheme if it is too big and unsustainable
2. Can I point to products made or services delivered?
Ponzi schemes don’t make any products. Nor do they offer any services.
Using money from older investors to pay off newer investors isn’t a business operation.
It’s money exchanging hands and the last people to join will lose all their funds.
To know if you are investing in a Ponzi scheme, ask yourself if you can point to tangible products or services provided by the business you want to invest in.
No one generates money from thin air.
It must come from selling products, services, or ideas.
3. Is there a reliable and transparent financial record of business activities?
Because Ponzi schemes have no business operations, you won’t see them reporting business profits or earnings at year-end.
The scheme owners make money from stealing from investors, so they avoid any form of reporting that will expose the fraud they are running.
The right questions to ask of a company pushing you to invest is: How do you generate your profit? How much profits have you made in the past? Do you have financial records?
4. Is my profits coming from newer investors?
The lifespan of every Ponzi scheme depends on the pipeline of new investors.
Once new investor sources dry up, the Ponzi scheme will crash.
The right question to ask before throwing your money somewhere should be:
Where would the returns I’d get come from?
Conclusion
Helping every Nigerian to spot Ponzi schemes is not an easy undertaking.
One reason is that it is much easier to sell entertainment than it is to sell worldly wisdom.
But this must not stop the crusade against these clever crooks running Ponzi schemes in Nigeria.
For starters, I hope this article has opened your eyes to some hidden features in most Nigerian Ponzi schemes.
Works Consulted
- The five stages of grief were popularized by Elizabeth Kubler Ross in her book, “On Death and Dying. ↩︎
- Understanding a Ponzi Scheme: Victim’s Perspective ↩︎
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