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 a whooping 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 smart crooks is heartbreaking.
Going through the stages of grief after losing money
When I lost money to MMM Nigeria and MMM United in 2017, I went through the 5 popular stages of grief.
First, I couldn’t bring myself to accept that the platform had crashed. I still believed I’d get my money back once the organizers fixed the glitches on the website.
To the naysayers who started reaching me to say, “I warned you about MMM,” I’d always counter with, “relax, MMM is coming back. It’s a technical glitch. The website programmers will fix it.”
Lying to myself then kept me from losing my mind.
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 financial service 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.
Third, I started asking myself the what-if questions daily.
If only I had listened to my mother then and invested in something physical, something legitimate? If only I had pulled out after my first try without trying to re-invest and make more money? If only…if only…
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?
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…
Looking back, what could I have done differently?
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 back, here is a free guide on how to tell a Ponzi scheme in Nigeria.
What is a Ponzi scheme or pyramid scheme?
There are no get-rich-quick schemes. A get-rich-quick scheme is only someone trying to get rich off you.
A Ponzi scheme, also called a pyramid scheme, is a scheme where previous investors receive returns from recent investors.
Ponzi is the last name of the first man (Charles Ponzi) to successfully pull off a Ponzi scheme.
In 1920, Charles tricked investors, promising to double their money in 90 days. He made them believe he was investing the money in foreign postal coupons.
Initially, the scheme appeared successful, and more people threw in their money to get it doubled. But what looked like success was only Charles using the money from new investors to pay previous investors.
The whole scheme collapsed when no new investors were coming into the scheme.
Features of Ponzi Schemes in Nigeria
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 features…
1. Older, Younger and Educated Victims
The victims of a Ponzi scheme are not illiterates or people who can’t read and write. They are 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.
Don’t ever 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 both educated and not-too-educated 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. Plausible Story That Travels by Word of Mouth Across People Who Know Each Other Well
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 that have made lots of money through the scheme.
It is probably a Ponzi scheme.
3. Demonstrated Returns Over Several Months
If someone tells you to put your money in a scheme, the first thing you feel is 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 bank alerts weekly.
Fear of missing out is real. It will push you to throw your money into the scheme.
Hold back that impulse. You are not missing anything.
4. Low Pressure (No Urgency to Invest)
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 hard 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.
Hidden Features of Ponzi Schemes in Nigeria
There are 4 hidden features of any Ponzi scheme.
Unless you are a critical investor, you may find it hard to spot these features early on.
But to not lose money, try and answer some questions about the scheme using these 4 hidden features as a framework.
1. Investor Deposits
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 it.
But once you join, you are inundated with stories of how big money lies in you bringing in people (usually called downlines) into the scheme.
2. Little or No Legitimate Business Operations
Ponzi schemes don’t make any products. Nor do they sell 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, you want to make sure you understand the products or services provided by the business you invest in.
No one generates money from thin air. It must come from selling products, services, or ideas.
3. Little or No Business Profits or Earnings
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. Source of Returns to Previous Investors is from Recent 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? Where would the returns I’d get come from?
Helping every Nigerian to spot the signs of Ponzi schemes in Nigeria is a slow process.
It is easier to sell entertainment than it is to sell worldly wisdom.
But this must not stop the crusade against these smart crooks running Ponzi schemes in Nigeria.
For starters, spotting a Ponzi scheme is only possible when you know what a Ponzi scheme is and can list the hidden and obvious features.