The Director General of SEC Nigeria recently spoke on Arise Television, shedding light on key updates in the Investment and Securities Act (ISA) 2025 | Enroll Now: Training Opportunities at The Nigerian Capital Market Institute (NCMI)! | In a major boost to capital market regulation in Nigeria, President Ahmed Bola Tinubu GCFR, has assented to the Investments and Securities Bill (ISB) 2025, which repeals the Investments and Securities Act No. 29 of 2007 | The Director General of SEC Nigeria recently spoke on Arise Television, shedding light on key updates in the Investment and Securities Act (ISA) 2025 | Enroll Now: Training Opportunities at The Nigerian Capital Market Institute (NCMI)! | In a major boost to capital market regulation in Nigeria, President Ahmed Bola Tinubu GCFR, has assented to the Investments and Securities Bill (ISB) 2025, which repeals the Investments and Securities Act No. 29 of 2007 |

FAQs on Differentiating Ponzi/Pyramid Schemes from Registered Fund/Portfolio Managers

Protect yourself from fraudulent investment schemes. This FAQ section helps you understand the red flags of Ponzi/pyramid schemes and how to identify legitimate registered fund/portfolio managers.

There is the need to educate first time and existing investors on how to distinguish between Ponzi/Pyramids schemes and genuine Fund/Portfolio Managers.

WHAT IS A PONZI/PYRAMID SCHEME?

A Ponzi/Pyramids scheme is a fraudulent investment scheme in which an individual or organization pays returns to its investors from new capital paid by new investors, rather than from profit earned through legitimate sources.

The scheme promises high returns with little or no risk involved, but in reality, generates returns for older investors by acquiring new investors.

CHARACTERISTICS OF PONZI SCHEMES.

  1. They never make legitimate investments or assets sufficient to sustain the promised payouts.
  2. They require the entrance of new investors to pay existing investors. These new entrants are likely to lose their investment as they will not be able to recoup their investment before the collapse of the scheme.
  3. They promise high returns on investment, usually higher than the prevailing Central Bank of Nigeria’s Monetary Policy Rate (MPR).
  4. They are not registered by the appropriate regulatory agencies.
  5. Their promoters are not known to the investing public.

WHO ARE FUND/PORTFOLIO MANAGERS?

Fund/Portfolio Managers are registered by the Securities & Exchange Commission (SEC) and are members of the Fund Managers Association of Nigeria (FMAN). These firms have displayed sufficient expertise/professionalism and the capacity to manage money on behalf of their clients for a fee. They have the mandate/professionalism to safeguard and maximize returns on investment, as well as to assist investors diversify their risk.

Fund/Portfolio Managers perform the following functions among others:

  • Investment advisory services
  • Selection of securities for the fund/portfolio
  • Management of fund/portfolio on behalf of investors

BEFORE YOU INVEST IN ANY SCHEME, PLEASE ENSURE THAT THE FOLLOWING QUESTIONS ARE ANSWERED:

  1. Do you understand the nature of the investment?
  • What type of business is the scheme into?
  • Is the product or service the company is purporting to sell genuine and tangible?
  • Is the rate of returns sustainable? Is it lower or higher than the CBN Monetary Policy Rate (MPR) of 14 %?

Prospective investors should avoid any investment they do not understand. Find out how and in what product your money will be invested. Where the promised rate of returns is abnormal e.g above 20% per annum, the genuineness of the investment is in question. Ensure that the guarantee of your returns is not based on recruiting new investors.

2. How do you keep track of your investments?

  • Request for documentary evidence of your investment. In a situation where documents /receipts cannot be provided, exercise caution, as it might be an illegal operation/business
  • Find out the investment’s exit strategy before investing

If there are many complicated rules, pertaining to exiting or withdrawing your money, it is a warning sign for you.

3. What are the investment risks?

  • Every investment carries some degree of risk. As a general rule; the higher the investment risk, the higher the return on investment
  • Be highly suspicious of an investment that continues to generate regular and positive returns regardless of overall market conditions; as well as investments giving daily or weekly returns

4. Are the promoters of the investment registered with the appropriate regulatory agencies?

  • Who are the Directors/promoters of the firm?
  • What are their names, addresses and contact details?
  • Where are the firm’s head and branch offices located?
  • Do staff have engagement/appointment letters or identification cards?
  • Are payment receipts in the name of an individual or the company?
  • Are the firm’s bank accounts in the name of an individual or the company?
  • Are the investment professionals or marketers registered?
  • Which Government Agency regulates their activities?
  • What agency do I report to in case of default?

Most ponzi schemes involved unlicensed individuals or unregistered firms. The investment professionals or marketers must be registered by the regulators before commencing operations.

5. How do I know the registration status of the investment, Company and its promoters?

  • Request for evidence of incorporation with the Corporate Affairs Commission (CAC) and registration with the Securities and Exchange Commission (SEC)
  • Contact the Securities and Exchange Commission (SEC) by email at sec@sec.gov.ng or call Commission’s number 09-4621168 to confirm the firm’s registration status

If the investment is not registered by SEC then it is not advisable to venture into it.

6. Which Government Institution do I seek further information from?

If you are aware of or involved in investment you suspect to be a Ponzi/pyramid scheme, contact the Securities and Exchange Commission (SEC) at the following addresses:-

  • SEC Head Office, SEC Tower Plot 272, Samuel Adesujo Ademulegun Street, Central Business District, Abuja
  • Lagos Zonal Office, No 3, Idejo Street, Victoria Island, Lagos
  • Port Harcourt Zonal Office, 31, Woji Street, GRA Phase 11, Port Harcourt
  • Kano Zonal Office, African Alliance House, 4th Floor, F1 Sani Abacha Way/Airport Road, Kano
  1. Back to Home
  2. /
  3. About
  4. /
  5. Resources
  6. /
  7. Frequently Asked Questions
  8. /
  9. FAQs on Differentiating Ponzi/Pyramid Schemes from Registered Fund/Portfolio Managers