Introduction
Nigeria has experienced a significant increase in Ponzi schemes and related investment activities, which often exploit vulnerable segments of the population with promises of extremely high and risk-free returns. These deceptive schemes have led to substantial financial losses, eroded investor confidence, and hindered the development of a strong investment culture in the country. As a result, SEC recently issued warnings to the public against investing in schemes promoted by Property World Africa Network (PWAN) and Crypto Bridge Exchange (CBEX) following substantial loss of huge sums of money by many Nigerians.
In response, the Securities and Exchange Commission (SEC), Nigeria's apex capital market regulator, has intensified efforts to combat investment fraud and enhance investor protection. The recently enacted Investments and Securities Act, (ISA) 2025 introduces important legal reforms that strengthen SEC's capacity to address fraudulent investment schemes, particularly Ponzi and pyramid schemes.
This newsletter explores the legal reforms introduced under the ISA, and how the SEC is leveraging its expanded mandate to promote market integrity and protect investors.
What are Ponzi Schemes?
Under the ISA, Ponzi Schemes also known as Pyramid Schemes are described as any arrangement in which returns are paid to existing members from funds contributed by new members, typically with a promise of high returns and little or no risk. It also includes any scheme where participants earn money primarily by recruiting new members.
What are the features of Ponzi Schemes?
The following are notable features of Ponzi Schemes:
- Unrealistic promises of high, fixed returns with little or no risk;
- Lack of registration with SEC or other relevant authority;
- Aggressive marketing tactics often through social media channels or referral networks;
- Dependence on a steady flow of new investors to pay existing ones; and
- Absence of credible business model or genuine income-generating activity.
Key Provisions under the ISA addressing Ponzi Schemes
a. Expanded Jurisdiction over Ponzi Schemes: Prior to the amendment of the ISA, Ponzi schemes were not expressly provided for under the law, limiting the SEC's ability to take effective action and hold perpetrators accountable. Under the ISA, Ponzi schemes are now expressly prohibited and criminalized, providing SEC with clear legal authority to regulate such prohibited schemes.
b. Prohibition of Unauthorised Investment Operations: While the ISA prohibits the operations of unregistered collective investment schemes, it now clearly provides penalties for promoters or entities engaged in prohibited schemes including Ponzi Schemes. Thus, upon conviction, the promoter or entity shall be liable to a fine of not less than ₦20,000,000 (Twenty Million Naira), imprisonment for a term of up to ten (10) years, or both.
Additionally, the SEC is entitled to recover all expenses incurred during the investigation of such prohibited schemes, with recovery proceedings initiated through the Office of the Attorney-General of the Federation.
c. Enforcement and Interim Measures: SEC is empowered to take proactive enforcement actions, including issuing cease-and-desist orders, freezing bank accounts, and collaborating with law enforcement agencies and financial institutions to swiftly shut down Ponzi schemes. In furtherance of its powers, SEC is collaborating with law enforcement agencies in investigating CBEX which claims to operate as a digital asset trading platform offering high returns to investors.
Conclusion
SEC's strengthened enforcement powers under the ISA are crucial in protecting investors and maintaining market integrity. Potential investors are therefore advised to verify the registration status of investment platforms via SEC's dedicated portal – www.sec.gov.ng/cmos before transacting with them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
