Understand the legal implications of Ponzi schemes in Nigeria under the EFCC Act, SEC regulations, and other laws. In this Post you will Learn how fraudsters are prosecuted and what penalties they face for financial crimes.
Ponzi Schemes in Nigeria: What the Law Says and How Offenders Are Prosecuted
Investment and Securities Act (ISA) 2025
This is the primary legislation addressing Ponzi schemes in Nigeria. The recently enacted ISA 2025 explicitly bans Ponzi schemes and provides the Securities and Exchange Commission (SEC) with the power to prosecute their promoters.
What is the meaning of Ponzi scheme
Definition: The Act provides a comprehensive definition of Ponzi schemes, outlining characteristics such as paying existing investors with funds from new investors, promising high returns with low risk, restricting entry, and emphasizing recruitment over genuine product sales.
Ponzi scheme is a fraudulent investment scam where returns are paid to earlier investors using funds from new investors rather than profits from legitimate business operations. These schemes typically promise high returns with minimal risk, rely on recruitment to sustain payouts, and collapse when new investments dry up.
How offender are prosecuted
Penalties for ponzi scheme
Promoters and operators of Ponzi schemes are liable to a jail term of 10 years or a fine of five million naira, or both.
Powers of the SEC The ISA 2025 empowers the SEC to shut down prohibited schemes, obtain court orders to freeze and forfeit assets, and request telephone and other conversations for prosecution purposes. They can also ensure the disgorgement of profits made from the fraudulent schemes to victims.
Economic and Financial Crimes Commission (EFCC) Establishment Act: While not specifically targeting Ponzi schemes by name in the Act itself, the EFCC is mandated to investigate and prosecute economic and financial crimes, which includes fraudulent schemes like Ponzi schemes. The EFCC also enforces other related laws such as the Advance Fee Fraud and Other Fraud Related Offences Act.
Advance Fee Fraud and Other Fraud Related Offences Act 2006: This Act covers various forms of fraud, including obtaining money by false pretenses, which is a key element of Ponzi schemes.
What the Law Aims To Do:
Prohibit and Criminalize: The law clearly prohibits the operation and promotion of Ponzi schemes, making it a criminal offense.
Punish Offenders: The legislation outlines penalties, including imprisonment and fines, to deter individuals from engaging in these activities.
Protect Investors: The law aims to safeguard the public from financial exploitation by empowering regulatory bodies like the SEC and law enforcement agencies like the EFCC to take action against Ponzi schemes.
Recover Funds: A key aspect is the effort to recover funds and assets obtained through Ponzi schemes to compensate the victims.
The Securities and Exchange Commission (SEC) is the primary regulatory body responsible for overseeing the capital market and enforcing the ISA 2025. They have been actively cracking down on Ponzi schemes, leveraging the new powers granted by the updated Act.
The Economic and Financial Crimes Commission (EFCC) also plays a crucial role in investigating and prosecuting individuals involved in Ponzi schemes, often collaborating with the SEC.
