SEC Proposes Jail Terms For Ponzi Scheme Operators In New Investment Bill

These measures are encapsulated in the Investments and Securities Bill (ISB) 2024, which is currently being deliberated by the National Assembly.

The bill aims to modernize Nigeria’s financial ecosystem, fostering transparency and enhancing investor confidence. At a public hearing last Thursday, Senate President Godswill Akpabio described the proposed legislation as a significant step towards economic transformation. Represented by Senator Binos Yaroe, Akpabio stated that the bill is designed to ensure a fair and competitive financial market that benefits all Nigerians.

“This bill is more than a legislative document; it is a beacon of hope for our economic future,” Akpabio remarked, adding that “By repealing the Investment and Securities Act of 2007, we are taking a bold step to modernize our financial system and create a robust framework for investment”.

The Senate President urged stakeholders to actively engage in discussions to ensure the bill reflects the aspirations of Nigerians while addressing challenges in the investment landscape. “Your insights are critical. Let us embrace this opportunity to craft a law that propels our nation toward economic resilience and prosperity”, he added.

Nigeria’s painful history with Ponzi schemes

The proposed prohibition on Ponzi and pyramid schemes comes in response to Nigeria’s long history of devastating financial scams that have left millions of citizens impoverished. From the notorious MMM scheme to other fraudulent platforms such as Loom and Nospecto, Nigerians have lost billions of naira to these scams.

MMM, which gained popularity in 2016, promised returns of 30% on investments within 30 days. Despite warnings from the SEC and other authorities, millions of Nigerians joined the scheme, only for it to collapse, wiping out an estimated ₦18 billion. Similarly, schemes like Loom, which relied on referrals to sustain payouts, also left investors stranded when the systems collapsed.

These fraudulent operations have exploited economic hardships, high unemployment rates, and financial illiteracy in the country, preying on citizens’ desire for quick and easy returns. The result has been widespread financial ruin and a growing mistrust in legitimate investment opportunities.

One of the key features of the ISB 2024 is the express prohibition of Ponzi and pyramid schemes. SEC officials explained that these fraudulent schemes have been a menace to Nigerians, depriving many of their hard-earned savings. By introducing stringent penalties, the bill aims to deter illegal fund managers from preying on unsuspecting investors.

Chairman of the Senate Committee on Capital Market, Senator Osita Izunaso, emphasized the importance of a robust capital market in driving Nigeria’s economic growth. He noted that the capital market plays a crucial role in channeling resources from savers to productive ventures, such as government projects and corporate investments.

Izunaso pointed at the transformative impact of financial technology (fintech) on capital markets, noting that digital assets and platforms are becoming integral to the financial ecosystem.

“The ISA 2007 served us well for over 15 years, but the time has come for a comprehensive review to align with global trends and address emerging challenges”, he said.

The Senator also stressed the need for a legal framework that supports innovation while safeguarding investor interests, adding that “A well-regulated capital market is the bedrock of long-term capital raising and industrial development”.

A significant provision in the ISB 2024 is the expansion of the Investor Protection Fund (IPF). Under the proposed law, the IPF will compensate investors who suffer losses due to the revocation of a dealing member firm’s registration. This represents a major improvement from the current law, which limits compensation to cases of bankruptcy, insolvency, or negligence.

Director General of the SEC, Dr. Emomotimi Agama, explained that these changes are necessary to build trust and attract both local and international investors. “This bill will ensure that investors are adequately protected and that fraudulent operators are held accountable,” Agama said.

Another groundbreaking feature of the ISB 2024 is the introduction of regulations for commodity exchanges and warehouse receipts. These provisions aim to develop Nigeria’s commodities ecosystem, which is vital for economic diversification.

“The commodities market is an essential part of the capital market, and its development will have a far-reaching impact on our economy,” Agama noted.

“This bill”, he stated, “provides the regulatory framework needed to unlock the sector’s potential”.

Agama further stressed the importance of world-class capital markets in achieving economic diversification. “No economy can thrive without a functional and efficient capital market. This bill is a pivotal step toward building a financial system that supports Nigeria’s economic aspirations”.