INTERVIEW: Greed, major reason Nigerians get duped by Ponzi schemes – Ajinibi

In this interview, ABIMBOLA AJINIBI draws lessons on how one can avoid being duped by investment scams and the government’s roles in ensuring the investment marker is safer

What do you know about Ponzi schemes?

Ponzi scheme is as old as, that was Ponzi himself in 1925 in Boston, as at then, over a hundred years ago, people lost over $100m then and in Boston, you know the calibre of people, well-read people working in research institutions and higher institutions of learning, but they fell for that fraud.

The way I describe that fraud is when you rob Peter to pay Paul, then the subsequent Paul that comes, you don’t get more Paul to pay Peter again, and that’s where the bubble bursts.

Why do you think despite past experiences, Nigerians get involved in Ponzi schemes?

What really costs the Ponzi schemes to thrive when return on investment is generally low, that’s in a regulated market, when rates are very low, equity market is not doing well, so, people don’t even go there. Now, there is a wide margin between inflation and the interest rate in the market, for instance when you have inflation of about 17 or 18 per cent and you are having return on deposit of as low as five per cent, you can see that that gap is so wide. So it is that desire to look for a return that will close them up, that will make them close to inflation, it is that desire that push people into all those scams.

Then two, greed is also there, in fact, greed will top the chart on why people fall for that scam, you want a quick return or assuming the market is even doing well, the kind of returns they promise in Ponzi schemes is not realistic. So, it is only greed that will fuel people’s desire to go for such, when greed sets in, you are not even looking at the risk any more, and of course, you know the maxim, the higher the return, the higher the risk. So, when the return is crazy, then you should know that you stand the possibility of losing your principal and then the interest. So, when people allow greed to becloud them, they only look at the return, they don’t look at the risk. And because the promoters of the scheme understand our psyche, they understand that once people allow greed to becloud their reasoning, they don’t look at that risk any more, they just focus on the return. Basically, that is what is really causing these schemes to thrive.

And the truth is that it will continue, people are still trying to recover from Ovaioza, if tomorrow, if another person comes to the market, they will fall for it. The truth is that people don’t learn, they allow greed, you have two categories of people, for some, it is greed, for others, it’s just to do better than what the market is doing. What we keep telling people is that any investment that is not regulated by the Security and Exchanges Commission or the Central Bank of Nigeria, they should not touch it because the Investment and Trusts Acts says that every fund must be registered with SEC. so, if you see any fund in the market and that fund is not registered with SEC, then you need to think twice. Of course, the essence of it being regulated is to ensure that the investor’s interest is protected, because for every investment scheme registered with SEC, there are processes and procedures and the parties involved will ensure that the interests of the investors are protected. For instance, for every mutual fund, you have a trustee, who represents the interest of investors, who ensures that the fund manager does not mismanage the fund, that you don’t do anything funny with the funds. That is why any fund that is not licensed by SEC, nobody should touch it.

For a normal person, how do I really know which investment scheme is licensed?

There is usually a prospectus, and what it does is to give you an idea of an investment, to tell you what the transaction dynamics will look like. When you have an investment offer, the first thing is for you to consult your broker or investment adviser, credible people that will advise you appropriately. Even when you see some of these prospectus, there is a caveat that please, consult your broker, investment adviser or your solicitor. So, the idea is that get them to do due diligence to ensure that the investment is a kind of investment that you can do. And then, you can also easily confirm from SEC, you can walk up to them and make an enquiry whether a fund is registered with them or not.

Another thing you should also know is that when you have this offer, you need to know the people behind it or the those running it, how long have they been running it, what is their pedigree, what have they done in the past? Because historically, they should have a past record. You should also visit their website, but when you get there and you start seeing funny things, you will just know. The most important thing is that when you are not clear, get stock or investment advisors to advise you. But easily, you can confirm with SEC whether the fund is registered or not.

What are the things I need to look at when picking up an investment portfolio to be sure it’s the right investment?

There are things you need to look out for when you want to invest. One, you look at the safety, you look at your investment horizon. Are you looking for a short-term investment or you are looking at a long-term investment? Then, you will also look at the risk, what of risk. Are you averse to risk? Some don’t even want risk at all. These are the things that will guide you on the investment to go into. Then, you have different classes of investments, for fixed income investments, you have the Federal Government bond, you have the short short tenure bond which everybody can invest in, then you have the long term Federal Government as well, you have seven years, you have 10 years. Those ones go for double digits, you have 13 per cent, 14 per cent , you also have mutual funds, these are registered with the stock exchange wherever they are domiciled. At the moment in Nigeria, you have so many credible fund managers, any bank you could talk about, they have subsidiaries that are into assets management. As of today, the average returns on mutual funds is between eight to 10 per cent per annum. Because a lot of people are looking at edging against currency devaluation, you have Euro bonds as well, most of Euro bonds available in Nigeria are denominated in USD. As of today Euro bond offers about six to nine per cent per annum, which to be honest with you, you cannot get that rate in the US itself. So, for smart investors, they go borrow in the US maybe at a rate of four per cent and then they invest in Euro bond at seven or eight per cent. So, you are paying back your interest on your US loan and you still have a gain of about four or five per cent. These are opportunities in the market, even mutual funds have Euro bond denominated mutual funds. You also have equities, though for short term investors, you may not be patient to get the kind of turnover you are looking at ,but essentially, fixed the rates are not so fantastic, but at least, you are assured of your returns, you are sure of your capital back.

What measure do you think government can put in place to curtail many of these Ponzi scheme?

I can tell you that SEC has been doing very well in terms of sensitisitising the public, at every point, I see them issuing statements, at every forum, they keep mentioning it on the need of people to be aware of these Ponzi operator, even the ones they know, they go after them. But these people operate under an environment, they are not licensed, so you can’t really trap them. The best SEC is doing now is to continue to sensitise the public to let people know that they should be aware of some of the schemes and let them know some of the channels of knowing the credibility of some of these Ponzi schemes or some of the so-called wonder fund managers. So, government needs to continue to let people know. And then again on the part of the government, there must be a proper handshake between fiscal policies and monetary policies to ensure that interest rates are not far from inflation rates because if inflation rates are at a double digits and interest rate is at single digits, what that simply means is that you are losing your savings to inflation and that’s the temptation to try to help yourself and look elsewhere for opportunities that will offer you returns that will help you to close the gap between the inflation and the deposit rate. But that one is a long-term, what SEC and the government should so is to continue to educate people to know the danger in these.