The Ponzi Scheme Craze: Should You Get Involved?

11 February, 2017
Money

Who could have predicted that the Nigerian economy would get this bad? I didn’t and many of you didn’t.

In the middle of last year, the federal government announced we were in recession. While many didn’t understand the word, we soon realized it simply meant the hardship already faced by Nigerians was about to get worse.

Prices of commodities skyrocketed, bills mounted, businesses closed down, taxes and levies increased astronomically. In all these, salaries and emoluments stayed the same. In fact in some cases, they stopped coming.

People needed an economic savior and the government was certainly not it. This is believed to be the major craze behind the overnight popularity of Ponzi schemes in Nigeria. From MMM to Ultimate Cycler and so on, they promised to pay huge percentages of monies invested without the investor working for it. It was just a case of money distribution. As long as it paid bills, put food on the table and allowed for daily living, many Nigerians delve into it 

Let's take a critical look at these schemes

What are ponzi schemes?

How do they operate?

Who started it?

What are the biggest ponzi schemes in the world?

When did it get to Nigeria?

What is the pioneer ponzi scheme in Nigeria?

How do the investors earn?

How the owners make money?

Are ponzi schemes legal or fraudulent?

According to Google, a Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.

It is said to be a “rob Peter to pay Paul” financial scam in which early investors are paid returns with money from later investors rather than legitimate investment activities. More so, it occurs when an unrealistic investment return is promised to a group of investors, and then a 2nd group is used to pay off the 1st group.

It is important to note however that ponzi schemes as we know them today are quite a bit different from the above description, a subject matter to which I shall return in the course of this conversation – stay with me!

It is noteworthy however that the Ponzi scheme is named after a real person, who is said to have in 1920 milked thousands of people out of some $10 million before he was caught.

His name was Charles Ponzi, the lord of the scheme.

According to an article by Elizabeth Nix on history.com, Charles Ponzi was born in Italy in 1882. He arrived in America nearly broke in 1903 and went on to work various jobs in the United States and Canada, along with stint in prison for forgery and smuggling. Then, in late 1919, the charismatic Italian opened a business in Boston to promote a scheme involving international reply coupons, which could be used to buy postage stamps in different countries. Ponzi’s plan was to purchase the coupons in bulk in Europe then redeem them in America, where they were worth more, and reap a hefty profit.

Seeking cash to pull off his idea, Ponzi promised a 50 percent return on investment in 45 days and people soon were lining up at his office to hand over their money. However, when Ponzi couldn’t make the logistics of his ploy work, he began using funds from new investors to pay purported earnings to older ones.

 After journalists started investigating Ponzi’s too-good-to-be-true operation, it collapsed in August 1920 and Ponzi was arrested. He was convicted, sent to prison and later deported to Italy in 1934. Ponzi died in poverty in Brazil in 1949.

While Ponzi is the namesake of the form of get-rich-quick scheme he carried out, he was not its inventor. At least one prior practitioner was New Yorker William Miller, who in 1899 guaranteed investors a whopping 520 percent annual return and collected some $1 million from them before his con was exposed.

In the next post, we’ll have an in-depth conversation on ponzy scheme in Nigeria and the master question: if you should get involved or not


This article is written by Francis Ukah
Edited by FabulosGloria


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