- Introduction
In recent times, Nigeria has been rocked with several financial crimes, most of which have seen people lose huge sums of money in the process. The most prominent of these financial crimes are Ponzi schemes. According to several reports, there have been different schemes established since 2016, including, MMM, Loom, Chinmark Group, BitFinance Global, amongst others. However, the most recent is CBEX, which was established in 2024 with the aim of providing 100% investment profits for investors after 30 days. Recently, however, CBEX folded up, reportedly absconding with over N1.3 trillion Naira in investment funds.
This however raises several questions with regards to financial crimes in Nigeria – with a focus on Ponzi schemes, the legal and regulatory bodies in the Nigerian financial sector, as well as the liability inherent for financial crimes in Nigeria.
- Ponzi Schemes
The promotion of Ponzi schemes has increased in Nigeria over the years. However, it is important to understand the meaning of this principle, to provide an understanding of the term.
A Ponzi scheme has been described as a type of investment scam which releases pay-outs to its “investors” with the aim of giving out major profits to the “investors”. Typically, it poses some type of investment for people to consider, with the promise of a higher return rate on their investments. For example, some schemes promote a 100% monthly increase in return to investors, at minimal risk to the investor.
Furthermore, these schemes are often promoted to the general public through word of mouth [most times from the early investors], which will therefore draw in people. However, after a while,most times a number of months, the scheme collapses, and investors are unable to withdraw both their capital and return on investment.
- Legal and Regulatory Bodies in the Finance Sector
It is important to note that Ponzi schemes may be highlighted as financial crimes, as they involve the use of financial promises – in terms of the return on investment, and the payment of profits to investors. It is therefore important to assess the legal and regulatory bodies that operate in the financial sector – both directly and indirectly, including:
3.1 The Corporate Affairs Commission [CAC]
The Corporate Affairs Commission is the body empowered for the registration of companies in Nigeria – including financial entities. The powers of the CAC are enlisted under the Companies and Allied Matter Act [CAMA] 2020, which provides that the commission has the following powers:
- The registration and regulation of incorporated companies and entities;
- Ensure companies are compliant with relevant policies;
- Investigate the affairs of the company, amongst others.
Hence, before the company can operate in Nigeria, it is essential that it is duly registered with the Commission – and having the powers granted to it under the Act.
3.2 Securities and Exchange Commission [SEC]
The Securities and Exchange Commission [SEC] in Nigeria is a government entity empowered to regulate the capital markets in Nigeria. They ensure companies are well regulated, and financially transparent in their dealings.
Furthermore, the Commission is also empowered with other powers, including the registration of securities as well as intermediaries, the investigation of claims of breach of regulations, inspection of sites – both online and offline, amongst others.
Thus, it is important for organizations seeking to ensure they are compliant with existing regulations. Additionally, people investigating must ensure the organizations are compliant with investment regulations and laws to ensure there is accountability and transparency.
3.3 Economic and Financial Crimes Commission [EFCC]
Lastly, the Economic and Financial Crimes Commission [EFCC] is the leading financial crimes institution in Nigeria saddled with the responsibility of investigating financial crimes committed in Nigeria – including fraud, money laundering, amongst others.
Thus, it is important to note in situations like these, the Commission will be saddled with the responsibility of investigating the actions of the company and possibly recovering any missing funds as well.
Also, aside from the regulatory bodies mentioned herein, there are several bodies and organizations also involved in financial regulations in Nigeria, and investors and persons who invest in these schemes must seek to analyze the operations of these entities, as well as whether they are subject to financial regulations like companies operating in these sectors.
4.0 The Principle of Liability and Ponzi Schemes
Understanding the application of liability in the context of Ponzi schemes must be analyzed, through the lenses of criminal and civil liability.
4.1 Criminal Liability
For a person or entity to be held criminally liable, there must have been a crime committed to which those involved will be duly prosecuted according to the law. In this case, the most applicable law which may be relied on is obtaining by false pretense [also known as fraud] under the Criminal Code Act of Nigeria.
Section 419 of the Criminal Code Act of Nigeria provides that the act of fraud is a crime under the laws of Nigeria. Additionally, the appropriate authority empowered to investigate financial crimes in Nigeria is the EFCC [which has been previously identified].
Under the laws of Nigeria, the directors of the company may be held criminally liable for the fraudulent act committed by the company. This may be possible where it is established that the directors established the company with the aim of committing fraud against the public – as seen in this case.
It is however important to note that there are cases where the Court struck out cases of fraud on different grounds. For example, in FRN v. Sani, the Court of Appeal dismissed the appeal of fraud against the Respondent as they failed to prove the charge of fraud beyond reasonable doubt. This was also the position of the Court in Shehu v. State, where the court held that for a fraud conviction to be upheld, the evidence must be sufficient and admissible against the defendant.
4.2 Civil Liability
Civil liability under financial crime will depend on several factors. However, under the Company law, the principle of “piercing the veil” may be applied to hold the directors or officers of the company liable for the action of fraud. The concept of “piercing the veil” is a term relied on by the courts to keep the director and shareholders of the company accountable. This is due to the fact that under Company Law, the company’s directors ordinarily are not held liable for actions committed by the company – as the company and its officers are separate.
In Alade v. ALIC (Nigeria), the court identified that one of the reasons why the corporate veil will be lifted is where the company is accused of fraud. Hence, where a company has been involved in fraud, the investors may seek to hold the company and its officers liable.
5.0 Conclusion
In conclusion, Ponzi schemes are financial crimes – which may establish some level of criminal or civil liability. However, while investors have the right to invest however they want, it is important for investors to conduct the adequate due diligence, and ensure the company is compliant with existing laws and regulations in Nigeria.
