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  In the past few days, news about the apparent collapse of CBEX, a supposed online investment platform, has dominated discussions on Nigeria’s social media space. They have featured desperate investors bemoaning their loss, individuals who feel lucky to have missed the train, not a few who have baulked at the seeming gullibility of victims, and others wondering what the whole story was about.
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This event has played out in a fashion eerily similar to Ponzi schemes of the recent past. One source reckons that at least 50 of these schemes have gained widespread traction in Nigeria since 2016. And, in each case, numerous people wound up losing billions of naira to the conmen who set up those fraudulent vehicles. Given how frequently Nigerians have been duped in these events, we think it’s important to explain how to identify a Ponzi scheme. Here, we’ll lay out the telltale signs that a proclaimed “investment opportunity” is actually a scam of this kind. But first, let’s explain what a Ponzi scheme actually is.

What is a Ponzi Scheme?

A Ponzi scheme is a type of investment fraud in which the perpetrators promise outsized profits for little or no risk. They lure members of the public with this impressive offer, and may even appear to fulfil the promise in the early days of the scheme’s existence. But they are able to do this because they draw from the money deposited by newer “investors” to pay previously invested persons.  Eventually, these payments cease. The scammers, having amassed a large pool of contributions, make away with the money, leaving victims to bear great financial losses. This type of financial crime was named after Charles Ponzi, a famous fraudster of the early 1900s who orchestrated fake investments in order to swindle people.

The Characteristics of a Ponzi Scheme

The following are features that tend to show up with Ponzi schemes. Note that investment frauds need not have all of these characteristics.

Very High Returns for Little Risk

Most Ponzi schemes promise ridiculously high rates of return within a short period, and declare that such returns are guaranteed. This combination of exceptional amounts of profit and minimal risk defies a basic rule in investment: higher returns are typically associated with higher risk. For example, the Federal Government savings bond currently delivers a 17.23% annual interest payment for a 2-year investment. There’s very little chance that you’ll lose your money investing in it. Meanwhile, you could conceivably reap a 100% return on a one-time heavily leveraged FOREX trade, but your chances of replicating that success soon after are statistically very slim. You could just as well incur a loss.

Fixed Profit Levels

Usually, investments with a potential for delivering immense profits are also the most volatile. This is another rule that the Ponzi scheme often promises to contradict. Achieving a fixed profit of, say, 30% within 30 days, over several months, is highly improbable.
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Let’s do the math. If you were to “invest” ₦100,000 in a scheme that guaranteed a 30% return per month, without adding anything afterwards, you would have ₦1.7 billion in just five years. Surely, if only a tiny percentage of people on earth had access to this wealth multiplier, there would be numerous dollar trillionaires. At the moment, there are none.

Vagueness or Excessive Complexity   

A hallmark of Ponzi schemes is the avoidance of a clear explanation as to how’s “investment” actually works. There’s very little detail provided beyond simplistic descriptions like “internet business”, “crypto investment”, “FOREX trading bots”, and so on. The point isn’t that crypto or FOREX are inherently fraudulent. It’s just that scams frequently masquerade in their garb. There is generally an unwillingness to describe what exactly happens in the so-called investment. But other Ponzi schemes take what seems like an opposite route. They “describe” the investment, but do so in dense jargon (or imitations of it). And their descriptions are convoluted, designed to wear the inquirer down. You can avoid falling for this by following another rule of investing: only invest in things you understand.

Not Registered with the Appropriate Authorities

Ponzi schemers will want to avoid the prying eyes of regulators for as long as is possible. That’s because it’s easier to get away with crime when it’s done outside of legally recognised channels. Operators of scam investments may claim to be registered with regulatory bodies, but a quick check on the relevant databases will often show that this is false. Occasionally, they will be registered, but not sufficiently. For example, they could possess a CAC certificate of registration, but may not be registered with the Securities and Exchange Commission (SEC), which regulates the investment space in Nigeria.

Unverifiable History or False Founding Story

These days, it’s easier than ever to determine that a “company” is a fake, especially if they are active online. Some Ponzi schemes claim things about their history that cannot be independently verified. Others tell stories about their founding that are demonstrably false. This may extend to things like the identities of their team members. The fraudsters could lie about having a professional background in specific fields. Another warning sign is a lack of evidence of activity from the period between their supposed founding date years ago and, say, a few months before the present. If they have been around for as long as they insist, there should be independent information confirming it.
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Final Words

The discussion around CBEX has made news headlines. It has also caused many to reconsider their understanding of what constitutes genuine investment. Thankfully, it’s often easy to determine that a proposition being promoted as an investment opportunity is a Ponzi scheme. The tips we’ve shared here should help you spot investment fraud and save you from falling victim to it.
Got a suggestion? Contact us: editor@connectnigeria.com
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This article was first published on 4th May 2025
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ikenna-nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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