In a bid to find an alternative source of income due to the rising cost of living in Nigeria, a situation exacerbated by the stagnant rate of wages and the devalued Naira, lots of Nigerians seem to be attracted to quick ways of making money, often synonymous with: unregulated investments in foreign exchange, crypto-currencies and Ponzi schemes.
Most of the time, the investing public who fall victim to these scams are not aware of the dangers associated with investing in unregulated investment until it is too late.
Recently, the collapse of one too many unregulated investment companies has left many Nigerians in huge losses, some losing their life savings and others in debt. The social media has been awash with reports of scam investment companies and Ponzi schemes who pooled funds from several investors, promising ridiculous return on investment and were not able to deliver on those promises. Most of them disappear and investors are left in the lurch, not knowing where to turn.
These unregulated entities appeal to the investing public by promising above average and sometimes, ridiculous returns when compared to regulated companies. Typically, these schemes offer investors upwards of 60% ROI, however, most of the time, they are unable to sustain the promised returns nor refund the principal sum because most of them make unwise and high-risk investments with the money and lose them altogether.
This is why it is very important that you invest with only companies that are regulated by the Securities and Exchange Commission.
Most of these unregulated companies’ boast they are registered with the Corporate Affairs Commission, and of course they are! That is not the bone of contention here. The Corporate Affairs Commission was set up to register businesses and oversee the management of companies but their purview is not specifically to license investment companies. A prospective investment company is mandated to further apply to the SEC for license.
The Securities and Exchange Commission is the governmental body saddled with the responsibility of registering, regulating and monitoring the activities of Capital Market Operators (most investment companies). A lot of people are ignorant of this fact, so when they are shown a CAC registration certificate, they go ahead to release huge sums of money to these unregulated entities who have not been registered and approved by SEC to carry on investment services.
The securities and Exchange commission has a lot of regulatory rules and regulations that regulated companies have to comply with; this includes proper risk management and compliance frameworks that ensure that investors’ money is not carelessly invested or misused.
Nowadays, the main target area for most of these sham investment schemes is online foreign exchange and Crypto-currency trading. This attracts Nigerians, most of whom do not do due diligence before doling out huge sums of money to their promoters.
In most of the recent cases of scam investments, these companies have no license to operate investment schemes.
According to S38(1) of the Investments and Securities Act,
No persons shall-
(a) operate in the Nigerian capital market as an expert or professional or in any other
capacity as may be determined by the Commission; or
(b) carry on investments and securities business unless the person is registered in accordance with this Act and the rules and regulations made thereunder.
Licensed investment companies such as, Goldenbridge Asset Management Company Limited, have been registered and have regulated risk management systems in place that ensure that investor’s funds are safely invested. The company’s management also undergo tests to ensure they are ‘fit and proper’ to manage the public’s funds. These regulations are continuous as SEC would continue to monitor the business and receive reports to ensure compliance with rules and the law.
How to Spot Investment Scams
Knowing how to spot unregulated companies and scam investments is an essential skill for a modern investor.
The recent reports of billions of Naira being fleeced from the investing Nigerian public by several unregulated entities has shown that, investors, especially ignorant investors are easy targets of fraudsters disguised as investment companies.
So, it is important for you to do some homework beforehand. Here are some red flags to help you spot a potential scam company and retrace your steps to a regulated and licensed company to invest your money.
1. Do not be greedy.
This is very important, if the offer is too good to be true, it probably is. You should get a comprehensive detail of what the investment product is about, do your own market research on the internet and with financial experts to find out what is obtainable in the financial industry and how possible it is for the company to actually give you the returns being promised.
2. Beware of Unlicensed Companies. Do Due Diligence.
It is not enough that they flash their Corporate Affairs Commission registration certificate in your face. Just like banks, incorporating a company is not the only step before you are authorized to handle the public’s money. Investment companies are mandated by the Investment and Securities Act to meet the requirements laid out by the SEC before they can be registered and licensed by the Securities and Exchange Commission to offer investment products to the general public. This also applies in other jurisdictions where similar bodies to the SEC regulate the investment companies in such climes. We have the FCA (Financial Conduct Authority, in the UK), the SEC (Securities and Exchange Commission in the USA AND India) and ASIC (Australian Securities and Investment Commission) for instance, these entities perform similar roles to what our SEC perform in Nigeria.
To protect yourself against scam, stick with ONLY regulated and SEC licensed companies. To verify that a company is licensed by SEC, you should visit the register of Capital Market Operators at https://sec.gov.ng/cmos/, type in the company’s name and see if it has been authorized to collect your money and invest it.
If the company is not on the list, it is safe for you to assume that it is not licensed to be an investment company.
