The Securities and Exchange Commission (SEC) has warned Nigerians over the activities of an investment fund tagged MMM Nigeria, declaring it a Ponzi Scheme.
SEC gave this warning on its website, describing the facilitators as online fraudsters, who carry out their illegitimate business via Nigeria.mmm.net portal/platform, and are promising investors a monthly investment return of 30 per cent.
“The attention of SEC, Nigeria has been drawn to the activities of an online investment scheme tagged ‘MMM Federal Republic of Nigeria (nigeria.mmm.net).
“The platform has embarked on an aggressive online media campaign to lure the investing public to participate in what it called ‘mutual aid financial network’ with a monthly investment return of 30 per cent.
“The commission hereby notifies the investing public that the operation of this investment scheme has no tangible business model hence it’s a Ponzi Scheme, where returns are paid from other people’s invested sum. Also, its operation is not registered by the Commission.
“SEC, therefore, advises the general public to distance themselves from the online scheme.Please note that anyone that subscribes to this illegal activity does so at their own risk.”
SEC believes MMM Nigeria is a Ponzi scheme, owing to the fact that it has no real income generating pattern, as it pays the supposed 30% returns to old investors from new investors’ funds, which no legitimate business does.
A Ponzi scheme (also a Ponzi game or a Ponzi) 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 through legitimate sources.
Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
Explaining further how the Ponzi Scheme or game operates, Financial Watch, said the promoter will initially pay out high returns to attract more investors, and to lure current investors into putting in additional money. Other investors begin to participate, leading to a cascade effect. The “return” to the initial investors is paid out of the investments of new entrants, and not out of profits.
Often the high returns encourage investors to leave their money in the scheme, with the result that the promoter does not have to pay out very much to investors; he simply has to send them statements showing how much they have earned. This maintains the deception that the scheme is an investment with high returns.
Then once investment begins to slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns). Such liquidity crises often trigger panics, as more people start asking for their money, the promoter vanishes, taking all the remaining investment money.
The CEO of the company (MMM Nigeria), Seigei Marvrodi is said to be a convicted fraudster and had run similar fraud schemes in Russia where he defrauded investors over a hundred billion dollars.