7.5 minutes

Don't be a 'mugu': How to recognize fraudulent investment schemes

Sep 20
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Uche opened Facebook and saw an investment ad that promised 25% returns on investment monthly if he immediately invested N20,000 and above into God Willing Venture Ltd. It felt like a good deal and he decided to check out the company's website. Satisfied with what he saw, he decided to invest N20,000 into the business. Three months later, it was all over the news that Mr Adams Williams, the CEO of God Willing Venture Ltd had absconded with investors monies and was wanted by the EFCC. Uche is devastated as he has tried to get back his capital he invested into the business but to no avail.

Making money is hard. Saving money (especially in these harsh economic times) is difficult. Investing money is all about grit and risk but if one is patient and lucky, the returns are usually worth it. However, losing money to fraudulent investment schemes brings nothing but pain, financially, mentally and sometimes even healthwise.

In 2021, a report by The Guardian Newspaper showed that Nigerian investors had lost more than 300 billion naira to fraudulent investment and ponzi schemes. This is of course a modest amount as much more money has been lost to fraudulent investments.

In 2019, the Nigerian Electronic Fraud Forum revealed that Nigerian investors lost more than 11.9 billion naira to Mavrodi Mundial Movement popularly known as MMM. 

The real amounts lost to fraudulent investment schemes yearly can never be ascertained because most people do not report such losses to the security agencies. However, one thing is sure, the financial losses from fraudulent investments yearly are not only huge, but are also devastating.


A fraudulent investment scheme is one in which its owners seek to defraud (and actually defraud) unsuspecting investors. 

The most popular type of fraudulent investment schemes are Ponzi schemes. Ponzi schemes are investment schemes where the returns for existing investors are paid from funds contributed by new investors. It is commonly said that Ponzi schemes "rub Peter to pay Paul".  

For Ponzi schemes to work, investors are mandated to introduce other investors into the scheme before they can be paid their returns. When there are no new investors, the schemes ultimately crash. The popular Planwell scheme in the early 1990s and MMM in 2016-2017 were notable ponzi schemes in Nigeria.

However, apart from Ponzi schemes, there is a new trend where registered companies call in for investors while promising mouthwatering returns. After a while, the companies CEOs abscond with investors' monies or suddenly claim that the business can no longer pay it's investors. This is the case of MBA Forex where in 2021,it's CEO, Maxwell Odum was declared wanted by the Economic and Financial Crimes Commission (EFCC) for allegedly defrauding investors of over 213 billion naira. In that same 2021, investors in the Imagine Global Solutions Ltd were thrown into a frenzy when the company's CEOs fled Nigeria with over 22 billion naira of investors monies. Recently, in August 2022, Ademola Wales, the CEO of Wales Kingdom Capital Ltd was charged to court after defrauding investors of over 40 billion naira. 

Fraudulent investment schemes put a huge strain on most people's personal finances as they lose both the capital they invested and any returns they had hoped to get from the investment. For most people, the money invested in the fraudulent investment schemes are usually the whole (or a huge part) of their savings or monies borrowed from family, friends and even financial institutions such as banks. In more extreme cases, people have lost their inheritance to fraudulent investment as they had invested all of it in the hopes of gaining double of their investment.

Fraudulent investment schemes strive in times of economic recession and in countries with high rates of poverty and unemployment such as Nigeria.

For this reason, it is important that intending investors are equipped on how to recognize fraudulent investment schemes in order to prevent loss of their monies and other financial strains that would be associated with the loss.


Fraudulent investment schemes present themselves like every other normal investments. They present a company for you to invest in. They ask you to invest a certain amount of money and promise you returns on investment. They show you geniune incorporation certificates to prove that the company you are about to invest in is incorporated by the government. Most of the companies have beautiful and convincing websites if you decide to check them out on the internet.

Although for most people it would seem almost impossible to spot a fraudulent investment, most fraudulent investment schemes seem to follow a pattern. A careful scrutiny of the company in question will almost always reveal if its investment scheme is fraudulent or not. Below, I will discuss some ways to know if you are faced with a fraudulent investment scheme.

  1. An Unreasonably High (Too Good to be True) Returns on Investment (ROI) with little or no risks. Investments are not a get-rich scheme and companies are certainly not "investors money doubling" magicians. It is all about risk. 

In investing, there is a popular saying that "the higher the risk, the higher the returns". When companies promise high ROI, it is only wise as an investor to ask about what risks are involved. Geniue companies always explain the risk factors to intending investors. Even government securities such as treasury bonds which are relatively stable with low risks are prone to inflationary risks.

Where the risks are low and a high ROI is promised, it is safe to assume that such a company is fraudulent and in the long run, investors will lose their money.

A good way to know if the ROI of a company is too high is to ascertain the Monetary Policy Rate (MPR) prevalent in the country. The MPR is the usually equal to the price of government's debt instruments such as bonds. 

If the company is promising a significantly higher rate than the MPR, it is mostly likely that it will fold up quickly with investors losing their money.

With investing, if it is too good to be true, then it is most likely not true.  

  1. Not Being Duly Registered or Licensed. One sure way to know if an investment scheme is fraudulent in Nigeria is to check if the company is duely registered with the Nigerian Securities and Exchange Commission (SEC) or licensed by the Central Bank of Nigeria (CBN) or it is affiliated with a company that is licensed by either the SEC or CBN.

Where an company that calls for investors is not licensed or registered or affiliated with a company that is licensed by either SEC or CBN, be sure that such a is fraudulent.

Fraudulent companies often shy away from registering withe the SEC or CBN but show intending investors that they are a registered business with the Corporate Affairs Commission (CAC) but this is not enough. Just any business can be registered with the CAC.

The SEC and CBN are the main regulators of any company that provides investment and financial services and it is essential for any company that invites people to invest in to be duely registered or licensed by them.

By the rule of the thumb, any company that calls for investors but cannot provide evidence that it is duely registered or licensed or affiliated with any company registered or licensed by the SEC or CBN should be avoided as it may be fraudulent.

  1. It's has a limited time offer in which to invest. By painting the picture that there is no much time  for before the investment opportunity elapses, fraudulent companies use this way to redirect potential investors from doing due diligence before investing in the sham company. 

Investment opportunities are not limited. Genuine companies call for investors from time to time and so, investors have amole amount of time to invest in a company (as long as it is still operating).

  1. Seek the help of an investment expert before making any investment leap. Investments are never a work in the park. It requires a lot of research into the company you want to invest it and some basic understanding of the financial world. It is always adviceable to seek the expert opinion of a trusted investment expert before agreeing to invest in a company.

Investment experts also enlightened potential investors on the risks involved in investing and alternative investments investors can partake in.

Never base your decision to invest in a company based on the recommendations of people on social media or the traditional media, celebrities or family members who are not investment experts. 

In all, as a prudent investor, it is expected that you take your time to do your due diligence before investing in any company (especially where the company is not a household name). Research on the company,the kind of business it carries out and try to understand what kind of risk is usually associated with such line of business. Find out its previous financial records of the and if it has previously been indicted for fraud.

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