Nigerians risk losing funds over investment in MMM Nigeria

Monday, October 17, 2016

Online money-making ventures, whether genuine or not, seem to always find acceptance within the Nigerian populace especially with the harsh economic situation.

Several systems have come and gone, with over 90 per cent of them ending up as scams, yet every new form of making "extra or huge cash" finds a way of being embraced by Nigerians.

The latest one, which has found a safe haven in Nigeria is MMM Nigeria, even after being banned in China, South Africa and the latest victim, Zimbabwe.

MMM Nigeria offers 30 per cent return on investment (ROI) to its investors at the end of the month. So far, this new online making venture has not experienced any form of foul cry and resistance in the country but it is safe to say that MMM Nigeria is risky for every Nigerian.

A closer look into the activities of MMM Nigeria shows that it is a Ponzi scheme. A Ponzi scheme, according to Wikipedia, 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.

Ponzi schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation is, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.

And so is the MMM Nigeria, as it survives by paying older members with funds collected from newer ones. They do not invest in gold or any other commodity neither do they provide any kind of service.

This, the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) have seen and warned the investing the public over the activities of operators of this Ponzi scheme.

According to SEC, the promoters of the scheme carry out their business activities via portal/platform, and are promising investors a monthly investment return of 30 per cent.

SEC said the venture had no tangible business model, describing it as a Ponzi scheme, where returns would be paid from other peoples' invested funds.

SEC, therefore, advised the general public to distance themselves from the online scheme, adding that anyone that subscribes to this illegal activity does so at his own risk.

The apex bank on its own through its acting Director of Corporate Communications, Mr. Isaac Okoroafor,warned, especially on thetrendingMMM Nigeria community.

Okoroafor said: "At times like this when the economy has suffered some decline, Nigerians should be very careful with those they deal with. Any institution that is not licensed by the CBN to accept deposits should not be given money to keep under any guise. There is a new Ponzi scheme called 'MMM' that is spreading like wildfire. A lot of young school leavers have already signed on to this scheme, which the promoters are marketing as a "mutual fund".

But, most Nigerians are adamant to SEC's and CBN's warnings, some even went to the extent of labeling the regulators as ignorant. For instance, some of them argued that MMM Nigeria is not an investment scheme but a platform where people donate their loose fund to the less privileged and make a profit of about 30 per cent at the end of each month.

However, a recent look at the history of MMM shows that MMM stands for Mavrodi Mondial Moneybox and takes its name from its founder, Sergei Panteleevich Mavrodi of Russia.

Established in 1989, it created its first successful ponzi scheme in 1994 by attracting private investors and promising them annual returns of up to one 1,000 per cent and the company started an aggressive television ad campaign. Since the shares were not quoted on any stock exchange and the company itself determined the share price, it maintained a steady price growth of thousands of percent annually, leading the public to believe its shares were a safe and profitable investment.

Regular publication in the media of the rising MMM share price led to the then President of Russia, Boris Yeltsin to issue a decree in June 1994 prohibiting financial institutions from publicising their expected income. On July 22, 1994, the police closed the offices of MMM for tax evasion. For a few days the company attempted to continue the scheme, but soon ceased operations. At that point, Invest-Consulting, one of the company's subsidiaries, owed more than 50 billion rubles in taxes (USD 26 million), and MMM itself owed between 100 billion and 3 trillion rubles to the investors (from USD 50 million to USD 1.5 billion). In the aftermath at least 50 investors, having lost all of their money, committed suicide and even several organisations of "deceived investors" made efforts to recover their lost investments, but Sergei Mavrodi manipulated their indignation and directed it at the government. In August 1994 Mavrodi was arrested for tax evasion.

Apparently not satisfied with proceeds, he moved to the United States and despite warnings from the U.S government, many companies lost a huge amount of $5.5 million. Mavrodi was arrested and convicted in 2007 of fraud and was sentenced for four and half years in jail. He was later released and started a new scheme; MMM-2011. Since then the scheme has been unsuccessful and was declared fraudulent in China, South Africa and a few weeks ago in Zimbabwe.

In fact, it was reported that thousands of people living in Zimbabwe, among them civil servants, vendors and more, lost thousands of dollars to fraudulent online pyramid scheme MMM Global Zimbabwe after the system collapsed.

In separate interviews with financial analysts, they warned Nigerians to be wary of the scheme.

Mr. Richard Omotunde, a Senior Analyst with Afrinvest Securities Limited said the economy is challenged and in recession. People are trying to look for opportunities so they can deploy their funds so as to make fantastic returns but again caution has to be applied because a lot of people also are out to defraud people.

Omotunde said for anybody that is deploying funds and expecting huge returns, there is specificity in terms of what investment such funds can be deployed into. "If you look around the environment in most countries, I am not sure there is any place in the world where you have 30 per cent on ROI in a month. MMM Nigeria claims to be giving 30 per cent, when you analyze that in a year that is like 30 per cent times 30, that's 900 per cent annually. Of course you don't need a soothsayer to tell you that it must be based on falsehood. All of these are not viable investment alternatives that individuals or investors should be considering because they always create problems when the chips are down."

The Chief Executive Officer of High Cap Securities, Mr. David Adonri said when times are hard like in Nigeria economic situation, the Ponzi pyramidal schemes always come up but warned that they are not viable investment option.

He said, "Typically, what promoters of such pyramid scheme do is that they offer rates far beyond what is obtainable in commercial banks. This would always attract a lot of people who would always rush in to stake their funds. But, those who join the scheme late would always be the ones to lose their shirts as they would have been convinced by those that joined earlier to invest huge amounts of money, he warned