Furthermore, by a combined effect of sections 58(1) and 59 of the Banks and Other Financial Institutions Act (BOFIA), 2004, no person shall carry on financial business in Nigeria other than insurance and stockbroking, unless it is a company duly incorporated in Nigeria and holds a valid license granted by the Central Bank of Nigeria (CBN). Unarguably, Ponzi schemes operate without the license and authorization of the CBN and are thus, illegal.
It is noteworthy, that Ponzi schemes have also been recognized by the Nigerian Court as illegitimate and fraudulent thus, in the case of Mekwunye v. Lotus Capital Ltd. & ORS, the Appellant sought a declaration that the 1st Respondent’s Telecom Private Equity Fund is Ponzi scheme and an instrument of fraud used by the Respondents to defraud unsuspecting Nigerians, and as anticipated, the Court held in favour of the Appellant.
According to section 67(2) of ISA, engaging in Ponzi schemes attracts a fine of N100,000 (one hundred thousand Naira) for individuals (natural persons) and N500,000 (five hundred thousand Naira) for corporate entities. Additionally, under section 59(6)(b) of BOFIA, participation in Ponzi schemes attracts a punishment of 5 years imprisonment or a fine of N1 million (one million Naira) or both as the case may be.
In a bid to take steps to curb the alarming increase of Ponzi schemes, a bill sponsored by Hon. Babangida Ibrahim was introduced in the first quarter of 2022. This bill seeks to, among other things, propose a jail term of not less than 10 years for promoters of such schemes.
CAN MONEY INVESTED IN THIS SCHEME BE RECOVERED?
In certain jurisdictions, after a Ponzi scheme is discovered by government regulators, the SEC files a lawsuit against the Ponzi perpetrator, and a trustee is then appointed to recover as much money as possible to make payments to creditors and to redistribute any recovered proceeds pro rata to investors. In Nigeria, notwithstanding the provision of section 67(3) of ISA, which states that an investor can cancel the transaction or recover his money or even recover compensation for any loss resulting from the transaction. The monies invested into Ponzi schemes cannot legally be a subject of a suit on the principle of law that the Court cannot enforce an illegality.
In elucidating the above provision, the Court in the case of OCHEDI & ORS v. CBN & ORS (2018) LPELR45316(CA), held that “The monies the Appellants seek to recover from the 1st – 6th Respondents… are in respect of transactions; i.e. financial business of soliciting for and accepting money from the general public as deposits for profit, by a company that did not have a valid license to carry on such business, prohibited by the above provisions of BOFIA and so illegal…For the purpose of and in the eyes of the law, the transaction between the Appellants and Wealth Zone Limited from the beginning, was clearly not only prohibited, but also punished by the law and so illegal, whether the Appellants knew or not as ignorance of the law is no defence or excuse. Being illegal from the beginning, the transaction between the Appellants and Wealth Zone Limited could not have vested the Appellants any legal right that is cognizable and enforceable by a Court of law.”
This has been restated in replete of cases including UNITRUST INSURANCE CO. LTD. v. AMBICO SENDIRIAN NIGERIA Ltd. (2012) LPELR-15417(CA) where it was held thus:
“Where a Contract is expressly forbidden by statute, its illegality is without question, and the Courts are forbidden to enforce it, or allow itself to be used to perpetuate illegality, or enforce same in all its ramifications. It behooves on parties to bring to the notice of the Court any illegality, and if this is done, it overrides all questions of pleadings including any admission made thereon” BELVOIR FINANCE CO. LTD. V HAROLD G. COLE & CO. LTD. 1969, WLR. 1877.” Per PEMU, J.C.A. (P.23, Paras. E-G)
In a nutshell, on the right of recovery of invested sums in a Ponzi scheme, the law is that the investor has no right of recovery, as the investor only patronized the scheme at his own risk. Notwithstanding, the owner of the illegal investment scheme may still go to jail if prosecuted by the state.
Ponzi schemes have constantly eaten into the economic development of our nation as monies which ought to be in circulation for proper investment purposes, are used to fund individual greed. Ponzi schemes like any other fraudulent business, have both legal and moral undertones to them. It is therefore strongly advised that the bill proposing to apportion more jail terms to the owners of these businesses should be passed into law. This is because individuals who have no means of recouping their lost investment, would feel better knowing that justice has been served to the perpetrators of this crime.