Ponzi Schemes In Nigeria: Financial Deception And Consumer Vulnerability
Uchechukwu Emmanuel Nwosu
Department of Banking and Finance, Abia State University, Uturu, Nigeria
Tamunoemi Grace Ayibatonye
Department of Finance & Accountancy, Niger Delta University, Wilberforce Island, Bayelsa State, Nigeria
Abstract
Ponzi schemes are fraudulent investment operations in which returns to earlier investors are paid from the contributions of new participants rather than legitimate business profits. The term originates from Charles Ponzi, who in the 1920s defrauded investors of millions of dollars through promises of abnormally high and consistent returns. Contemporary Ponzi schemes, often referred to as pyramid schemes, operate on the same principle, relying on continuous inflows of capital to sustain the illusion of profitability. Initially, these schemes may appear legitimate by delivering prompt returns; however, the model is inherently unsustainable as promised returns exceed prevailing market rates. Once investor recruitment slows, payments become irregular, leading to panic and eventual collapse. Psychological factors, particularly greed and fear, play central roles in both the rapid growth and the downfall of such schemes. Early investors, motivated by quick gains, typically profit, while later participants, drawn by unrealistic promises, bear the heaviest losses. Moreover, perpetrators often divert funds for personal enrichment and, upon collapse, evade accountability, leaving widespread financial devastation. In the Nigerian context, Ponzi schemes have thrived due to economic hardship, weak financial literacy, and the allure of quick wealth. Understanding the mechanisms and behavioral triggers behind Ponzi participation is essential to designing stronger regulatory frameworks, enhancing public awareness, and mitigating future financial exploitation