Ponzi Scheme Operators Risk 10 Years  Imprisonment

A new bill seeking to make the Securities and Exchange Commission (SEC) as the apex regulatory authority over all players in the nation’s capital market is proposing  10 years imprisonment for operators of ponzi schemes in Nigeria.

The proposed legislation intends to also saddle SEC with the responsibility of regulating the market to ensure capital formation, protection of the market,

protection of investors, maintenance of fair, efficient and transparent market

and reduction of systematic risk and for related matters.

Sponsored by Hon. Babangida Ibrahim (APC, Katsina) the amendment Bill seeks to enhance regulation of investment schemes and to effectively combat the proliferation of ponzi (fraudulent investing scam) schemes in Nigeria.

It provides for the prohibition of ponzi/pyramid schemes and other illegal investment schemes, prescribed a jail term of not less than 10 years for promoters of such activities and empowered SEC to shut down such prohibited investment schemes.

It introduces the regulation of derivatives and commodities trading to deepen the Nigerian capital market and the economy.

In a lead debate on the Bill, Hon. Ibrahim ,said the current enabling law for the Nigerian capital market; the Investments and Securities Act, Act No. 29 of 2007 was signed into law by late President Umar Musa Yar’adua in June 2007.

He argued that the current trends in capital markets regulation have made it imperative to make major improvements to the Act to align the country’s market with international standards.

The lawmaker said amongst others, the major essence of the Bill are; introduction of new provisions to regulate the activities of financial market infrastructure, as well as netting and bankruptcy provisions to protect investors in derivatives contracts.

“There are new provisions on the regulation of Financial Market Intermediaries (FMIs), such as Central Counter Parties (CCPs), Clearing Houses, Trade Depositories etc.

“The general law of insolvency would have no effect on market contracts or action taken under the rules of an exchange, FMI with respect to market contracts, or an action taken to transfer any collateral.

“Furthermore, no entity, trade association can operate or hold itself out as a Self Regulatory Organization (SRO) unless recognized or registered as such by SEC. The responsibilities of SRO are also well spelt out, while a new provision has been introduced on netting of financial contracts,” he submitted.

The lawmaker added: “We are enhancing provisions relating to efficient regulation of investment scheme. Recently there is a lot of complaints by Nigerians to the extent the FG itself put some embargo on some accounts on Ponzi schemes. So as of the time of signing the current Act, the ponzi scheme was not in existence in Nigeria. So we have to put some regulations to monitor them.

“Another provision has to do with derivatives and commodity markets. When the existing Act was formed, there were no derivatives on commodity market. if you look at section 223 of the exiting Act, … The plan is to make it a little bit flexible so some tiers of government can be able to approach the capital market to source for fund either for —-projects or specific projects.

So we introduced other new provisions and some amendments. There are also areas like investors protection fund, also the collaboration between SEC and other agencies in the financial market is also enhanced in the Bill and it also strengthens the authority and enforcement power of the jurisdiction of the securities and investment tribunal. These are agencies in charge of settling dispute between investors”