4000 Naira Review 4000naira.com Is a Dangerous Ponzi!

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Nigerians are getting caught up by the promise of “money doubling” ponzi schemes

Last November, after Femi Pelumi, an 18-year old security guard at a media firm in Lagos, realized he needed some extra cash for shopping in the run-up to the Christmas holiday period. Pelumi put nearly half of his 15,000 naira ($48) monthly salary into an online ponzi scheme which promised 50% returns in one week. But the returns never came. The online scheme shut up shop days later and Femi was left worse off than when he made what he saw as a reasonable investment.

Amid Nigeria’s first recession in two decades, millions of Nigerians like Pelumi sign up to ponzi schemes daily, fully aware of the risks. With inflation rising over the past year, many of these people are just desperate for avenues to make extra cash to help them meet basic commitments from rent and food to children’s school fees.

The slowdown in the economy has meant fewer jobs while inflation has been exacerbated by a foreign exchange crisis, which has seen the value of the naira tumble. Taking advantage of the downturn, a crop of online ponzi schemes have popped up promising Nigerians irrationally high returns over very short return periods.

The best known of these, Mavrodi Mondial Moneybox (MMM), a scheme with roots in Russia, became popular last year garnering up to three million participants before it suspended operations last December. It left hundreds of thousands of Nigerians with major losses. MMM’s appeal for the millions who put money into the scheme was its regular 30% monthly returns, until the bubble burst. Following its closure, authorities say Nigerians lost about 18 billion naira ($58.6 million) to the scheme.

But in the wake of the Russian scheme, these new online ponzi schemes with names like TwinKas, Elite Pay and SureNaira have cropped up. They’ve all promised much better returns than MMM ever dared to do. Some have already disappeared, almost as quickly as they emerged. Where MMM promised an impressive but unsustainable return of 30% in a month, these schemes are promising to double the money Nigerians “invest”—and some schemes promise to do this in less than 24 hours.

Young Nigerians, many of whom struggle to find jobs spend much of their time online. They are especially vulnerable to the promise of web-based ponzi schemes.

Nigeria’s newspaper websites and blogs are full of advice pages on the newest best-paying schemes. In Nigeria, banks hardly ever lend money to individuals, and if they do, only at eye-watering rates of around 30%. This is in part why ponzi schemes promising 50% to 100% returns don’t seem so far-fetched.

The collapse of MMM made national news late last year. Before it happened, there were warnings from the Central Bank of Nigeria and the national anti-financial crimes commission got involved. Indeed, almost everyone knows someone who lost money. And sure, the economy’s tough—but why would anyone risk their money now, after everything that’s happened?

Well, here’s the dirty little secret about these quick turnaround money-doubling Nigerian ponzi schemes: they actually work.

Well, they do, until they don’t.

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Good money

Chidinma, 26, a federal tax agent, was among the lucky ones who has made money off ponzi schemes. “I can’t say the schemes are entirely bad, because lots of people made good money,” she tells Quartz. “People put in big money to make a one-time profit and then wait for the next scheme to come around.” Chidinma says she’s made a 200% profit over the past year putting money into several schemes.

The key to making money from ponzi schemes in the current environment is be proactive about getting money in and out of them. Perhaps most important is to be early in finding the newest schemes before too many people do. Once in, the trick is to get the returns out as quickly as possible and move on to the next scheme. ”Early entry, before the scheme gets weighed down by lots of people, is good,”Emmanuel, 27, an Abuja-based HR manager, tells Quartz. (Both Chidinma and Emmanuel asked for their last names not to be used because they’re civil servants without permission to talk to media.)

Chidinma shares similar sentiments. “People who lost cash to MMM are the ones who joined just before it crashed. The people who usually make the most money are those who start early before it gets crowded.” The risk of overcrowding is much higher these days as Chidinma says newer schemes promising enticing 100% returns in 24 hours “aren’t built to last.”

It would seem as long as a few people at the top of the scheme make some money with incredible returns in no time at all, there will always many more “investors” who are willing to take the risk against what would normally be poor odds.

The platform

Many of the new sites appear to be built on fairly basic web technology. Lagos-based developer Martin Ifodo, who’s looked at several of these sites, says they’re using similar standard templates which can be purchased online. That might imply many of these sites are being built and run by the same people. Further to that point, TwinKas, one of the newer schemes, lists a United Arab Emirates’ address as its office location. Here’s where it gets interesting: several other schemes like SureNaira and CheckBillz also list the same address.

TwinKas has grown to become the 13th most visited website in Nigeria, according to rankings by Alexa, a web traffic data and analytics company. At it’s peak, one of MMM’s websites ranked as the fifth most visited website, only behind Google’s global and Nigerian sites, YouTube and Yahoo.

Local administrators of the schemes likely don’t require sophisticated tech skills to run the schemes. Instead, online marketing and confidence skills often prove enough to earn the trust of the users. For example, the home page usually includes compelling testimonies from users or advice from administrators of the scheme warning that the investments are “not a get-rich quick” plan.

As one supposed user testimony puts it: ”It’s “get-rich-quicker” through systematic, effort and the compounding of effort through groups of people.” Some schemes also set out caveats which ought to serve as red flags. A popular one is telling investors to only put in “spare money” they can afford to lose.

Tunji Andrews, a Lagos-based economist, attributes the rise of these schemes primarily to a lack of understanding of “how financial systems work” among ordinary Nigerians. But there’s another reason these schemes often thrive in Nigeria. As local banks are “comfortable with rent-seeking and looking for big ticket deals,” Andrews says, the retail banking needs of many Nigerians are not catered to.

“The few banks that offer loans make you jump through ridiculous hoops to get them,” Andrews tells Quartz. With local banks charging up to 30% rates on loans, regular Nigerians are left with few avenues to access capital and may be forced to turn to ponzi schemes. “The banking system has created the scenario,” Andrews says. “It’s not structured for the average Nigerian to make headway because the economy is built for the rich.”

A new money-making scam, Loom Money Nigeria, is taking over social media and targeting young people

A signboard showing Naira notes

The scheme, which is even worse than the collapsed MMM, is luring young Nigerians to invest as low as N1000 and N13,000 and get as much as 8 times the value of the investment in 48 hours.

A screenshot of Loom WhatsApp group (Pulse)

Screenshot from WhatsApp group (Pulse)

According to the US Securities and Exchange Commission, a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business,” the SEC explains.

The Loom Pyramid Scheme is not new to the world. Last month, Daily Mail UK reported that the scheme has resurfaced online all over the world, with different names such as ‘loom circle’, ‘fractal mandala’ and ‘blessing loom’. In Nigeria, its central name is Loom Money Nigeria with individuals creating their own WhatsApp groups such as Preye Loom, Catherine Loom among others.

A screenshot of Whatsapp page for Loom Money Nigeria (Pulse)

How does the scam work?

The pyramid structure outside Nigeria (medium – delphinedelchambre)

According to one of the WhatsApp groups, the Loom scheme pyramid level is in four places and represented by colours – Purple, Blue, Orange and Red.

Each time 8 people join the group, the person in the centre (usually on the red spot) gets the target amount which is N16,000 and after investing N2,000 leaves the spot for the next person.

“The Loom would then be split into 2 groups, the top half and the bottom half each becomes new groups and everyone moves into the next level.

A typical pyramid structure of Loom Money Nigeria (Pulse)

Which means those people that were in purple move to blue, those in the blue move to orange, and those in the orange move to red (the final stage and the cashing out stage).

In a Facebook post seen by Business Insider SSA by Pulse, the promoter explained that “the more people you manage to add to the circle, the quicker the movement of it, and thus, the easier it will be for you to make your money.”

Loom Money Nigeria promises a staggering easy cash reward of N104,000 for paying N13,000 or N2,000 for N16,000,” the Facebook post reads with a link to a closed WhatsApp group.

Investigations across WhatsApp platforms show that one of the promoters of the scheme on Facebook opened his social media account late 2020 and turned a Facebook page opened for 2020 Nigerian Election into a Ponzi scheme.

Why Loom is more dangerous than MMM

Unlike MMM where there is a website, system information and key person – late Sergey Mavrodi as the major promoter, Loom has no major promoter and operate on the social media via closed groups on Facebook and WhatsApp. Its system is also porous as anybody can create a group either on Facebook or WhatsApp, lure people to pay and shut them out afterwards.

A screenshot of one of the LOOM Money Nigeria Facebook groups (Pulse)

In most instances, the Loom promoter is the only Admin and make judgement on the outcome of the pyramid structure.

Also there is clear cut defined terms and conditions – the only known condition is for people to bring in cash and well as eight other contributors before cash out.

How is it illegal?

Any organisation and financial scheme without necessary regulatory approval is illegal and can be sanctioned by the government. In Nigeria,

According to the SEC in Nigeria, Ponzi Scheme includes unregistered investments, unlicensed sellers, secretive and complex strategies.

A screenshot of LOOM Money Nigeria on social media (Pulse Nigeria)

LOOM Money Nigeria is totally different from traditional Esusu

Esusu is traditional forms of cooperative in African societies whereby groups of individuals contribute to informal savings and credit associations for their mutual benefit. It is not run in a pyramid scheme and always have a set of people running it at a particular time.

On most cases, groups of people numbering between 5 and 10 gather and agree to make periodic contributions of a specific amount to each member of the group on a rotational basis.

Nigerian naira banknotes are seen in this picture illustration

For instance, if there are 5 people involved and they have agreed to contribute N10,000 per month, they will take a number between 1 and 5 and the first contribution will go to number 1 till it gets to number 5.

It also offers interest-free lending loan to participants.

The Nigerian government’s position on Ponzi scheme

Despite warnings by the regulatory agency, Nigerian citizens, mostly young people on social media, still fall for the Ponzi scheme.

Last year, the Securities and Exchange Commission (SEC) cautioned the citizens to desist from investing their money in Ponzi schemes that are proposing return levels that are unreasonably high.

4000 Naira Review: 4000naira.com Is a Dangerous Ponzi!

Racksterly used Paystack and Flutterwave to process payments until they blocked it.

Scams and fraud have traditionally been two of the biggest issues slowing down the adoption of ecommerce solutions. But sometimes, bad experiences with Ponzi schemes also discourage Nigerians from digital commerce.

In 2020, as Nigeria slid into an economic recession MMM, a popular ponzi scheme used a peer-to-peer lending system to scam over three million people. The Nigerian Deposit Insurance Corporation (NDIC) estimated that around ₦18 billion ($49.3 million) was lost when MMM shut down in December 2020.

Recently, a new scheme, Racksterly tried to pull off the same score.

Here’s the Racksterly story: a ponzi scheme that grew quietly on Facebook during the last half of 2020. It collapsed in January after Flutterwave and Paystack blocked it from accepting payments from subscribers.

The Racksterly story

Launched in May 2020, Racksterly was basically a money doubling scheme. But it wasn’t a pure multi-layered marketing platform. This made it different from other earlier Ponzi schemes like MMM, UltimateCycler and Twinkers, which asked their users to make referrals before they could earn on their platforms.

“I got to know about Racksterly from a classmate of mine,” said Oluyemi Temiloluwa, a former Racksterly subscriber who joined in December. “He just shared a message asking people to ‘make money from Facebook.’” So she decided to join.

Racksterly was a Facebook advertising platform. It helped companies to promote their products and services by leveraging everyday Facebook users.

“Racksterly is an advertisement site that pays members to advertise merchant products on your Facebook timeline,” the company wrote on their Facebook about page.

It worked almost like other advertising platforms, like Google Adsense but for Facebook users, not website owners. Daily, users would share Racksterly ads, accrue earnings from them and get then get paid.

“All you need to do is share an advert on your page. When people click ‘like’ on your post, you earn your money that day.”

But unlike other legitimate advertisers, to sign up on Racksterly you need to pay a monthly subscription.

“There are different subscriptions people can pay for,” Temiloluwa told me. “The subscription varies and affects how much you get from the platform monthly,” she added. It paid subscribers every 30 days.

There were four subscription plans. They were priced between $18 (₦6,579) and $75 (₦27,411.3) a month. Daily payout varied by the subscription type but it was between $1.2 and $5.6. Monthly subscribers could earn as much as $165.48 (₦60,480).

Unlike other ponzi schemes, it was not compulsory to refer people to Racksterly

“When you refer people [on Racksterly] you got more earnings, but it was not compulsory to refer people,” Temiloluwa shared.

Racksterly cloaked itself as an “advertising” platform, garnering a lot of subscribers quickly. But its growth wasn’t mainstream. Instead, it stayed under the radar, growing thanks to word of mouth and validation from other beneficiaries.

Temiloluwa told me: “a lot of people were doing it because it was less stressful and people have been doing it underground. But it was in December that people got to really know about it.”

She joined the platform in December 2020.

When she posted her first advert, one of her friends saw it and asked: “Is this Racksterly?” This showed the reach of the platform and cooled doubt she had about it.

“He had been doing it for two months, that’s when I knew that it’s legit,” she said.

But as the platform grew, its payment processor, Paystack took notice.

“Racksterly had valid business registration documentation and so cleared our initial checks,” Paystack told TechCabal. But “when they experienced a technical downtime toward the end of 2020, we performed another review of the business.”

It disclosed that “while their [Racksterly] business model wasn’t based on referrals like traditional ponzi schemes, we believed it to be too risky.”

With this risk assessment, Paystack terminated Racksterly’s access within a week. While it wasn’t reacting to reports of fraud, Paystack said it “proactively stopped providing services to the company out of an abundance of caution.”

In early January, Racksterly told subscribers it was switching from Paystack to Flutterwave. “They were always communicating with us,” Temioluwa said, “that’s one thing I appreciate about them.”

“It kind of gave people a second thought to maybe chill for them or something.”

Flutterwave cripples Racksterly

But after they switched to Flutterwave, scrutiny increased.

“Racksterly was on our platform,” Olugbenga “GB” Agoola, CEO of Flutterwave told TechCabal. “But our system saw that the transaction volume – volume and value – was too high and we called them.”

As a crash course, Agboola explains that for every industry there are transaction patterns that can be used to detect fraudulent behaviour.

So in the case of Racksterly, Flutterwave’s system flagged the “advertiser” because the volume of transactions didn’t match their business model.

“The business model of the merchant does not support this sort of transaction that they were doing,” Agboola explained. “And so we saw that customers were going to be defrauded on our platform.”

In January, Flutterwave blocked Racksterly’s access. The payments company also refunded all transactions by Racksterly’s subscribers done in January.

Meanwhile, Racksterly never refunded customers who subscribed in December. Temiloluwa was a victim. She was due for repayment on January 12. She lost both her capital and her earnings from referrals and posting ads.

Trust and eCommerce in Nigeria

The Racksterly story is typical in the Nigerian ecosystem. Falling for the “lucrative” offers, Nigerians frequently invest their money in money doubling schemes.

Ponzi schemes, alongside online fraud and scams, have affected trust and by extension ecommerce in Nigeria. In 2020, a global antifraud effort helped to disrupt illicit transactions by Nigerian fraudsters worth over $118 million.

“People think that we are not ripe for online payments, but the issue is trust, not payment,” Agboola, Flutterwave’s CEO, told me over the phone.

“When trust is available, people will be able to venture into the unknown,” he said, “knowing that there is a party that is abiding by the rules and regulations of the country.”

On its part, Flutterwave has made important moves to improve trust. Last year it poached Mobolaji Bammake from US heavyweight, J. P. Morgan, to become its Global Chief Compliance Officer.

The company has also secured a number of important payment certifications including the Payment Application Data Security Standard (PA-DSS). PA-DSS compliance helps restrict access to user data third-party apps.

These efforts and similar actions by other players will go a long way to protect users and businesses in Nigeria.

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