Joy Agwunobi 

Nigeria’s fast-evolving digital economy has created new pathways for inclusion, innovation, and entrepreneurship. However, beneath this wave of opportunity lies a darker undercurrent which is  the rise of online investment scams that thrive on social media psychology and digital trust. 

As more Nigerians adopt fintech platforms and embrace online communities, a new generation of Ponzi schemes has emerged, powered not by paper receipts or underground meetings, but by encrypted chat groups, influencer endorsements, and algorithm-driven virality.

According to data from the Nigerian Communications Commission (NCC), the country’s internet penetration at 48.81 percent, while mobile broadband now exceeds 170 million active mobile subscriptions. This digital expansion has made Nigeria a prime target for cyber-fraudsters who exploit social media dynamics to build trust, recruit investors, and vanish without a trace.

Ponzi schemes are nothing new in Nigeria’s financial history, it started way before the infamous MMM Nigeria in 2016. What has changed is the medium of operation. Social media and fintech platforms have reinvented the mechanics of fraud, giving old schemes a sleek digital interface that resembles legitimate financial technology.

Unlike traditional Ponzis that relied on face-to-face persuasion, today’s online scams are engineered through Telegram channels, WhatsApp groups, and Facebook/Instagram pages branded as investment communities. They often mirror the design of popular fintech apps, complete with dashboards, referral codes, and real-time payout interfaces.

The Psychology of digital deception

Experts say the success of online investment scams lies as much in human behaviour as in technological innovation. Social media has reshaped how people define credibility, visibility has become the new evidence of trust. In a world where a verified handle or a flashy testimonial can substitute for due diligence, scammers find an open door.

An analysis by the Canadian Financial Crime Academy (CFCA) titled “The Psychological Tactics Behind Fraud – How Scammers Exploit Human Behavior” outlines how digital fraudsters manipulate the mind to override logic and caution. According to the study, many individuals fall victim to scams because their decisions are unconsciously shaped by cognitive biases, a pattern that makes people vulnerable.

One of the most exploited, the report notes,is the authority bias, the natural human tendency to trust figures who appear credible or powerful. On the online space,  this could be a scammer posing as a doctor, a government official, or a well-known investor. By projecting authority through professional photos, logos, and social media endorsements, they elicit instant trust.

The report also highlights the scarcity principle, which plays on the fear of missing out. Fraudsters, it explains, frequently frame their schemes as limited-time opportunities claiming that investment windows are closing fast or that only a few slots left. This tactic triggers impulsive behaviour, leaving targets with little time to verify legitimacy before committing funds.

Similarly, confirmation bias makes individuals focus on evidence that supports what they already believe. A financially pressured investor, for instance, might dwell on success stories or doctored screenshots while overlooking glaring red flags. CFCA notes that scammers deliberately flood chat groups with fake “proof of payment” images and fabricated testimonials, creating an illusion of widespread success.

The analysis further identifies optimism bias which is the tendency to assume bad things happen to others, not oneself as a major vulnerability. Many victims, overconfident in their ability to detect fraud, ignore inconsistencies or promises that sound too good to be true. This misplaced confidence, the report warns, makes them especially susceptible to sophisticated digital manipulation.

Beyond these cognitive shortcuts, CFCA underscores that emotion remains the scammer’s strongest lever. By evoking greed, excitement, or hope, they override victims’ logical thinking and provoke snap decisions. Once emotions take control, people act first and reason later.

The CFCA report also identifies social validation as a key driver of compliance. This occurs when victims trust something simply because others seem to. On social platforms like X (formerly Twitter), Facebook, and WhatsApp, fraudsters weaponise this instinct by circulating screenshots of supposed payments and withdrawal proofs. Each image, even if fabricated, reinforces the illusion of popularity and legitimacy.

These tactics thrive now that algorithms reward engagement over authenticity. The more a post attracts clicks, comments, and shares, the wider its reach, making social media the perfect amplifier for digital deception.

The report further highlights that the psychology of fraud isn’t uniform, it varies across age and socioeconomic groups. Scammers adapt their techniques to the unique vulnerabilities of each demographic.

Older adults, for instance, often become targets due to social isolation, declining cognitive vigilance, or an inherent trust in perceived authority. They are more likely to fall for phishing calls, fake investment opportunities, or fraudulent online advertisements that exploit this trust.

On the other hand, younger Nigerians,more digitally active but less financially experienced are vulnerable in different ways. The study noted that their comfort with technology can breed overconfidence. Combined with social pressure, peer influence, and the quest for quick gains, this makes them prime targets for crypto scams, fake trading apps, and social media investment traps.

Additionally, socioeconomic realities further deepen this vulnerability. Individuals facing financial strain or unemployment are more likely to believe in too-good-to-be-true investment offers that promise quick relief. 

“socioeconomic factors can profoundly influence an individual’s likelihood of falling victim to fraud. Individuals with lower income levels often experience heightened stress and financial instability, making them more susceptible to scams that promise quick financial relief or advantages. Scammers frequently target these individuals with enticing offers that exploit their desperation,” the study noted.

Fintech familiarity and the illusion of legitimacy

Nigeria’s thriving fintech ecosystem with over 200 licensed operators and an increasingly tech-savvy population has inadvertently created fertile ground for imitation. Many Ponzi operators  now disguise themselves as digital startups, using the language, design, and branding of legitimate fintechs to lure unsuspecting investors.

According to the Securities and Exchange Commission (SEC), Nigerians have collectively lost more than ₦300.2 billion to fraudulent Ponzi schemes over the years. The figure, revealed by AbdulRasheed Dan-Abu, head of Fintech and Innovation at SEC, during the 2025 Journalists Academy in Abuja, was compiled from investigations into some of the country’s most notorious investment scams.

“These losses,” Dan-Abu noted, “reflect the devastating financial and social impact of illegal investment operations on households and small investors.” 

The data includes high-profile collapses such as MMM Nigeria (₦18 billion), Nospecto Oil and Gas (₦45 billion), MBA Forex and Capital Investment Ltd (₦213 billion), and the combined losses from Chinmark Group, Ovaioza Farm Produce Storage Business, and Famzhi Interbiz Ltd (₦24 billion).

The SEC clarified that these figures likely underestimate the true scale of the problem, as countless unreported and unregistered schemes continue to evade regulatory radar especially in rural and semi-urban areas where digital literacy is low.

A more recent example underscoring the deepening Ponzi trend in Nigeria was the CBEX investment fraud, a case that left many Nigerians reeling from loss and disbelief. The supposed cryptocurrency trading platform, which emerged with promises of 100 percent monthly returns, collapsed abruptly earlier this year after attracting thousands of unsuspecting investors.

CBEX had presented itself as a credible, high-yield digital asset venture, operating with the trappings of legitimacy , an active website, dedicated customer service channels, and even a physical office in Lagos. Yet behind this carefully curated facade was a web of deception. The company withheld millions of naira in investor funds, exposing yet another cycle of financial exploitation that preyed on public trust and digital optimism. Its sudden disappearance not only drained the savings of many but also reignited conversations about how easily digital investment scams continue to thrive under the banner of innovation.

Commenting on the increasing spread of such fraudulent operations, Paul Alaje, chief economist and partner at SPM Professionals, said Nigerians have collectively lost an estimated ₦4.8 trillion to Ponzi and pyramid schemes between 2016 and 2025, tracing the trend back to the collapse of the infamous MMM platform.

Speaking in a televised interview around the time of the CBEX fraud in April 2025, Alaje described the scale of loss as “a tragedy born of greed, ignorance, and weak oversight,” explaining that most of these schemes are structured to fail from inception.

“For most of them,existing investors are paid with the deposits of new ones. There’s usually no real business behind the operation. In some cases, they promise returns higher than what the IMF and World Bank could offer combined. At 100 percent monthly returns, they would need the population of Nigeria by the eighth month  and by the 36th month, the entire world’s population to sustain such payments. It’s mathematically impossible,” he said.

According to Alaje, the persistence of Ponzi schemes in Nigeria stems from three main factors: greed, illusion of legitimacy, and institutional loopholes. Many investors, he said, are drawn in by the promise of “effortless wealth” and the appearance of credibility. “They see offices, structured customer service, and hear testimonials from early beneficiaries,” he noted, adding “But what lies at the end of that tunnel is darkness — it’s financial destruction.”

Alaje also underscored the ease of establishing fraudulent enterprises in Nigeria, warning that systemic weaknesses enable such operations to thrive. “Anyone can walk into the Corporate Affairs Commission (CAC), register a company, and instantly qualify to open a corporate bank account,” he said. “We need to audit our account-opening and business registration processes, especially for ventures that can be used to defraud unsuspecting citizens.”

He further pointed to recent legislative measures aimed at curbing financial fraud, noting that a new law now prescribes a 10-year jail term and a ₦20 million fine for anyone found guilty of running Ponzi schemes. However, he maintained that enforcement alone will not solve the problem. “The Securities and Exchange Commission (SEC) cannot be everywhere at once,” he cautioned. “Citizens also have a duty to verify before investing. Don’t just rely on a CAC certificate, ask for a valid SEC or Central Bank of Nigeria (CBN) license and confirm it before you part with your money.”

Alaje shared that during the peak of MMM in 2016, the scheme’s reach was so pervasive that even well-educated Nigerians were caught in its web — often without realising that their close friends or spouses were secretly involved. “Many people knew it was a scam but still believed they could ‘cash out’ before it collapsed. Unfortunately, almost everyone loses in the end,” he said.

He urged Nigerians to embrace investment literacy and healthy skepticism as vital safeguards against financial manipulation, noting that legitimate investments are designed to yield passive income over time, not unrealistic short-term profits.

“Investment is for passive income,” Alaje explained, “It’s not an active hustle where you sell or produce something tangible. So when someone promises 100 percent return in a month or even 33 percent—run. Always check what the Monetary Policy Rate (MPR) is in Nigeria and compare it with what’s being promised. If a private platform claims it can give you several times more than the country’s benchmark rate in just 30 days, that’s a clear warning sign. When the promises sound too good to be true, they usually are.”

Beyond investor behaviour, Alaje called on government agencies to prioritise public education through continuous engagement and simplified communication. “Education is the strongest antidote to these schemes,” he stressed, adding, languages and Pidgin English  to reach people at the grassroots. Let it be in formats people connect with: radio dramas, street campaigns, even social media skits.”

He concluded with a charge to both citizens and regulators: “It’s painful to see people lose their life savings. But protection begins with awareness. Government agencies have a duty to protect citizens, and citizens have a responsibility to be vigilant. Financial fraud thrives where knowledge is weak and the best way to fight it is to educate the people continuously.”

Building on this call for vigilance, Nigeria’s capital market regulator appears to be taking stronger steps in the same direction. Disturbed by the persistence of such fraudulent operations, the SEC  says it has intensified its regulatory crackdown to safeguard investors and preserve the integrity of Nigeria’s financial system.

The Commission explained that its renewed strategy rests on three key pillars,investor education, strict enforcement, and inter-agency collaboration aimed at dismantling the expanding networks behind these deceptive schemes. According to the SEC, the effort involves strategic partnerships with the Economic and Financial Crimes Commission (EFCC), the Nigerian Financial Intelligence Unit (NFIU), and the Central Bank of Nigeria (CBN) to trace, identify, and freeze bank accounts linked to unlicensed investment operators.

In recent months, the Commission has secured court orders to shut down several unregistered entities, initiated criminal prosecutions against their promoters, and issued public investor alerts naming firms engaged in unlawful solicitation.

Beyond enforcement, the SEC has expanded its technology-driven surveillance systems to monitor and flag suspicious investment promotions, particularly those proliferating across social media platforms, where many fraudulent schemes now thrive. The Commission said these measures are designed not only to curb the spread of illegal investment platforms but also to reinforce investor confidence in the formal financial ecosystem.