Article by Opue Job A On Economic Appraisal of Ponzi Schemes in Nigeria PDF

Journal of Advance Research in Social Science & Humanities ISSN: 2208-2387
AN ECONOMIC APPRAISAL OF PONZI SCHEMES AND LIVING STANDARDS IN

NIGERIA: THE CASE OF MMM, ULTIMATE-CYCLER AND CROWD-RISING IN
CALABAR METROPOLIS
Opue Job Agba

Department of Economics, University of Calabar
PMB 1115, Calabar, Nigeria
Tel: +2347062522700 Email: ngaji74@yahoo.com
Ikpeme Winifred Ikpeme

Department of Economics, University of Calabar
PMB 1115, Calabar, Nigeria
Tel: +2348124878913
Bankoli Bankong
Department of Economics, Federal College of Education
Owerri, Imo State, Nigeria
Tel: +2348137439962 Email: bankolibankong@yahoo.com
Abstract
This study examined the impact of Ponzi schemes such as MMM, Ultimate-cycler and Crowd-
rising on the standard of living of the residents of Calabar Metropolis. This was achieved through
the use of the survey research design. The study sampled 190 respondents using the stratified
random sampling technique and the data was generated from a well structured questionnaire. The
descriptive statistics as well as a multivariate regression technique was employed to analyze the
data and the results revealed that investment in Ponzi schemes have positive and significant
impacts on depreciation in income levels, poor access to quality housing and poor educational
standards, and a positive but insignificant impact on poor access to quality health care within
Calabar Metropolis. Based on the findings, it was recommended in 5.3 that Government should
fast-track her empowerment programmes for the less privileged and above all, promulgate laws
which are targeted at regulating the operations of Ponzi schemes to ensure the mitigation of their
potential cost, given the high propensity of Nigerians to invest in them.
Keywords: Ponzi schemes, Living standards

JEL Classification code: R11, I39
1. Introduction
There has been a recent climax of illegal investment schemes in Nigeria; these schemes also known
as ponzi schemes have become popular ever since economic recession plagued the nation. A
statement by Omenazu in the Independent newspaper of 2016, confirms this assertion as he stated
that “multi-level marketing and ponzi schemes came to the rescue of Nigerians in the last quarter
of 2016 to help cushion the effects of economic recession.” while some individuals were of the
view that these schemes had no effect on the economy or its participants; some believed that these
schemes had both positive and negative effects, but the negative outweighs the positive and hence
the overall effect on the economy and its participants would be negative.
Volume-4 | Issue-6 | June,2018 1

Although ponzi scheme is a relatively new concept in Nigeria, it started as far back as the 1920s.
The name “Ponzi scheme” can be traced to the activities of Charles Ponzi who in the 1920s lured
thousands of investors in the United States of America to make investments on his investment
scheme which promised 50 percent returns on investments made for 90 days. Charles Ponzi’s
scheme failed when he was unable to pay investors in the scheme. At that point, Ponzi had lost an
estimated $7 to $15 million and ruined six banks (Amadeo, 2017). In recent times, public
awareness of Ponzi schemes was increased by the conviction and sentencing of American
investment adviser, Madoff to 150 years in prison for 11 federal crimes involving $65 billion. The
scheme involved about 8000 investors. The Madoff scheme was the largest reported Ponzi scheme
in history. The scheme collapsed in December 2008 when the Lehman brothers filed for
bankruptcy protection in what was the largest corporate bankruptcy in history. The collapse was
precipitated by rapid withdrawals by investors of their funds from Madoff’s investment firm,
Bernard L. Madoff investment securities (BLMIS). The collapse of BLMIS resulted in the loss of
billions of dollars by thousands of investors. Investors losses in the scheme is equivalent to the
total losses made by investors in the second, third and fourth largest Ponzi schemes in history and
this resulted in “Ponzi scheme” being a household word (Jory & Perry, n.d, Maglich, 2013).
These schemes are actually based on a structure which pays returns to early investors out of money
invested by new investors rather than genuine business profits. Hence, it can also be seen as a
system of robbing an individual of his/her investments in order to pay another individual. This fact
is not disclosed to the investors who believe their funds are used to finance a very profitable
business. The scheme also offers abnormally high returns to entice investors and thus rely on a
continuous supply of investor’s funds to meet the promised returns to earlier investors. Throughout
history, it has been observed that ponzi schemes are only revealed once the ponzi schemer is unable
to attract investors or if they are detected and shut down by regulatory agencies or law enforcement
(Amadeo, 2017; Ogar, 2017).
However, Ponzi schemes are not peculiar to only developed countries like the United States of
America. In Europe, the small country of Albania in 1997 witnessed the crash of a number of Ponzi
schemes which led to uncontained rioting, social disorder against the Albanian government and
ended up in what Jarvis (1999) calls a true civil war, resulting in over 2000 fatalities and the oust
of the incumbent Albanian president.
The evidence above signifies that Ponzi schemes otherwise called unregulated investment schemes
can occur in any financial market irrespective of their level of development. However, their impact
has been greater in countries with weaker regulatory frameworks as shown in the well known case
of Albania than developed countries as shown by the experience in the United States of America.
A statement by Dorn (2009) confirms this assertion as he stated, “Ponzi schemes appear to thrive
more in the developing and underdeveloped economies, this is because of the lack of regulations
in many of these countries”.
Africa as a region is prone to Ponzi schemes with Nigeria and South Africa leading the race (Krige,
2012). In Nigeria, Ponzi scheme dates back to the 1970s and 1990s when schemes such as the
Imana-Umana and Planwell schemes were popular in places such as the old Cross River and Edo
States. Between 2002 and 2007 the Nopecsto was popular in Lagos (The Business Post, 2017). In

recent times, schemes such as the Mavrodi Mondial Movement (MMM), ultimate cycler, twinkas
and crowdrising have taken root in Nigeria. However, the growing indulgence in Ponzi schemes
in Nigeria can be attributed to the economic condition of the region as this has been perceived as
a source of income to individuals in this region. This statement agrees with Jacobs & Schain
(2017) who asserts that the vulnerability of individuals to Ponzi scheme is partly due to the times
we live in; as Ponzi schemes are particularly popular in developing countries with high levels of
poverty, unemployment, income inequality, as well as the existence of a huge savings- investment
gap. This is particularly true of Nigeria.
In Calabar metropolis, the economic condition of residents is not different from the description
above; there exists high rate of unemployment and poverty and high cost of living standards. Ponzi
schemes therefore attempt to provided an escape route from their poor living standards; as it
promised a high rate of returns on investment, far above what financial institutions offer. This
statement corroborates with Adebajo (2012) who asserts that “there exists unemployment issues
and high rate of poverty in Nigeria, as majority of residents live below the poverty line and any
activity that can legitimately turn a small amount of money into large sums will always be
appealing”. Adebajo’s sentiments are backed by the many instances when residents of Calabar
metropolis have fallen victim to fraudulent Ponzi schemes. The primary targets of these schemes
in Calabar metropolis are students and persons within the middle and lower income brackets who
have been made worse off by the adverse effects of the recent recession which is one of the worst
in the nation’s history. Thus, despite the general awareness of the fraudulent nature of Ponzi
schemes, participation in these schemes in Calabar metropolis has been encouraged by the need
for individuals to mitigate the adverse effects of the declining performance of the economy on
their standard of living. There exists different dimensions to the impacts of these ponzi schemes
but this study looks at its impact on standard of living because it is a key development indicator.
Among the Ponzi schemes which were introduced in Nigeria, especially in 2016, the Mavrodial
Mondial Movement (MMM) scheme was one of the most patronized. The MMM was established
in 1989 by three Russian nationals, Sergei Panteleevich Mavodi, Vyacheslav Mavrodi and Olga
Melnikova. The scheme promises its clients 30 to 100 percent return on investment (ROI) for
money put into the system for 30 days. The scheme prides is marketed as a mutual aid fund through
which recruited members contribute money to assist others (Adebumiti, 2016).
However, despite the so acclaimed benefits of Ponzi schemes, especially with regards to their role
in mitigating the impact of the recent recession on Nigerians through improvements in their
standard of living, Ponzi schemes do have negative effects which are not usually highlighted by
their operators. These negative impacts, on both individuals and the nation as a whole, include;
the undermining of financial markets, diversion of savings from productive to unproductive uses;
the associated fiscal costs of bailouts when they fail; diversion of deposits from banks and
increases in the volume of non-performing loans in situations in which the loan proceeds are
diverted into Ponzi schemes; volatility in consumption driven by paper profits or early
withdrawals; socio-economic strife in situations in which a sufficiently large number of
households are exposed to losses; the undermining of the reputation of political authorities,
regulators and law enforcers in situations where they fail to prevent open frauds and address money
laundering or support of other illegal enterprises by Ponzi schemes operators (Carvajal, Monroe,
Pattillo & Wynter, 2010). In recent times, over 4000 students of the Osun State University were

threatened with expulsion due to their inability to pay their fees. This was a product of some of the
students’ diversion of their fees worth a total of US$6.5 million into an online Ponzi scheme which
later suddenly suspended its operation. The announcement by the Mavrodial Mundial Movement
(MMM) scheme of the temporary shutdown of its operations in December, 2016 left over 3 million
Nigerians, including students, without their initial investment totaling US$570 million (Fatunde,
2017).
In view of the increasing number of Ponzi schemes and the obvious risks associated with
investment in such schemes, the high propensity of residents of Calabar metropolis to invest in
them is questionable. Such questions relate to investors’ valuation of the relative benefits and costs
of Ponzi schemes. Such valuations are largely dependent on several factors including the material
wellbeing of the average individual as reflected in their standards of living, which given the
hardship caused by the recent recession and the overall poor performance of the Nigerian economy
in general over the years, may result in less risk aversive behaviours among the residents.
Given the foregoing, this study attempts to provide empirical evidence on the reasons for the high
propensity of residents of Calabar metropolis to invest in Ponzi schemes by appraising the impact
of such schemes on their standard of living. Ponzi schemes are known to cause financial loss for
most of its investors yet there is continued involvement in these schemes among residents despite
the negativity surrounding the schemes. Given these facts, the question arises as to why residents
are still drawn to these schemes. Has it affected their standard of living positively? Thus, the study
seeks to address the following objectives:
1.1 Objectives of the study

The broad objective of this study is to appraise the impact of Ponzi schemes on the
standards of living in Calabar metropolis. The specific objectives are to:
1. Determine the impact of Ponzi schemes on income levels among the residents of Calabar
metropolis.
2. Investigate the impact of Ponzi schemes on the access to quality housing among the
residents of Calabar metropolis.
3. Determine the impact of Ponzi schemes on the access to quality healthcare among the
residents of Calabar metropolis.
4. Evaluate the impact of Ponzi schemes on access to education among the residents of
Calabar metropolis.
1.2 History of Ponzi schemes in Nigeria

The earliest Ponzi scheme include the Umana-Umana scheme which was popular in Calabar during
the 1980s; the Planwell in Edo State between 1991 and 1992; and Nopecsto in Lagos State between
2002 and 2007 (Business Post, 2016). In recent times, especially with the advent of the recent
recession in 2016/2017, several Ponzi schemes were established in the country. An overview of a
cross-section of these schemes identified by Onyeji (2016) is presented as follows:
1.2.1 MMM Nigeria: MMM Nigeria is part of the MMM Global community, a Russian Ponzi
scheme dated back to 1989. MMM stands for Mavrodi Mondial Movement and takes its name
from its founder, Sergei Panteleevich Mavrodi of Russia. Three years after he founded MMM in
1989, the scheme was declared bankrupt and Mavrodi disappeared, until his arrest in 2003. The

scheme was launched in Nigeria in November 2015. MMM provides a technical platform which
helps millions of participants worldwide to connect those who need help to those who are ready to
provide help, for free. The scheme promised a 30 per cent return on investment to members. In
their transactions MMM participants operate with Bitcoin. The 130 per cent payback is just a one-
time payment after 30 days, and not every month payment from one investment, although you can
invest as many times as possible after each 30 days’ circle. In January 2016, the Chinese
government banned MMM on the ground that it is a pyramid scheme, (Ponzi scheme), and not
registered in the country. Furthermore, in 2016 the MMM scheme crashed in South Africa. MMM
Global only gave South Africans the bad news with a post on its website saying: “We regret to
inform you that we have to close down the Republic of Bitcoin. It was an experiment and,
unfortunately, it failed. We turned out not to be able to pay 100 percent per month.” In response
to mounting criticism and official investigations by state authorities in 2016, supporters of the
South African MMM scheme staged a protest march in Johannesburg.
The scheme started up again late November 2016. Also, recently, the scheme collapsed in
Zimbabwe. Just recently, Nigerians have been thrown into a sudden anxiety following a decision
by promoters of MMM to suspend new payouts to subscribers. The break in December, 2016 threw
Nigerians off balance and eventually resulted in the freezing of the accounts of participants in
june/july 2017 and again in November/December, 2017. But the promoters of the scheme said it
would not burst just yet, adding that the setback will only last for a short while, but this has lingered
till date.
MMM is presently in over 27 countries, estimated to have over 100 million participants globally.
In Nigeria, it is believed to have had up to 3 million participants with over 3,000 trooping into the
scheme weekly. MMM was the most popular online money making portal in Nigeria. It ranked on
alexa.com as the 5th most visited website in Nigeria as at 2016.
1.2.2 Ultimate cycler: Ultimate cycler is a peer-to-peer donation business model created by
Peter Wolfing, a United States based network marketer. It’s a 2×2 cycler scheme with a direct
member-to-member payment plan. There is no central account to pay or receive; you get all of
your payout directly into your account. There are 6 matrix levels you can earn from, but the only
expense you make is the one-time 12,500 Naira you donate to your sponsor so as to activate your
account. Ultimate cycler was the second most popular online money making Ponzi scheme in
Nigeria, it was ranked in alexa.com as the 15th most visited site in Nigeria in 2016. There is no
exact estimate of its population, however, it was said to be registering up to 2,000 members weekly
in Nigeria until the site went down.
1.2.3 Crowd rising: Crowd rising is not a company or a business or a corporation. The Crowd
rising System is not owned by any one individual. It is a semi-automated system created by 5
individuals, who are the funding and founding members, referred to as the 5 Horsemen. The
platform is made available world-wide, free of charge. There are no admin fees, no monthly fees,
in fact, there are no fees. Crowd-Rising is a person-to-person direct funding platform. The system
was designed in such a way that it can be used by fundraisers, such as for charities, schools, clubs,
churches, non-profits, family, and personal financial needs etc. The donations are not collected by
the administrator, nor are they automated by the system, rather donations are sent directly and

personally from one member to another, from one member’s payment processor to another
member’s payment processor.
2.1 Review of literature

2.1.1 Theoretical literature
In a Ponzi scheme, returns may be paid to investors out of the money paid in by subsequent
investors rather than from genuine profits. These schemes usually offer higher returns than any
legitimate business activity could plausibly sustain, in order to lure investors. Ponzi schemes
usually have to attract new investments at an exponentially growing rate to sustain payments to
existing investors, and inevitably collapse when the new investment needed exceeds the size of
the target market. At that point, most investors lose most or all of their investment, while early
investors including the scheme’s founders may have obtained high returns. Thus, it can be a matter
of plain luck and timing whether an individual turns out to be a victim or a beneficiary of the
scheme. Ponzi schemes are insolvent from the moment that they take in money from investors.
Their liabilities to investors exceed their assets as the value of liabilities increases at the inflated
rate of return, while assets may be depleted by the running costs of the scheme or possibly suffer
from other depredations (Carvajal et al., 2009).
Omanyo (2017) also identified regulatory failures as one of the main reasons behind the continued
existence of Ponzi schemes in countries such as Lesetho, Jamaica and Colombia. The regulatory
failure is itself a product of several factors. One of such factor is the level of technological
development. In this regard, Tucker, and Brakebill (as cited in Omanyo, 2017) posited that the
development of the digital currency and the ambiguity offered by the internet, which allow the
perpetrators to swindle investors across borders are major reasons behind the inability of regulators
to regulate dubious investment schemes. On the other hand, Smith (as cited in Omanyo, 2017)
identified the increased levels of investor sophistication as one of the major reasons why Ponzi
schemes go undetected for long periods.
In writing on the impacts of Ponzi schemes, Asogwa, Etim, Etukafia, Akpanuko and Ntiedo (2017)
posited that Ponzi scheme is mathematically a financial freedom mechanism which is capable of
turning around the fortunes of millions of poor, and in some cases greedy people only on a
condition that the system does not collapse. The study further observed that Ponzi schemes typify
a system of ‘robbing Peter to pay Paul’. According to the study, the intelligence behind Ponzi
schemes is that the investor must be foolish and greedy. This suggest that all the investors must
continually be re-investing both their initial capital, the interest and consistently persuade new
people to join the scheme in order to keep the platform liquid and mutually beneficial. The study
concluded that such a process is generally unsustainable and that Ponzi schemes are bound to
eventually fail no matter how long it lasts.
According to Arrawatta and Pande (2016), Ponzi schemes has various implications with none
being positive. These implications can be considered at two levels; at the individual level and from
the level of the economy. At the individual level, the loss of life savings to the deceptive investment
schemes is the first major impact. At the macro level one of the major effects is that the fraudulent
schemes scare foreign direct investment. Hence the possible contraction in the Gross Domestic
Product, reduced foreign and local investments and the worsening of the business environment
(Cecchettin & Schoenholtz, as Cited in Omanyo 2017).

2.1.2 Empirical literature review

S/ Name Topic Methodolo Findings
gy
1. United Kingdom Research on impact of Descriptive In 2006, 3.3 million

Office of Fair mass-marketed scams: A approach persons in the United
Trading (2006). summary of research into Kingdom fall victim to
the impact of scams on mass marketing schemes
United Kingdom annually with an
consumers. associated loss of £3.5
billion.
2. Australian Bureau Personal fraud. Descriptive In 2007, 806,000

of Statistics approach Australians aged 15 years
(2008). and over were victims of at
least one incident of
personal fraud in the
preceding 12 months,
including selected schemes
such as lottery, pyramid,
and phishing schemes, and
that 453,100 of those
victims (56.2 percent)
reportedly lost AU $977
million.
3. United States Ponzi schemes. Descriptive Found that an estimated

Federal Trade approach that 30.2 million
Commission consumers may have been
(2005). victims of various
consumer fraud schemes
during the preceding year.
4. International Mass-marketing fraud: A Descriptive As at January 2006, there

Mass-Marketing threat assessment. approach were over 27 cases of
Fraud Working mass-marketing fraud
Group (2010). victims in various
countries who had
considered, attempted, or
committed suicide as a
result of their fraud losses.
5. Keep and Vander Multilevel marketing and Descriptive MLMs and pyramid
Nat (2014). pyramid schemes in the approach schemes have wide
United State of America: ranging impacts such as
A historical analysis. bringing a wide range of
products directly to

consumers, changing the

nature of the business
models adopted by
businesses, regulatory
reforms due to the high
incidence of financial
fraud, as well as changes in
consumer lifestyles.
6. Caribbean Policy Investigating the informal The Vector The vast majority of
Research Institute investment schemes in Autoregress investors do not expect a
(2008). Jamaica ive (VAR) bail-out from the Jamaican
model. government and investor
deposits are facilitated by
the banks; the propensity
to invest in informal
investment schemes is far
higher among middle-class
Jamaicans.
Furthermore, the study
found that the majority of
the informal investment
schemes operating in
Jamaica are unsustainable,
making their eventual
collapse inevitable. Finally
the study found that the
detrimental effects of a
sudden outflow of funds
belonging to the informal
investment schemes, as a
result of their collapse,
were short-lived, and
absorbed within a matter of
months.
7 Bosley and Multilevel marketing Descriptive Nearly all adoption results

McKeage (2015). diffusion and the risk of approach from interpersonal
Pyramid scheme activity: influence (imitation) and
The case of fortune hi‐ indicate that participation
tech marketing in is higher in counties with
Montana. larger economic
contractions.

8. Cortés, Economic shocks and Descriptive With the exception of

Santamaría and crime: evidence from the approach economically-motivated
Vargas, (2016). crash of Ponzi schemes. felonies such as robbery,
violent crime is not
affected by the negative
shock associated with the
collapse of Ponzi scheme.
9. Carvajal et al., Effect of Pyramid Descriptive the collapse of the Ponzi

(2009) schemes to the economy approach scheme, SGLE holdings,
of the country: Case of in Grenada did not have a
Tanzania. significant impact on the
country`s economy or
banking system.
10. Kipilimba (2017). Effect of Pyramid Descriptive Most Tanzanians are very
schemes to the economy approach naïve when it comes to
of the country: Case of pyramid schemes, with
Tanzania. very scanty knowledge
about such schemes; most
Tanzanians do not know if
they have participated in
these schemes but in those
instances that they had,
they suffered huge
financial losses;
participation in Pyramid
schemes, the findings of
the study showed that it
was due to a wide range of
factors including: pure
naivety, personal greedy,
and peer pressure; the
victims of the crash of
Pyramid schemes usually
responded to such losses
by resorting to violent and
anarchical behaviors due
to their apathy and lack of
confidence in the Judiciary
and political class.
11. Omanyo (2017). An assessment of ponzi The cross- The proliferation of Ponzi
schemes in Kenya among sectional and Pyramid schemes in
the financial market explanatory Kenya was due to the lack
players. survey of a strong legal and
research

design and regulatory environment to

descriptive deal with such schemes.
approach.
12. Asogwa et al. Synopsis of Nigerian Quantitative Ponzi schemes provided

(2017). economy and the growth and survey Nigerians an alternative
of Ponzi schemes. research solution to their problems;
method there is a strong negative
relationship between the
state of the Nigerian
economy and its impact on
the income and standards
of living, and the growth of
Ponzi schemes.
Source: Author`s compilation (2018).
2.1.3 The prospects theory

The prospect theory is a theory which attempts to explain how people make choices between
different options or prospects which involves risk and uncertainty. The theory is designed to better
describe, explain, and predict the choices that a typical person makes, especially in a world of
uncertainty. The theory posits that people think in terms of expected utility relative to a reference
point (e.g. current wealth) rather than absolute outcomes. Prospect theory was developed by
framing risky choices, and it indicates that people are loss-averse, and since individuals dislike
losses more than an equivalent gain, they are more willing to take risks, in order to avoid a loss.
The prospect theory was developed by Daniel Kahneman and Amos Tversky (Altman, n.d.;
Behavioral Finance, n.d.; Kahneman & Tversky as cited in Behavioral Economics, 2017;
Kahneman as cited in Behavioral Economics, 2017). The features of the theory as identified by
Altman (n.d.) include:
1. Certainty: People have a strong preference for certainty and are willing to sacrifice income to
achieve more certainty.
2. Loss aversion: People tend to give losses more weight than gains. They are loss averse.
3. Relative positioning: People tend to be more interested in their relative gains and losses as
opposed to their final income and wealth.
4. Small probabilities: People tend to under-react to low-probability events.
3.1 Population/Sample of the study

The population for this study consists of all the residents of Calabar metropolis. This is defined to
include all persons living and working in Calabar municipality and Calabar South Local
Government Areas. Available information showed that Calabar metropolis has a total population
of about 371,022 persons based on the 2006 census. The required respondents are taken from
various wards in Calabar metropolis (Calabar Municipal and Calabar South L.G.A.) which
comprises of 10 wards from Calabar municipality and 11 wards from Calabar South Local
Government Area. The sample size of this study is made up of 200 respondents. The population
was stratified into wards and 9 persons were randomly selected from each ward in Calabar
municipality area while 10 were randomly selected from each ward in the Calabar South LGA.
That is, Calabar Municipality had a total of 90 respondents while Calabar South LGA had a total

of 110 respondents. The above sample is a representative of the entire population of Calabar
metropolis and this choice is informed by the need to ensure a more representative sample of
opinions which can be used as a representation of the wider population,
3.2 Model specification and method of data analysis

Firstly, descriptive statistics will be used to describe the data collected. The aim is to show trend
and comparison of responses by the respondents. Descriptive techniques such as simple
percentages will be employed in the analysis. The study also employs the Multivariate Regression
analysis. This method will be used in the estimation of the following equations:
INCOM = θ0+ θ1LOSMM + θ2BENMM + θ3LOSATC + θ4BENATC + θ5LOSCR + θ6BENCR

+ µ1 …………………………..………………………………………………….... (3.1)
HTCA = δ0+ δ1 LOSMM + δ2 BENMM + δ3 LOSATC + δ4 BENATC + δ5 LOSCR + δ6 BENCR
+ µ2 ..……………………………………………………………………………… (3.2)
EDU = λ0+ λ1 LOSMM + λ2 BENMM + λ3 LOSATC + λ4 BENATC + λ5 LOSCR + λ6 BENCR
+ µ3 ……………………………………………………………………………… (3.3)
HOU = Ψ0+ Ψ1LOSMM + Ψ2BENMM + Ψ3LOSATC + Ψ4BENATC + Ψ5LOSCR + Ψ6BENCR
+ µ4……………………………………………………………………………………. (3.4)
θ0, δ0, λ0 & Ψ0 > 0; θ1, δ1, λ1 & Ψ1< 0; θ2, δ2, λ3 & Ψ2 > 0; θ3, δ3, λ3 & Ψ3 < 0; θ4, δ4, λ4 & Ψ4 > 0;
θ5 ,
δ5, λ5 & Ψ5 < 0; θ6, δ6, λ6 & Ψ6 > 0.
Where,
INCOM = Income depreciation level of investors in Ponzi schemes in Calabar Metropolis
HTCA = Poor health care by investors in Ponzi schemes in Calabar Metropolis
EDU = Poor educational standard by investors in Ponzi schemes in Calabar Metropolis
HOU = Poor housing condition by investors in Ponzi schemes in Calabar Metropolis
LOSMM = Loss to MMM; BENMM = Benefits from MMM; LOSATC = Loss to Ultimate Cycler;
BENATC = Benefits from Ultimate Cycler; LOSCR = Loss to Crowd Rising; BENCR = Benefits
from Crowd Rising; µ1…µ4 = Stochastic error terms
4.1 Presentation of regression results
The Income Depreciation

Equation
Prob.
Dep. Indep. Std. of F-
Var. Var Coeff. Error t-stat. Prob. R2 F-stat. Stat
INCOM LOSMM 0.4232* 0.1336 3.17 0.002 0.2686 11.2028 0.0000
BENMM 0.0883 0.1247 0.71 0.480
LOSATC -0.7029* 0.1999 -3.52 0.001
BENATC 1.4073* 0.2002 7.03 0.000
LOSCR 0.7495** 0.3454 2.17 0.031
BENCR -0.2085 0.4187 -0.50 0.619
C 7.9211* 0.2749 28.81 0.000

Poor Health Care Equation

Prob.
HTCA LOSMM 0.1151 0.1304 0.88 0.379 0.0955 3.2191 0.0050
BENMM 0.1596 0.1217 1.31 0.192
LOSATC -0.3146 0.1952 -1.61 0.109
BENATC 0.5828* 0.1955 2.98 0.003
LOSCR 0.6368 0.3373 1.89 0.061
BENCR 0.1461 0.4089 0.36 0.721
C 9.1622* 0.2685 34.13 0.000
Poor Education Standard

Equation
Prob.
EDU LOSMM 0.2954 0.1602 1.84 0.067 0.2721 11.3986 0.0000
BENMM 0.4295* 0.1495* 2.87 0.005
LOSATC -0.5943* 0.2398* -2.48 0.014
BENATC 1.4705* 0.2401* 6.13 0.000
LOSCR 0.2639 0.4143 0.64 0.525
BENCR 0.9920** 0.5022* 1.98 0.050
C 10.6426* 0.3297* 32.28 0.000
Poor Housing Condition Equation

Prob.
HOU LOSMM 0.2657 0.1568 1.69 0.092 0.1781 6.6075 0.0000
BENMM 0.4395* 0.1464 3.00 0.003
LOSATC -0.3299 0.2347 -1.41 0.162
BENATC 0.9184* 0.2350 3.91 0.000
LOSCR 0.2774 0.4056 0.68 0.495
BENCR 0.4699 0.4916 0.96 0.34
C 8.8841* 0.3228 27.53 0.000
Note: *=1% significance level, **=5% significance level
Source: Author`s computation (2018)
4.4 Discussion of findings

The summary of the data from the questionnaire used in the study revealed that men invested more
in Ponzi schemes (62 percent), while only 38 percent of the investors included in the survey were

females. Investment in Ponzi schemes was also found to be higher among unemployed persons
(53 percent), while self employed persons and civil/public servants accounted for 24 and 23
percent respectively. Bachelors` degree (B.Sc) holders also accounted for the largest number of
investors in Ponzi schemes (63 percent) in the study, while Senior SSCE and NECO holders, and
Doctorate degree (Ph.D) holders only accounted for 21 and 2 percent respectively. Investment in
Ponzi schemes was also higher among low income earners (65.3 percent), while only 2.6 percent
of the investors were high income earners. Furthermore, Calabar South Local Government Area
had more investors in Ponzi schemes (54.2 percent) than Calabar Municipal Local Government
Area (45.8 percent). Finally, MMM was the most popular Ponzi scheme in Calabar Metropolis.
63.2 percent of the respondents invested in MMM, while 28.4 and 8.4 percent invested in Ultimate
Cycler and Crowd Rising.
With respect to the results of the multivariate regression analysis, the study found that the losses
from investment in MMM by the residents of Calabar Metropolis has a positive and significant
impact on their depreciation in income levels and poor access to education, and a positive but non-
significant impact on poor access to quality housing and poor access to quality health care services.
On the other hand, the benefits from investment in MMM were found to have a positive and non-
significant impact on depreciation in income and poor access to quality health care in Calabar
Metropolis, and a positive and significant impact on poor access to quality housing and educational
standards.
The results also revealed that the losses from investment in Ultimate Cycler had a negative and
non-significant impact on poor access to quality health care services in Calabar Metropolis, a
negative and non-significant impact on their poor access to quality housing, and a negative and
significant impact on their depreciation in income levels and poor access to educational services.
On the other hand, the benefits from investment in Ultimate Cycler were found to have a positive
and significant impact on their depreciation in income levels, and poor access to quality health
care, quality housing and educational standards in Calabar Metropolis.
The findings of the study further showed that the benefits from investment in Crowd Rising had a
positive and non significant impact on poor access to quality health care and housing in Calabar
Metropolis, a negative and non-significant impact on their depreciation in income levels, and a
positive and significant impact on their poor access to education. The losses from investment in
Crowd Rising had a positive and significant impact on depreciation in income levels and a positive
and non-significant impact on poor access to quality housing, educational services and poor quality
health care in Calabar Metropolis.
Finally, the multivariate regression analysis further revealed that in the absence of the benefits and
losses in ponzi schemes, the living standards of the participants still depreciated by 8 per cent, 9
per cent, 11 per cent and 9 per cent respectively as captured by the constant terms. The high
incidence of investment in Ponzi schemes among low income earners, B.Sc degree holders and
unemployed persons as revealed in the data from the study can as well be attributed to the harsh
realities of extreme poverty and misery experienced by persons within these categories, especially
in Calabar South Local Government Area. Such harsh conditions caused these categories of
persons to have a less risk aversive attitude, thus making them highly vulnerable to invest in ponzi
scheme, irrespective of how unauthentic it is in improving their living standards. In particular,

investment in Ponzi schemes by women could be attributed to their need for increased
independence and equal opportunities for self-actualization, especially with respect to their means
of livelihood.
5.1 Conclusion
In view of the above, an attempt was made in this study to provide empirical evidence on the
impact of Ponzi schemes on the standards of living in Nigeria through the use of Calabar
Metropolis as a case study. On the whole, the findings revealed the existence of positive and
significant impact of investment in Ponzi schemes on the depreciation in income levels, poor
access to quality housing and poor educational standards, and positive and insignificant impact on
poor access to quality health care in Calabar Metropolis. The study therefore concludes that on an
overall basis, Ponzi schemes have positive and significant impact on poor living standards of
investors in such schemes in Calabar Metropolis. The study however also concludes that on the
average, the effects of investment in Ponzi schemes on the standard of living of investors in
Calabar Metropolis is largely dependent on the type and time of introduction of the scheme.
5.2 Policy recommendations

Based on the findings and given the persistent high propensity to invest in Ponzi schemes in
Nigeria, the study recommends that the following policies be implemented:
1. Government should fast-track her empowerment programmes for unemployed persons and
other economically disadvantaged groups in order to reduce the propensity of investment in
Ponzi schemes.
2. The media should be up-and-doing in emphasizing the pitfall of investments in ponzi schemes.
3. The Nigerian government and civil societies should organize sensitization programmes on the
ills of ponzi schemes as well as encourage the citizens on the need of savings and possibly,
investments in stocks, bonds, forex and real estate so as to reduce the propensity to invest in
Ponzi schemes.
4. The promulgation of laws which are targeted at regulating the operations of Ponzi schemes to
ensure the mitigation of their potential cost, given the high propensity of Nigerians to invest
in them should be enforced.
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Journal of Advance Research in Social Science & Humanities ISSN: 2208-2387

AN ECONOMIC APPRAISAL OF PONZI SCHEMES AND LIVING STANDARDS IN

Opue Job Agba

Ikpeme Winifred Ikpeme

Keywords: Ponzi schemes, Living standards

Volume-4 | Issue-6 | June,2018 1

Volume-4 | Issue-6 | June,2018 2

Volume-4 | Issue-6 | June,2018 3

1.1 Objectives of the study

1.2 History of Ponzi schemes in Nigeria

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Volume-4 | Issue-6 | June,2018 5

2.1 Review of literature

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2.1.2 Empirical literature review

1. United Kingdom Research on impact of Descriptive In 2006, 3.3 million

2. Australian Bureau Personal fraud. Descriptive In 2007, 806,000

3. United States Ponzi schemes. Descriptive Found that an estimated

4. International Mass-marketing fraud: A Descriptive As at January 2006, there

Volume-4 | Issue-6 | June,2018 7

consumers, changing the

7 Bosley and Multilevel marketing Descriptive Nearly all adoption results

Volume-4 | Issue-6 | June,2018 8

8. Cortés, Economic shocks and Descriptive With the exception of

9. Carvajal et al., Effect of Pyramid Descriptive the collapse of the Ponzi

Volume-4 | Issue-6 | June,2018 9

design and regulatory environment to

12. Asogwa et al. Synopsis of Nigerian Quantitative Ponzi schemes provided

Source: Author`s compilation (2018).

2.1.3 The prospects theory

3.1 Population/Sample of the study

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3.2 Model specification and method of data analysis

INCOM = θ0+ θ1LOSMM + θ2BENMM + θ3LOSATC + θ4BENATC + θ5LOSCR + θ6BENCR

4.1 Presentation of regression results

The Income Depreciation

Volume-4 | Issue-6 | June,2018 11

Poor Health Care Equation

Poor Education Standard

Poor Housing Condition Equation

4.4 Discussion of findings

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5.2 Policy recommendations

Volume-4 | Issue-6 | June,2018 14

Volume-4 | Issue-6 | June,2018 15

Volume-4 | Issue-6 | June,2018 16

Volume-4 | Issue-6 | June,2018 17

Volume-4 | Issue-6 | June,2018 18

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