The Illegality of Ponzi Schemes: CBEX as a Case Study
By AbdulGaniy Adisa Jimoh
INTRODUCTION
On Tuesday, 15th April 2025, the digital investment platform CBEX unexpectedly collapsed with records portraying that Investors suffered losses which is equivalent to over 1.3 trillion. This occurrence has led to widespread reaction while victims were expressing dissatisfaction, condemnation and consternation. As such, CBEX is a Ponzi scheme claimed to be linked to a government owned business in Beijing Equity Exchange. In the same vein, research avers that Ponzi schemes have defrauded multifarious Nigerians of over US$1 Billion (#500 Billion) in the past decade the most common one in Africa is MMM,which included over three million Nigerians subscribed whom jointly lost up to US$ 50, Million (#18 Billion)when it crashed in December,2016. Also, MBA Forex, ahome grown scheme that vowed 15% return duped Nigerians of about US$ 500 Million (#213 Billion) when it folded in 2021.This portrays nearly 50% of the entire funds lost to Ponzi schemes in Nigeria in 10 years. To set the record straight, theSecurities and Exchange Commission of Nigeria (SEC) avers that more than 10% of the case are limited to Ponzi schemes. The schemes came to limelight consequent upon the attitude of getting rich quickly, economic hardship, and financial literacy. Not only that, weak regulating Laws and improper enforcement mechanism prone Nigerians to various forms of fraudulent scheme that undermine local and international investor confidence.Be that as it may, this article is aimed at painstakingly and critically dissecting the illegality of Ponzi Schemes, using CBEX as a case study.
CONCEPTUAL ANALYSIS
Pursuant to Sadiraj and Schram (2000), Ponzi Schemes are defined as fraudulent games which individuals or companies pay out interest returns to some invested parties by borrowing funds from others. Thus, Ponzi schemes can be described as an enticing established swindle networking, where monies of newer entrants or investors are used to pay increased returns to earlier investors rather than the profit earned through legitimate business investment. In a nutshell, it is the concept of robbing Tom to pay Harry.CBEX is believed to represent “Centralized Block chain Exchange” ,a digital platform that permits user to trade, invest and manage digital assets. The assets include crypto currencies, tokenized commodities, and other blockchain based financial instruments.
SUCCINCT HISTORICAL LANE OF PONZI SCHEME.
It is of utmost vital to state that these schemes could be dated as far back as the 1920s to the doing of a man christened —Charles Ponzi, who made an announcement that an arbitrage business of buying postal reply coupons in Italy and exchanging them for stamps in the USA.According to Odewalld and Schilder,Bergerand Steller,he attracted investors by promising extremely high returns of 50% in 45 days. They opined that, instead of investing the money to purchase Coupons and make an exchange for startups,he used the money of later investors to pay returns to earlier investors, taking huge profits in the process. So, when it finally cashed, more than $20 million which equates 225 million as of 2011 was lost, since then, the entire universe has been faced with varieties of such schemes.
THE EMERGENCE OF PONZI SCHEMES IN NIGERIA
As far as Nigeria concerned, it is very difficult to analyze the concept, without calling into remembrance the memorable “MMM” incident which came into limelight in 2016. The MMM (hereinafter referred to as Mavrodial Mondial Movement) was one of the popular example of Ponzi Schemes. It was initiated in 1989 by three Russians to wit: Sergei Panteleevich Mavodi, Vyacheslav Mavrodi and Olga Melnikova. The scheme promised its clients a 30 to 100 per cent return on investment (ROI) for money put into the system for 30 days. The scheme was meant to serve as a mutual aid fund in which recruited members contribute money to assist others. Unfortunately, like every other Ponzi scheme, it crashed about 18 months after its introduction into the Nigerian market. Other Ponzi schemes which have existed or are still existing in Nigeria include Ultimate cycler, Zar fund, Givers forum, ICharity, Crowd rising, Get help worldwide, Kash Doubler, Apex Forum, Reget Cash, Donorbiz, Ogafunds, and the recently collapsed Cbex. .
THE EMERGENCE OF CBEX IN NIGERIA
It was a digital asset trading platform that gained prominence in Nigeria in 2024, claiming to use artificial intelligence for trading in crypto, according to those familiar with the platform. Users were required to agree to a 40–45-day lock-in period before withdrawals, with penalties for early withdrawal. In April 2025, withdrawals were suspended entirely, and many users saw their account balances drop to zero. After the crash, CBEX offered a supposed “lifeline” – users could pay $100 or $200 in verification fees to unlock $1,000 or $2,000, respectively. Therefore, on Tuesday, April 15, 2025, social media was filled with complaints, and videos showed angry investors destroying the CBEX office in Oke-Ado Ibadan, leading to intervention of the police and Western Nigeria Security Network, code christened Operation Amotekun. CBEX locked its Telegram channels and attempted to reassure users on social media, but the general consensus was that the scheme had failed. Expertsare estimating that about $800m (N1.3tn) has been lost to this scheme, which the perpetrators allegedly ferried abroad in cryptocurrency.The evil act caused an uproar in its wake, which necessitates the Economic and Financial Crimes Commission to launch an investigation into the alleged N1.3 trillion fraud, with the anti-graft agency’s spokesman, Dele Oyewale, confirming to The PUNCH that the commission would collaborate with the International Criminal Police Organisation to investigate the incident. He further stated that the agency had already begun probing CBEX before its collapse, adding that efforts were undergoing to arrest both the local and international operators behind the fraudulent scheme.
FACTORS THAT CAUSED PONZI SCHEMES.
The involvement in Ponzi Schemes according to researcherscould be traced to diverse factors hereunder:
1. “Get rich quick”
2. Testimonial son‘Schemes’involvement in solving people’s problem
3. Past performance of the scheme
4. Family member(s) opinion
5. Perceived ethnics of the scheme
6. Friend’s recommendation
7. Expected benefits
8. Current economic situations9. Ease of obtaining funds
10. Personal judgment
Sadly, often, after people are intoxicated by sugar-coated mouth of fraudster may be scammed of their hard-earned invested money. Ponzi schemes are dubious investing scams which promises high rate of return with little risk to investor ,andequally generates returns for early investors by acquiring new investors and look like a pyramid scheme which both centers on deploying investors fund to pay the earlier backer. Most of the fraudster that engage in this do not really invest a dime anywhere, they only use the money dubiously realized from earlier investors and pocket the remains.
By extension of the above standpoint, constant in flow of cash is highly needed for the real survival of Ponzi Schemes. Forinstance, in an avenue, where new investors are hard to come by or large numbers of existing inventor’s cash out, the scheme later collapsed. A very good example for the common Ponzi Schemes in Nigeria was MMM, which the Nigeria Deposit Insurance Corporation (NDIC) estimated that around 18 Billion ($49.3 million) was lost, when MMM was collapsed in December,2016.
It is not amazing when Ponzi Schemes were named after Charles Ponzi, who defrauded investors in 1920s, with a postage speculation scheme
HOW TO AVOID DIGITALISED FINANCIAL SCAMS
As nothing could be done to appease the insatiable greed inherent in humans, the below hints may be helpful in avoiding the CBEX temptation and other digital scams.
•Don’t invest in something if you don’t fully understand the details.
•Regular returns,— The business cycle isn’t regular. Be cautious around investments that promise regular, above-average returns.
•Do you ever feel a sense of fear of missing out? Don’t forget to doubt! — Don’t let financial FOMO (Financial Fear Of Missing Out), in the context of anxiety of potentially missing out on financial opportunities or gains that others are experiencing, disarm your skepticism.
•Beware of unrealistic expectations: A quick wealth creation! Scams can proliferate in economic boom times.
•If you’re in the ‘sticks,’ be careful with your picks! — Scams tend to pop up in unregulated areas.
•Verifying friend requests carefully – always check mutual connections and look for signs of authentic activity on the profile.
•Being skeptical of giveaways and contests – legitimate promotions usually have clear rules and don’t require sensitive information.
•Checking privacy settings regularly – platforms often update their settings, so monthly reviews are recommended.
•Never share sensitive personal information – avoid posting about your location, financial details, or personal identification.
•Be cautious with third-party apps and quizzes – these can be data collection tools in disguise.
•Limiting the personal information visible on your profile
•Using strong passwords and enabling additional security features.
•Being wary of messages that create a sense of urgency ibid
•Avoiding clicking on shortened URLs without verifying their destination.
Before the emergence of CBEX, several other digitally savvy Ponzi schemes had entered the country since the MMM in 2016they are :Ultimate Cycler 2016,Get Help Worldwide (GHW) 2016,Twinkas 2016, I charity Club 2016,Crowd Rising 2016,Claritta 2016,Help2Get Loopers Club 2016, Givers Forum 2016,NNN Nigeria 2017,MMM Cooperation 2017, GCCH (Global Crediting Cooperative Hub) 2017,Money Riot 2017,RevoMoney 2017,SwissGolden (Nigeria version) 2017,NNU (Nigeria News Update) 2017,Peer2Peer Donation –2017,Twinkas Reloaded 2017,Donation Hub 2017,MyBonus 2017,ZarFund 2017,Bitclub Advantage – 2018,Million Money 2018,Helping Hands International 2018, DGSOUK 2018,Pennywise 2018, Loom 2019, Crowd1 2019Lion’s Share 2020,Inks Nation 2020, Baraza Multipurpose Cooperative 2020, Racksterli 2020 ,86FB (aka 86Z) 2021, Eagle Cooperative 2021,Royal Q (Nigerian scam version) 2021, FINAFRICA 2021,Ovaioza Farm Produce Storage 2022, QNet (Nigeria) 2022, Afriq Arbitrage System (AAS) 2022, MBA Forex 2022,Chinmark Group 2022, Inksledger2022, Axim Exchange 2022,Compoundly 2024, CALA (Cala Finance) 2023, 6Dollars Investment 2023, Sidra Investment (cloned scam version) 2024,WealthBuddy2024, Bit Finance Global 2025.
THE LEGAL PERSPECTIVE ON PONZI SCHEMES.
Consequences upon the increment of Ponzi Schemes in which CBEX is included, it becomes very necessary for general members of the public to be kept abreast of the fact that, byvirtue of the provision of Section 67(1) of the Investment and Securities Act(ISA),2007which establishes thus ;“No person shall make any invitation to the public to acquire or dispose of any securities of a body corporate or to deposit money with anybody corporate for a fixed period or payable at call…”,Ponzi scheme is illegal and a felony punishable under the law.
In furtherance, it is provides in Section58(1) and 59 of the Banks and other Financial Institutions Act(BOFIA),2004 that no person shall carry on financial business in Nigeria other than insurance and stockbroking except it is a company incorporated in Nigeria and holds a valid license granted by the Central Bank of Nigeria(CBN). All Ponzi schemes inarguably operate without the license and authorization of the CBN.
In addendum, in the eyes of the Law, Ponzi scheme is seen as an illegal and dubious activity which gave ground for the Appellant in the case of MEKWUNYE v. LOTUS CAPITALLTD. &ORS6 to seek a declaration that the1st Respondent’s Telecom Private Equity Fund is Ponzi scheme and equally an instrument of fraud used by the Respondents to dupe unsuspecting Nigerians.
In the same breadth, it is worthy to understand that in line with section 67(2) of the Investment and Securities Act (ISA), 2007, the penalty for the participation in Ponzi scheme attracts a fine of N100000 as well as N500000 for the company. Also, theprovision of section 59(6)(b) of the Banks and other Financial Institutions Act(BOFIA),2004 punishes participants of Ponzischemes with 5 years’ imprisonment or a fine of N1million or both as the case maybe.
More so, in an attempt to curb the alarming increase of Ponzi schemes, a bill sponsored by Hon. Babangida Ibrahim was introduced in the first quarter of 2022. This bill aims to, among other things, proposed a jail term of not less than 10 years for promoters of such schemes
POSSIBILITY OF RECOVERING MONEY PAID IN PONZI SCHEMES.
Having scrutinized the illegality of Ponzi Schemes in Nigeria, being declared as illegal, so any monies invested in them cannot be recovered. In Nigeria, despite the provision of Section 67(3) of ISA, which states that an investor can cancel the transaction or recover his money or even recover compensation for any loss resulting from the transaction? The monies invested into Ponzi schemes cannot legally be a subject of a suit on the principle of law that the Court cannot enforce illegality. In explaining the above provision, the Court in the case of OCHEDI & ORS v. CBN & ORS (2018) LPELR45316(CA), held that “The monies the Appellants seek to recover from the 1st – 6th Respondents… are in respect of transactions; i.e. the financial business of soliciting for and accepting money from the general public as deposits for profit, by a company that did not have a valid license to carry on such business, prohibited by the above provisions of BOFIA and so illegal…For the purpose of and in the eyes of the law, the transaction between the Appellants and Wealth Zone Limited from the beginning, was clearly not only prohibited but also punished by the law and so illegal, whether the Appellants knew or not as ignorance of the law is no defence or excuse. Being illegal from the beginning, the transaction between the Appellants and Wealth Zone Limited could not have vested the Appellants any legal right that is cognizable and enforceable by a Court of law.”
Also, the so-called principle of the court cannot enforce illegality equally received judicial blessings in replete of cases to wit: UNITRUST INSURANCE CO. LTD. v. AMBICO SENDIRIAN NIGERIA Ltd. (2012) LPELR-15417(CA)where it was held thus:
“Where a contract is expressly forbidden by statute, its illegality is without question, and the Courts are forbidden to enforce it, or allow itself to be used to perpetrate illegality, or enforce same in all its ramifications. It behoves on parties to bring to the notice of the Court any illegality, and if this is done, it overrides all questions of pleadings including any admission made thereon”.
Also in the case of ALBIA TRADING GMBH &ANOR v.MADUNKA INT’L LTD & ANOR) the Court of Appeal held thus; The court of law cannot protect or promote such transaction founded on exploitation and illegality…no court will be friendly with or countenance illegality. ”PerMbabaJ.C.A(Pp.25-27,paras.F-C)
In addendum, the Supreme Court in the case of ONYIUKEE III v. OKEKE held thus: It is the law that a contract is illegal if the consideration or the promise involves doing something illegal or contrary to public policy; and an illegal contract is void and cannot be the foundation of any legal right. “PerAlexander, C.J.N.(P.9,paras.B-D
CONCLUSION
Above all, this extant article has analyzed the illegality of Ponzi Schemes, using CBEX as a perfect case study. Be that as it may, the passion of any Nigerian that intends to participate in any Ponzi schemes is duty to bound to bear in mind that if arrested, tried, the law may impose a fine on such individual or a prison term or both as the case may be. This is irrespective of the plea for not being aware as ignorance of the law is not an excused; ignorantia jurisnon excusat.
RECOMMENDATION
Senior advocates avers that investors in Ponzi schemes have no right of recovery because the courts are not meant to enforce transactions that are illegal, and investors should have transacted with companies registered with the SEC. Recovered funds are also often incommensurate with the total amounts invested. TheSEC and other regulatory bodies must organize a nationwide campaign to promote financial literacy, which is absent among educated and uneducated people. While the SEC always gives warnings against Ponzi schemes, it refused to offer quick responses. The SEC must first consider early action by working with banks and fintechs, with other regulatory bodies such as the Nigerian Financial Intelligence Unit, Nigeria Deposit Insurance Corporation and Economic and Financial Crimes Commission. In unison, they should probe the high volumes of transactions on multiple accounts operated by these schemes to nip them in bud.
REFRENCES
1.Ndubuisi Christian Ani, Senior Researcher and Project Coordinator, ENACT, ISS :IFFs and money laundering / Lax regulatory systems make Nigeria vulnerable to Ponzi schemes, available at <https://enactafrica.org/enact-observer/lax-regulatory-systems-make-nigeria-vulnerable-to-ponzi-schemes#:~:text=Rather%2C%20Ponzi%20schemes%20are%20illegal,from%20five%20to%2010%20years> Accessed,29th April,2025.
2.CBEX crash: All you need to know about the Ponzi scheme that duped Nigerians, available at <https://punchng.com/cbex-crash-all-you-need-to-know-about-the-ponzi-scheme-that-duped-nigerians/> Accessed,29th April,2025
3. Oyetola Muyiwa Atoyebi, SAN:Analysis Of Ponzi Scheme In Nigeria; Viz-A-Viz Its Legal Framework, available at <https://lawpavilion.com/blog/analysis-of-ponzi-scheme-in-nigeria-viz-a-viz-its-legal-framework/>. Accessed,29th of April,2025
4.Obamuyi,T.M.,Iriobe,G.O.,Afolabi,T.S.,Akinbobola,A.D.,Elumaro,A.J.,Faloye,B.A.,Adeyefa,A.F.,Adepoju,T.F.,&Oni,A.O.,‘FactorsInfluencingPonziSchemeParticipationInNigeria(2018)
5.Chike Olisah, available at <nairametrics.com/2020/04/01/sec-discovers-12-ponzi-scheme-operators-warns-theinvesting-public/>accessed1st May,2025
6. O.G.Chukkol, ‘Beware: Engaging in Ponzi Scheme Attracts 5 Years Jail Term or 1 Million Naira Fine or Both’, accessed 1st May, 2025.
7.SECEd,‘PonziScheme“RedFlags”andHowtoSpotOne’,<www.proshareng.com/news/FraudsScandals/Ponzi-Scheme-“Red-Flags”-And-How-T/41325>accessed 1st May,2025,Advances in Social Sciences ResearchJournal,5(5)429-444,accessed 1st of May,2025.Electronic copy available at: https://ssrn.com/abstract=3
8.Dapo Falade: CBEX And History Of Ponzi Scheme Traps In Nigeria, available at <https://reportersatlarge.com/2025/04/17/cbex-and-history-of-ponzi-scheme-traps-in-nigeria/#google_vignette> Accessed, 3rd of May, 2025.
9.The Ultimate Guide to Avoiding Scams and Online Fraud, available at <https://globalcybersecuritynetwork.com/blog/the-ultimate-guide-to-avoiding-scams-online-fraud/> Accessed, 3rd of May, 2025.
ABOUT THE AUTHOR
AbdulGaniy Adisa Jimoh is a Law Student at the Faculty ofLaw, Bayero University, Kano, an Award Winning Writer, Educator, and a Legal Researcher. He is the current Director of Finance, Equity Chambers, Chairman, Editorial Committee, for National Association of Muslim Law Student. He can be reached vide the following handles: G-mail:jimohadisa546@gmail.com, Whatsapp:08090666588Linkedin:Www.linkedin.com/mwlite/in/jimohabdulganiy-adisa-100121212
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