Investing is often seen as a path to financial growth, but lucrative opportunities also come with hidden dangers. From Ponzi schemes to unregistered investment platforms like CBEX, scammers continue evolving tactics, making it increasingly difficult for investors to differentiate between legitimate opportunities and deceptive traps.
In this interview, we expose the telltale signs of fraud, discuss how regulatory bodies can step in, and explore ways individuals can shield themselves from financial losses. If you’ve ever questioned whether an investment opportunity is too good to be true, this conversation with Banking and Investment Expert, Nicholas O. Garba (MBA), will arm you with the knowledge needed to make smarter financial decisions.
Can you explain, in simple terms, what an investment is and why it is important for individuals and businesses?
An investment is just anything you put your money into, and in return, it generates cash flow or dividends or can be resold later for a profit. In plain language, it is simply putting your money to work for you. INVESTMENT IS IMPORTANT because it allows individuals and businesses to build wealth. As the popular saying goes, there is no path to generational wealth without investment. Investment assists in hedging against inflation and can help individuals achieve financial goals, such as saving for retirement, funding education, or building wealth. However, investments often carry risks, and it’s essential to understand the potential risks and rewards before investing.
What are the key differences between legitimate investments and fraudulent schemes like CBEX?
Legitimate investments are assets or financial products purchased to generate returns over time or tangible value. They provide clear information about the risks, fees, and expected returns. They are subject to regulation by government bodies like the SEC and have a realistic return tied to market performance or asset growth that may fluctuate.
Fraudulent schemes, on the other hand, are scams designed to deceive investors. They often promise high returns with little risk and intend to steal money or personal information. These schemes are mostly unregistered and lack transparency, with unrealistic promises of consistent high profits regardless of market conditions, e.g., fake Cryptocurrency platforms and Ponzi schemes like MMM and pump-and-dump stocks.
How can individuals identify red flags when evaluating an investment opportunity?
Several signs indicate that an investment opportunity may not be legitimate. If the investment promises extraordinarily high returns with little to no risk, that’s a red flag.
There’s also usually the pressure to invest quickly when it’s a scam. However, legitimate investments allow you time to research and make informed decisions.
Lack of registration could indicate a scam. The CBEX scheme, for instance, was not registered with the Nigerian Stock Exchange Commission (SEC).
Legitimate investments provide transparency or formal documentation. If an investment opportunity is overly complex and difficult to understand, it may be a deliberate tactic to confuse investors about the true nature of the investment. CBEX, for instance, couldn’t clearly spell out its main business or investment activity, which generates returns of up to 50 per cent in a few days for its customers.
You should also watch out for pitches that stress how “everyone is investing in this, so you should, too.” Be wary of investment opportunities that depend on recruiting new investors to pay returns to existing investors. It is a red flag when investment schemes offer high rewards for referring people to join the platform. Finally, a lack of verifiable information or a shady past should raise concerns.
What steps can regulatory bodies and financial institutions take to protect investors from scams like CBEX?
Regulatory Bodies
Regulatory bodies can protect investors from scams by implementing measures. They conduct regular audits and inspections of financial institutions’ platforms to ensure registration and compliance with regulations. They take enforcement actions against unregistered or fraudulent entities, including fines, bans, and criminal prosecutions. They improve licensing and registration by requiring all financial platforms to obtain proper licenses and verify their legitimacy before operating. They also maintain a public database of licensed entities to help investors verify platforms. They educate investors by launching public awareness campaigns to educate investors about common scam tactics and red flags. They can also leverage technology, using AI and data analytics, to detect patterns of fraudulent behaviour, issue takedown notices, and offer swift responses to complaints by establishing hotlines or online portals.
Financial Institutions
Financial Institutions can protect investors from scams by implementing the following measures:
A. Enforce robust Anti-Money Laundering (AML) and Know Your Customer (KYC)
requirements to prevent fraudulent platforms from onboarding users anonymously, and monitor suspicious transactions and cross-border fund flows.
B. Implement robust fraud detection by deploying advanced detection systems to
monitor transactions for red flags, such as rapid fund withdrawals or transfers to
unregulated entities and restrict fund transfers to unregulated or suspicious platforms by implementing transaction filters.
C. Educate customers by providing them with resources on spotting scams and safe investing practices.
D. Collaborate with regulators by sharing data on suspicious activities to aid investigations and participate in industry-wide initiatives to combat fraud.
How can financial literacy and education help prevent people from falling victim to fraudulent schemes?
Financial literacy and education help equip people with the knowledge and skills to make informed financial decisions. It teaches individuals how to:
A. Recognise red flags
B. Understanding financial products
C. Think critically with scepticism
D. Budget and plan.
E. Use reliable resources
With the rise of digital assets and cryptocurrencies, how can investors navigate this space safely?
Navigating the cryptocurrency and digital asset space safely requires a combination of research, risk management, and security practices. Here is a concise guide for investors:
- Educate Yourself: Understand the basics of blockchain, cryptocurrencies, and digital assets. Research specific projects, their use cases, teams, and whitepapers.
- Stay updated via reputable sources like CoinDesk, Coin Telegraph, or posts on X from credible voices in the space.
- Choose Reliable Platforms: Use established exchanges (e.g., Coinbase, Binance, Kraken) with strong security records. Verify their regulatory compliance and user reviews. For decentralised platforms, ensure they are audited and have a solid reputation (check GitHub or community feedback).
- Secure Your Assets: Store funds in hardware wallets (e.g., Ledger, Trezor) or secure software wallets for long-term holdings. Avoid keeping large amounts on exchanges. Also, enable two-factor authentication (2FA) on all accounts, preferably using authenticator apps or hardware keys. Never share private keys or seed phrases. Be wary of phishing scams and fake websites.
- Diversify and Manage Risk: Don’t put all your capital into one asset. Diversify across established coins (e.g., Bitcoin, Ethereum) and promising altcoins. Only invest what you can afford to lose, as crypto markets are volatile. Set clear entry/exit strategies and avoid emotional trading driven by hype or fear.
- Beware of Scams and Hype: Avoid “too-good-to-be-true” schemes, pump-and-dump groups, or unverified token sales. Research tokenomics and project legitimacy, and be cautious of social media influencers or X posts promoting tokens without transparency, and cross-check claims.
What advice would you give to someone who has already been affected by an investment scam?
Recovering from an investment scam like CBEX (or similar fraudulent platforms) can be challenging, but here are actionable steps to take if you’ve been affected:
- Stop all communication and payments: Immediately cease contact with the scammers and stop sending more money. Scammers often try to extract additional funds by promising recovery or claiming fees. CBEX, for example, was requesting that users pay an additional $200 to be able to withdraw all their funds.
- Document Everything: Gather all evidence, including emails, text messages, transaction records, screenshots of the platform, and any communication with the scammers. This will be critical for reporting and potential recovery efforts.
- Report to Authorities: Report the scam to the relevant financial authorities in your country, like the SEC in Nigeria. Also, file a police report with your local Police, providing all documented evidence.
- Report Platform: If the scam involved a specific platform or social media, report it to the platform (e.g., X, Telegram, or others).
- Contact Your Bank or Payment Provider: If you used a bank transfer, credit card, or cryptocurrency, immediately notify your financial institution. Some banks may be able to reverse transactions or freeze funds if reported quickly. For crypto scams, recovery is harder, but report the wallet addresses to exchanges or blockchain analytics firms.
- Consult a Lawyer or Scam Recovery Service (Cautiously): Seek legal advice to explore recovery options. Be wary of “recovery scams” that promise to retrieve your funds for a fee; verify the legitimacy of any service through reviews or regulatory bodies. Firms like those mentioned in web results (e.g., CNC Intelligence) may assist, but research thoroughly.
- Seek Emotional Support: Being scammed can be emotionally taxing. To process the experience, speak to trusted friends, family, or a counsellor. Be realistic; full recovery is rare, especially with offshore or crypto-based scams. Focus on preventing further losses and protecting yourself moving forward.
