Published 21st Apr, 2023

By Joseph Adeiye

Every week, the Foundation for Investigative Journalism (FIJ) receives complaints about investment schemes that have gone sour and held millions in assets for ransom.

FIJ has found some common trends in investment offers that put investors’ money at risk.

While many investment plans offer promising returns and income, they fail to pass the test of sustainability. Other so-called investment plans are ponzi schemes and are operated by illegal outfits.

Here are some common and basic mistakes investors have made with investment choices in the past:

1. FAILING TO CONFIRM IF A COMPANY OR INDIVIDUAL IS CERTIFIED TO HANDLE INVESTMENTS

There are numerous individuals and groups claiming to operate an investment business in Nigeria. However, not every company or person is who they claim to be.

Some victims of investment scams could have escaped the clutches of bogus investment companies if they had made an inquiry into the legitimacy of these companies.

Potential investors can conduct a simple search of companies registered to do investment business in a country.

The Securities and Exchange Commission (SEC) has a portal to confirm companies registered to operate investment businesses in Nigeria.

A company’s absence on SEC’s database should be a deal breaker for any potential investor.

2. INSURANCE-COVERED INVESTMENT

Just like every other business entity, investment companies can subscribe to an insurance plan.

Many businesses also claim to have an insurance package but the investors have to make sure this is reliable information.

Prospective investors can ask for the specifics of the insurance their investment partners have and figure out how that protects their own resources.

It is also very important to confirm that the National Insurance Commission (NAICOM) recognises the insurance covering their investment.

An insured investment company holds more credibility than one with none.

3. PROBE HIGH RETURNS WITH LITTLE RISKS

Investors always want returns on their investments, but they have to be wary of high-return promises.

Some investment companies pledge to provide impressive returns on investment (RoIs) in a short time.

Every investment carries a certain amount of risk, investment professionals always say. If an investment offer claims there are no risks, this is an indication that the offer is too dubious to accept.

The greater the RoI, the higher the risks investors must take.

Fraudulent investment companies always seize their victims’ attention with impressive RoIs on low risk. Investors can independently analyse the business model of the companies they hope to invest with.

Many investment scams have companies that cannot present a cogent plan for making a profit. Investors must pay attention to the products or services the company plans to sell, its target market and scheduled expenditure.

4. DO NOT RELY ON SOCIAL MEDIA ONLY

As ridiculous as it may seem, some investment companies do not have reliable websites. These companies leverage social media to reach potential investors.

Investors ought to confirm the investment company has a functioning website and a physical office.

Investment companies without physical offices and reliable websites often fall short of their investment promises.

FIJ has found many bogus and defaulting investment companies without websites.

5. TREAD CAREFULLY WITH CRYPTO

Investors in Nigeria have also lost money they paid for cryptocurrency investments.

Many investors will lose money in false crypto investments because they don’t have a clear idea of how cryptocurrencies work.

Sometimes, crypto investments are just fronts for ponzi schemes and other forms of fraud. Prospective investors ought to have a fair amount of knowledge of cryptocurrencies before investing their resources in any.

According to the United States SEC, “fraudsters may exploit investors’ fear of missing out to lure investors on social media into “crypto” investment scams. “Crypto” assets are marketed using a variety of terms, including digital assets, cryptocurrencies, coins, and tokens.”

“As with any other type of investment product, if a crypto investment “opportunity” sounds too good to be true, it probably is. Promises of high investment returns, with little or no risk, are classic warning signs of fraud. Fraudsters may post fabricated historical returns on their websites showing high investment returns. Depictions of investment accounts rapidly increasing in value and providing large returns are often fake.”

Prospective investors must take the time to understand how the investment works and look for all the warning signs that show it may be a scam.

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