About $1.6 billion worth of investments by over 70,000 Ghanaians is tied up following a government crackdown on unlicensed fund managers and As ONIBIYO BOLA OLAJUWON reports, Ghanaian investors refused to see the writing on the wall at a time when Nigeria’s Securities and Exchange Commission was warning Nigerians from investing in similar schemes.
Blinded by greed
Ghana’s Securities and Exchange Commission (SEC) came out late July to announce that it was undertaking a forensic audit on about 21 investment firms and fund managers in the country.
The audit, according to SEC, was to allow the regulator to have a fair idea of the financial positions of these firms and their ability to stay in business.
Its Deputy Director, Mr Paul Ababio, hinted that the regulator would take an action on the firms after the process, which would include revocation of their licences.
The SEC didn’t just take the action out of the blue, the action was prompted by criticism that it lacked an effective mechanism to deal with non-performing investment firms and dealers in the country.
Blinded by greed and high-profit margins, Ghanaian investors did not know what would come out of the forensic audit, now the reality has dawned.
When the forensic audit ended, about 70,000 investors were left in tears, biting their fingers, wondering out loud, wishing they ‘had known.’
The SEC’s crackdown, which reduced the number of lenders by a third and saw the closure of 23 savings and loans firms, also triggered a run on fund managers, who couldn’t sell their holdings fast enough to meet the demand for cashouts.
Now, about 9 billion cedis ($1.6 billion) of investments – more than a third of the 25 billion cedis in assets that private fund managers oversee for retail and institutional investors – are tied up.
“My wife was very disturbed,” a 36-year-old told an international media by phone from Kumasi in Ghana’s Ashanti Region. “If I knew this would happen, I wouldn’t have gone there,” he added.
He and others are not getting answers and are now worried. He expected 12,000 cedis from his investment, which will never manifest.
As much as 5 billion cedis is tied up in unlisted bonds, direct private-equity stakes and other deals with small- and medium-sized businesses, according to the SEC. Another 4 billion cedis is stuck in fixed-term investments with banks rescued during the clean-up, savings and loans companies, and microlenders.
The SEC hasn’t yet released a list of all the fund managers it is investigating. An 11.2 billion-cedis bailout for lenders that were closed down and another package of about 925 million cedis for microcredit companies, whose licences were revoked is helping to release some of the funds locked up in those segments.
A failure to learn like their West African neighbours – Nigerians
Recently, Nigeria’s Securities and Exchange Commission warned Nigerians to desist from investing their money in investment schemes being operated by persons or organisations that were not registered to carry out fund management functions.
The Acting Director-General of SEC, Ms Mary Uduk, who gave the warning in a statement in Abuja, spoke in response to reports of various unregistered schemes luring unsuspecting Nigerians with tempting returns.
Urging investors to be wary of any investment proposing an unreasonably high return level, Uduk advised members of the public to always ascertain whether such fund manager and the products being offered were registered with the SEC.
The warning didn’t come in isolation. Two years after the popular Mavrodi Mundial Moneybox (MMM) Ponzi scheme crashed with millions of Naira lost, Nigerians are starting to flood towards Loom, another scheme that promises high returns on investment.
MMM penetrated the Nigerian market in 2015 with over two million people signing up for the scheme by the time it crashed in December 2016.
Despite the loss of billions to that scheme and many of its ilk, Loom Money Nigeria is starting to gain a widespread following among Nigeria’s online community.
Loom is a peer-to-peer pyramid scheme, which involves people being invited to invest as little as N1000, or N2000, or N13,000 and get as much as eight times its value within a short period!
The Loom pyramid is grouped into four colour-coded levels – purple, blue, orange and red. Whoever is the first to sign up for the group sits in the red level, which is the central level, and gets the payout when the group fills up.
Two people sit in the orange level, while four investors fill the blue level. The purple level takes new entrants with eight spots open.
Once the eight spots in the purple level are filled, the group splits into the top half and the bottom half as the investors in the outer levels move into new levels.
The new groups of seven investors each then have to recruit eight new investors to once again break the circles into another two groups.
Investors are typically invited to join a WhatsApp group and advised to get as many other investors as possible because the scheme only works if it keeps a steady stream of new investors to pay earlier investors.
The more people are recruited into the group, the quicker it breaks and the quicker the payouts are to investors. The initial investment is usually paid to the group admin who sits in the red level.
Akufo-Addo’s support for Ghana’s regulators
On Monday in Accra, Ghana, President Nana Addo Dankwa Akufo-Addo charged regulatory agencies in Ghana to step up and discharge their duty to safeguard the activities of the private sector.
Speaking at the opening of the National Conference on the Implementation of the African Continental Free Trade Area (AfCFTA) Agreement Mr Akufo-Addo said: “It is essential that the regulatory bodies rise to the occasion and be up and doing in the discharge of their duties in order to promote discipline in the activities of the private sector.”
“Institutions such as the Bank of Ghana, the Registrar of Companies, the Securities and Exchange Commission, the National Insurance Commission, and the National Pension Regulatory Authority must see to the effective regulation and supervision of the entities within their remit. We have seen what the previous failure of regulation led to in the banking sector,” the President said.
However, the question is: will people learn from their painful experience?