THE ECONOMICS OF HUMAN BEHAVIOUR: Why People Keep Falling for Ponzi Schemes

From the notorious MMM (Mavrodi Mundial Moneybox) of 2016, to Galaxy Transportation and Construction Services of 2019, to MBA Forex and Capital Investment Ltd of 2020, to Baraza Multipurpose Cooperative of 2021, to Chinmark Group of 2022, and now, CBEX of 2025, Nigerians have continued to fall prey of fraudulent Money Doubling Schemes. Will these schemes cease to appear in Nigeria? Will Nigerians finally learn their lessons?

PONZI SCHEME

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In 2019, I participated in a supposed online affiliate marketing platform called Racksterli. We were instructed to create personal accounts where we performed daily tasks. We were able to accumulate certain profits by ‘topping up’ the account with money, and then performing daily tasks. These profits varied according to the amount of money topped up by users. As a student, I invested #6,000 and performed tasks every day. After a month, my money had doubled and I withdrew the sum of #12,000. A couple of months after I made my withdrawal, I heard that the platform had crashed, and people were unable to get their profits. However, some people were refunded their money. Getting refunded when the platform crashed was a kind luck that many people did not get from the other platforms that also crashed. When MMM crashed, it didn’t refund users money, all accounts were frozen and investors lost millions of naira.

A Ponzi scheme according to Wikipedia is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Ponzi schemes paint the idea of investing, however with no actual business activity that produces revenue. They operate on referrals and rely on payments made by later investors to pay early investors. They promise higher investment returns with little or no risk and mostly generate regular positive returns regardless of overall market conditions. 

Last week, Nigerians have shed tears yet again on the latest ponzi scheme- CBEX. The said digital investment platform reportedly crashed suddenly on Tuesday 15th April. Business Insider Africa estimated around 250,000 to 300,000 Nigerians who participated in CBEX. CBEX reportedly came to Nigeria around July, 2024. The headquarters was reportedly located in Ibadan, with an unidentified CEO called Yahaya Ibrahim.  To further attain people's trust, the platform displayed certificates such as a US FinCEN registration, which was later debunked and reported as fake. When the organizers began operation in Nigeria, they had told people that the full meaning of CBEX was China Beijing Equity Exchange. Moreover, the actual Beijing Equity Exchange, in a statement released in 2024, claimed to have no affiliation with the platform. Apparently, the platform was not a government-owned business, it was just a Ponzi scheme with name theft.

The concept of CBEX was to earn by trading cryptocurrencies using advanced Artificial Intelligence systems.  The AI bot traded twice a day and made about 3% profit, showing users fake charts and balances with no real trading behind the scenes. Users were to log in daily to see their profits and recruit new members through referrals. Users earned bonuses when they refer new people, by doing so, they were encouraged to bring in more people.

Withdrawal of funds was also tied to the number of people referred. On the promise of a fixed monthly return investment of around 100% in 30 days, CBEX was able to convince users to invest by depositing certain amounts of money. The money that was lost by investors was estimated to be around 1.3 trillion naira. Although the CBEX headquarter, which was located in Ibadan, Oyo state, was destroyed by angry investors, could it possibly make up for the losses?

UNDERSTANDING HUMAN BEHAVIOUR 

As far back as the MMM crash in 2016 was , one would argue that Nigerians would never entrust their money into Ponzi schemes again. However, there are more platforms that have shown up since then and many Nigerians continue to fall victim of them. If I was not so much in need of finances at the time, I would have invested even more money into the scheme and maybe gotten duped also. 

Why do people keep investing in Ponzi Schemes?

We can explain the reasons why people make bad investment choices using the following psychological explanations.

The economics of behaviour

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This behaviour can be explained psychologically using behavioural economics. the fact that people would continue to do certain things despite the fact that it has hurt them in certain ways before. This is backed by psychological theories like the theory of prospect which was developed by Daniel Kahneman and Amos Tversky in 1979. The theory explains people’s decision-making process in terms of gains and losses. People would prefer to take options that have the best chance of winning, even if it is not the most desirable option, in other words, they focus more on potential gains more than potential losses. 

For example, if someone gambles with #5,000 and loses, there is a higher possibility that they would gamble again, not because they do not know they could lose again, but because they believe they might just be lucky and gain back their loss – then the cycle continues. When MMM crashed, a lot of people who had lost money jumped right on another scheme as long as it appeared more legitimate and properly packaged than MMM. They easily believed that they were making the right choice and would finally gain back their loss from the previous scheme. 

The Herd Mentality

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This is also called group mentality. It explains how people ‘follow the crowd’ even when they are not very sure of the authenticity of their beliefs or values. Many people easily jump on the moving train just because many people are without confirming Where it is headed as well as its potential risks - they mostly believe that it can't be fake since everyone is also doing it.

Affinity Fraud

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This explains how people trust words of others based on the fact that they are acquainted. Organizers try to gain the trust of potential investors by making them believe they are friends and would not possibly do them wrong. It is like a bond between relatives, such that when an investment is introduced to one, they trust the investment to be legit just because they do not think their relative would bring them suggestions that could harm them. The same bond makes it hard for some people to ask necessary questions that should be asked to vett an investment before putting money in it. 

Moving forward, these are signs of Ponzi schemes that should not be ignored

Lack of Proper Affiliation with Relevant Authorities: When CBEX appeared in Nigeria, they claimed to be the China Beijing Equity Exchange. However, the official Beijing Equity Exchange denied any form of affiliation, which meant that they had used fake affiliations to deceive people. It is important to do proper checks and confirmations from supposed affiliations before trusting any scheme.

Overly Emphasised Potential Gains: Ponzi schemes mostly emphasize on gains rather than potential losses. Proper and legitimate investments state risks and the extent of these risks, but Ponzis leave out risks that could be involved, painting a perfect image.

Compulsory Referrals: Ponzi schemes do not have legit businesses from which they derive profits, they rely majorly on referrals. When early users are told to invest their money for a certain number of months, according to research, they are paid their profits from payments made by later users who are also referred. This is why users are told to refer certain number of people so as to be able to withdraw their profits.

FINAL THOUGHTS

Unlike the other schemes that have appeared in the country, CBEX was crypto based. This to say that many fraudulent schemes hide behind the facade of legitimate business or platforms to gain trust and credibility. That aside, Ponzi schemes have never-ending attraction on investors. They take advantage of people's gullibility,  financial situations and emotions to successfully defraud them. They constantly try to create better images and opportunities that are better than past schemes. We might blame people's desperation on the current economic situation in the country and the struggle to make ends meet, however, we should not overlook people's greed, laziness, unrealistic goals and get rich quick Syndrome. 

Would Ponzis cease to appear in the country? It might take a while but it definitely will not cease to. In fact, there are probably some schemes operating already that have not 'cast' yet.

Would people jump right on the next schemes when they show up? Definitely yes!

At the end of the day, the circle will continue and this article will probably be referenced in my future article that discusses a certain Ponzi scheme that has scammed Nigerians again.