FG warns Nigerians against investing in Loom Ponzi scheme
Many Nigerians are investing money in Loom, but SEC warns that it's a disaster waiting to happen.
Two years after the popular Mavrodi Mundial Moneybox (MMM) Ponzi scheme crashed with billions of naira lost, Nigerians are starting to flood towards Loom, another scheme that promises astonishing returns on investment.
MMM penetrated the Nigerian market in 2015 with over 2 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 widespread following among Nigeria's online community.
However, while speaking during a press conference in Abuja on Thursday, May 16, 2019, the Acting Executive Commissioner (Operations) of the SEC, Isyaku Tilde, warned the Nigerian public against investing in the scheme which is not registered with the commission and has no established structures.
He said, "We are aware of the activities of an online investment scheme tagged 'Loom Money Nigeria'. The platform has embarked on an aggressive online media campaign on Facebook and WhatsApp to lure the investing public to participate by joining various Loom WhatsApp groups to invest N1000 and N13,000 and get as much as 8 times the value of the investment in 48 hours.
"Unlike MMM that had a website and the promoter known, the people promoting Loom are not yet known and this pyramid scheme operates through closed groups mainly on Facebook and WhatsApp.
"If it were a local Ponzi scheme with known offices, it would be very easy for the Commission to seal their offices and freeze their accounts.
"We therefore wish to notify the investing public that the operation of this investment scheme has no tangible business model hence it's a Ponzi scheme, where returns are paid from other people's invested sum. Also, its operation is not registered by the Commission.
"Please note that anyone that subscribes to this illegal activity does so at their own risk."
The SEC disclosed that the Financial Services Regulation Coordinating Committee (FSRCC) is making efforts to shut down the scheme.
How Loom works
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 of time.
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 top half and 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.
When investors start to dry up, groups will take longer to fill up, and newer recruits will lose their investment without any payouts. This will only be averted if there's an unending stream of new investors.
Over the years, the Nigerian government has issued several warnings to Nigerians to stay away from investing in Ponzi schemes that involve unregistered investments, unlicensed sellers, secretive and complex strategies.
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