The recent collapse of CBEX, a digital asset trading platform that vanished with over N1.3 trillion of investors’ funds, has once again spotlighted the prevalence of investment scams in Nigeria.
This incident underscores the urgent need for heightened awareness and due diligence among potential investors.
Here are five ways to know if an investment venture or trading platform is fake and potentially a scam:
Unrealistic returns with minimal risk
one hallmark of fraudulent investment schemes is the promise of exceptionally high returns with little to no risk.
CBEX, for instance, lured investors by guaranteeing a 100 per cent return on investment within 30 days.
Such promises defy the fundamental principles of legitimate investing, where returns are typically proportional to the associated risks.
Financial expert Adedayo Adenubi warns that any investment promising unusually high returns without commensurate risk should be viewed with scepticism.
Lack of transparency and complex structures
Fraudulent platforms often employ vague or overly complex investment strategies to obscure their true operations.
CBEX claimed to operate in digital asset trading but failed to provide clear explanations of its business model.
Adenubi said, “Legitimate investment firms are transparent about their operations and readily provide detailed information to potential investors.”
According to the expert, a lack of clarity or reluctance to disclose operational details is a significant red flag.
Pressure to invest quickly
Scammers frequently use high-pressure tactics to rush individuals into investing without adequate consideration.
CBEX was said to have employed countdown timers and limited-time offers to create a sense of urgency, compelling investors to act hastily.
Financial experts have noted that legitimate investment opportunities allow potential investors ample time to conduct due diligence and make informed decisions.
Unregistered operations and lack of regulation
Operating without proper registration or oversight is a common trait among fraudulent investment schemes.
CBEX was not registered with Nigeria’s Securities and Exchange Commission, yet it managed to attract a vast number of investors.
Adenubi stressed that before investing, individuals should verify the registration status of any investment platform with relevant regulatory bodies to ensure legitimacy.
Absence of a tangible product or service
Many scams, including CBEX, lack a genuine product or service, instead relying on funds from new investors to pay returns to earlier ones—a classic Ponzi scheme structure.
The absence of a tangible product or clear revenue-generating activity is a significant indicator of a fraudulent operation.
Poverty, greed, and financial illiteracy
Nigeria’s economic challenges, including high unemployment rates and widespread poverty, make its populace particularly vulnerable to investment scams.
The allure of quick wealth can overshadow caution, leading individuals to fall prey to fraudulent schemes.
Financial illiteracy further exacerbates the issue, as many lack the knowledge to critically assess investment opportunities.
An economist and trade analyst, Mr Kassim Remi, emphasises the importance of due diligence and scepticism when evaluating investment opportunities.
He said, “Nigerians must be wary of unsolicited offers, especially those promising high returns with minimal risk. Consulting with licensed financial advisers and verifying the credentials of investment platforms can provide additional layers of protection against scams.”
