KAMPALA – The Capital Markets Authority has warned the public against investing in businesses that sound too good to be true also explaining that such dealings could be Ponzi or pyramid schemes.
CMA Supervision Manager Denis Kizito told this website that Ponzi or pyramid schemes are fraudulent investing scams promising high rates of return with little risk to investors.
He explained that if a business guarantees an investor high returns with little risk of losing the investment, it is false.
“Money invested by clients is not invested in any legitimate business but used to pay the people operating the scheme as well as those who invested earlier on. This is why Ponzi schemes can sometimes appear to be genuine and profitable investments; because the people who invested first seem to be benefiting,” Mr. Kizito said, explaining that the regulator is working with criminal investigators to identify the mushrooming schemes for sanctions.
At least UGX3.6 billion has so far been lost by Ugandan investors in closed-down investment companies, which were declared Ponzi Schemes by the regulator.
In an advisory, CMA flagged several saving schemes as fraudulent saying that they had not been approved to offer investment contracts to the public.
Capital Chicken Ltd, The Mall Fund Limited, and Veta Plan Chicken are among those flagged for sanctions
During an engagement with business reporters, officials explained that in the absence of regulatory oversight, investors in unregulated investment activities have limited recourse in the event of unfair treatment, loss, or other challenges faced in their investment journey.
This, according to CMA, meant that members of the public should seek investment advice from licensed investment advisors to avoid being victims of investment fraud.
An investment fraud entails paying existing investors with funds collected from new investors.
This means that companies taking part in investment fraud would eventually run out of recruits and fail to pay the investors. Days later, Capital Chicken closed and is now under investigation by police and other anti-financial crime agencies.
Kizito says that the figure is rising especially for Capital Chicken as more people keep reporting. He adds that the mushrooming Ponzi schemes are one of the major challenges the authority is facing in its regulatory role yet many Ugandans are yearning for investment opportunities and falling victim easily to fraud.
Kizito says while there is a need for intensified regulatory activities including amending the laws to empower agencies, the public also needs sensitization about safe investment. Apart from the three, there are other cases the CMA and police are investigating.
Over several years Ugandans have lost billions of Shillings to Ponzi schemes with many of the perpetrators closing business and disappearing with the savings of the public. Capital Chicken was the first to close down evidently after the intervention of the authorities.
However, there is no guarantee that the victims will ever recover their investments since it requires a multi-institutional cooperation approach between Capital Markets Authority, the Office of the Director of Public Prosecutions and the Uganda Police Force
Joseph Magala, a CMA legal officer, and Member of the National Task Force on the Ponzi and Pyramid schemes says that the CMA law in its current state empowers the CMA to trace and freeze assets without first securing a court order, but the clause is limited to the offenses of; fraudulent dealings in securities and insider trading. Assets realised from Ponzi schemes would require the obtaining of a court order for them to be frozen which is likely to cause a delay in the recovery of the proceeds of crime.
This was during an interaction between the media and CMA officials on the new developments in the industry. He, however, gives hope, that with collaboration and partnerships with other agencies that have different mandates, including the Directorate of Public Prosecution efficient and timely freezing of assets as well as refunding victims of Ponzi schemes could be a real possibility.
The authority also warned Uganda’s prospective investors to always consult it or the locally licensed brokers and financial advisors, before investing their money.
With the growing use of digital or online spaces for different purposes, there are also online advisory services, which, unfortunately, are hard to regulate or follow up on in case of an undesired incident.
