1.1 Background to the Study
Social Media has changed so much about Nigeria and for those who understand Social Media and its usage, the audiences and relevance have grown exponentially. This has happened across segments of society and a level of engagement Social Media is engaging with consumers online. According to Kent (2010), social media is any interactive communication channel that allows for two-way interaction and feedback. Social Media is all about networking in a way that espouses trust among parties and communities involved. Any website which allows users to share their content, opinions, views and encourages interaction and community building can be classified as a Social Media. Some popular Social Media sites are: Facebook, YouTube, Twitter, Digg, and MySpace, Stumble Upon, Delicious, Scribd, Flickr and so on.
The meaning of the term ‘Social Media’ can be derived from two words which constitute it. Media generally refers to advertising and the communication of ideas or information through publications/channels while Social implies the interaction of individuals within a group or community. Taken together, Social Media simply refers to communication/publication platforms which are generated and sustained by the interpersonal interaction of individuals through the specific medium or tool. Kaplan and Haenlein (2010) have a general definition of the term: Social Media is a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, and that allow the creation and exchange of User Generated Content.
Social Media uses the ‘wisdom of crowds’ to connect information in a collaborative manner. Social Media can take different forms, including Internet forums, message boards, weblogs, wikis, podcasts, pictures, and video. Social Media is made up of user-driven websites that are usually centered on a specific focus (Digg = news) or feature (del.icio.us = bookmarking) (Safranak, 2013). Sometimes, the community itself is the main attraction (Facebook and Myspace = networking).
Social Media is such for social interaction, using highly accessible and scalable publishing techniques. Social media uses web-based technologies to turn communication into interactive dialogues. Andreas Kaplan and Michael Haenlein (2010) define Social Media as a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, which allows the creation and exchange of user-generated content.
Social Media is the medium to socialize. They use web-based technology to quickly disseminate knowledge and information to a huge number of users. They allow creation and exchange of user-generated content. Facebook, Twitter, Hi5, Orkut and other social networking sites are collectively referred as social media.
Social Media, today, is among the ‘best opportunities available’ to a brand for connecting with prospective consumers. Social Media is the medium to socialize. This new media wins the trust of consumers by connecting with them at a deeper level. Social Media marketing is the new mantra for several brands since early 2010. Marketers are taking note of many different Social Media opportunities and beginning to implement new social initiatives at a higher rate than ever. Social Media marketing and the businesses that utilize it have become more sophisticated. One cannot afford to have no presence on the social channels if the competitor is making waves with its products and services. The explosion of Social Media phenomenon is mind boggling and the pace at which it is growing is maddening. Global companies and even Ponzi Schemes, having recognized Social Media marketing as a potential marketing platform, are now utilizing them with innovations to power their advertising campaign with Social Media marketing.
1.1.2 Ponzi Schemes
Ponzi Scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. Operators of Ponzi Schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
The Scheme is named after Charles Ponzi, who became notorious for using the technique in 1920. The idea, present in novels (for example, Charles Dickens‘ 1844 novel Martin Chuzzlewit and 1857 novel Little Dorrit each described such a scheme), was actually performed in real life by Ponzi who with his operation took in so much money that it was the first to become known throughout the United States (Markopolos, Harry; Casey, Frank 2010:50). Ponzi’s original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors’ money to make payments to earlier investors and himself.
Ponzi Schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi Scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.
Ponzi Schemes have been around for a while, way back to the seventies. It comes in different forms and shape. They boom and bust, disappear for a season, and then return in full force in another shape and form.
In 2007, in the ancient city of Ibadan, Pennywise and Wealth Solutions pioneered a Ponzi Scheme popularly known as ‘Wonder Banks’. Pennywise and Wealth Solutions started with a promise of over 50 percent returns on investment. Not many people took the bait at the beginning, but overtime, with testimonies from those that invested, people from all works of life flooded the offices of these two ‘wonder banks’, and barely six months after, the whole scheme collapsed like a pack of cards.
A lot of people committed suicide after the collapse, and billions of naira lost. Investigations revealed that the structure employed by these ‘Wonder banks” was an inverted pyramid scheme that required continued inflow of investment in other to pay off the old members. When the number of new investors began to decline, the scheme could no longer sustain itself, and thereafter collapsed with billions of naira gone down the drain.
1.1.3 MMM Nigeria
Today, there is an avalanche of Ponzi Schemes in Nigeria with MMM leading the race. MMM was a Russian company established in 1989 by Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova. The name of the company was taken from the first letters of the three founders’ surnames.
Initially, the company imported computers and office equipment. In January 1992, tax Police accused MMM of tax evasion, leading to the collapse of MMM-bank, and causing the company to have difficulty obtaining financing to support its operations. Faced with difficulties in funding its foreign trade, the company switched to the financial sector. It offered American stocks to Russian investors, but met with little success. Later, MMM-Invest was created for the purpose of collecting vouchers during privatisation. This effort was similarly unsuccessful.
MMM created its successful Ponzi scheme in 1994. The company started attracting money from private investors, promising annual returns of up to one thousand percent. It is unclear whether a Ponzi Scheme was Mavrodi’s initial intention, inasmuch as such extravagant returns might have been possible during the Russian hyperinflation in such commerce as import-export.
MMM grew rapidly. In February 1994, the company reported dividends of 1,000%, and started an aggressive TV advertising campaign. Since the shares were not quoted on any stock exchange and the company itself determined the share price, it maintained a steady price growth of thousands of percent annually, leading the public to believe its shares were a safe and profitable investment.
An important factor in the scheme’s success was word of mouth, but most of the company’s success came from its extremely aggressive ad campaign, which appealed to the general public by using “ordinary” characters that viewers could identify with. The most famous of them, a ‘folk hero’ of early 1994, was Lyonya Golubkov. Another notable marketing effort was a giveaway of free Metro trips to all Moscow citizens on a particular day. MMM also was one of the first well-known companies in Russia with a logotype and slogans (‘Flying from shadow to the light’ and others).
At its peak the company was taking in more than 100 billion rubles (about 50 million USD) each day from the sale of its shares to the public. Thus, the cashflow turnover at the MMM central office in Moscow was so high that it could not be estimated. The management started to count money in roomfuls (1 roomful of money, 2 roomfuls of money, and so on.). Regular publication in the media of the rising MMM share price led President Boris Yeltsin to issue a decree in June 1994 prohibiting financial institutions from publicising their expected income. The success of MMM in attracting investors led to the creation of other similar companies, including Tibet, Chara, Khoper-Invest, Selenga, Telemarket, and Germes. All of these companies were characterised by aggressive television advertising and extremely high promised rates of return. One company promised annual returns of 30,000%.
On July 22, 1994, the Police closed the offices of MMM for tax evasion. For a few days the company attempted to continue the scheme, but soon ceased operations. At that point, Invest-Consulting, one of the company’s subsidiaries, owed more than 50 billion rubles in taxes (USD 26 million), and MMM itself owed between 100 billion and 3 trillion rubles to the investors (from USD 50 million to USD 1.5 billion). In the aftermath at least 50 investors, having lost all of their money, committed suicide (Zuckoff: 2005).
Several organisations of ‘deceived investors’ made efforts to recover their lost investments, but Sergei Mavrodi manipulated their indignation and directed it at the government. In August 1994 Mavrodi was arrested for tax evasion. However, he was soon elected to the Russian State Duma, with the support of the ‘deceived investors’. He argued that the government, not MMM, was responsible for people losing their money, and promised to initiate a pay-back program. The amount ultimately paid back was minuscule compared to the amount owed.
In October 1995, the Duma cancelled Mavrodi’s right to immunity as a deputy. In 1996, he tried to run for Russia’s presidency, but most of the signatures he received were rejected. MMM declared bankruptcy on September 22, 1997.
Mavrodi was found and arrested in 2003. While in custody, Mavrodi was given until January 31, 2006 to read the documents in his fraud case against him (The criminal case consisted of 650 volumes, each 250-270 pages long). At the end of April 2007, Mavrodi was convicted of fraud, and given a sentence of four and a half years. Since he had already spent over four years in custody, he was released less than a month later, on May 22, 2007.
In November 2015, MMM launched a website targeting the Nigerian audience, also claiming a ‘30% per month’ return including other acquirable bonuses. The entity was self-described as a ‘mutual aid fund where ordinary people help each other.’ 2.4 million people had signed up by late 2016, with the country’s unemployed as primary targets. Nigeria’s Economic and Financial Crimes Commission has confirmed that they are monitoring the scheme. On the 13th of December, it announced the freezing of all members’ accounts due to systems overload and the negative attention brought on by the Government and mass media, leading to wide spread panic in the Nation and even attempted suicides.
1.2 Statement of the Problem
Ponzi schemes are usually promoted via social media platforms. Ponzi scheme operators choose social media platforms because of their virility, effectiveness and inexpensiveness coupled with their anonymous capability.
For instance, MMM Nigeria has what it calls ‘MMM Community Development Task’ where all participants are expected to contribute their quota in the growth and development of the scheme by sharing and posting positive information about the scheme in Social Media Platforms. MMM Community Development Task is carried out on weekly basis by all participants. Here is an excerpt from MMM platform on what the ‘MMM Community Development Task’ is all about:
“We all are part of the MMM worldwide Community. When someone needs financial help, her or she can ask for it and other participants will help him/her. At the same time, being a MMM member implies not only opportunities, but also a responsibility for the state and development of the MMM Community. MMM is our home, and we are responsible to build and refine it..
A lot of participants genuinely want to promote MMM, spread its ideology amongst people, though not always knowing what exactly has to be done. Therefore we have created a new Promo Tasks section in the PO, which is added with various tasks: online and offline, easy and complicated, individual and team-oriented. A member who will perform these tasks will be benefited, because the tasks will allow him to attract new referrals, build his structure (and get bonuses for that), and it will be useful the whole Community, because more people will learn about MMM and its ideology.
In a special section of the MMM Personal Office, each member will find a variety of online and offline tasks. Tasks come with a detailed guide which is understandable even for inexperienced PC users. You can select on your own which tasks you will be doing today – you are free to choose any task and perform as many tasks as you want.
Not everything may go the way it is supposed to when it is done for the first time. Give it a try and do the tasks regularly! There can be different mistakes, but fulfilling tasks you will learn to use social media, forums, messengers, and other online resources for recruiting people to MMM and for creation of positive awareness about our Community.
For example, task may guide a member to join a Facebook group and write a comment. to create some tweets on Twitter, like a YouTube video, share news on Google Plus, and make your web site. There are also offline tasks: conducting home sharing, cafe meetings, organizing MavroPicnics, MavroParties or MavroGames.
Doing the tasks you contribute to the Community’s progress. Thanks to you and other members doing the tasks, MMM gains more popularity in social media and gets more registrations and PHs.
MMM needs you and depends on your activity! Please accomplish as many tasks as you can and encourage others to do them regularly as well. It is obvious that the activity of MMM Nigeria members is growing. MMM is very proud of its members who are becoming kinder and more responsible. By our efforts, MMM Nigeria will overcome! Together We Change the World!”
Rising from the above, one would be justified to conclude that the unprecedented growth of MMM Nigeria is not unconnected with the aggressive marketing carried out by participants via social media platforms.
1.3 Objectives of the Study
The main objective of the study is evaluating the role of Social Media as a tool that midwifed the sudden emergence of Ponzi Schemes in Nigeria: A case study of MMM.
The specific aims are the followings:
- The relevance of Social Media in business growth
- The negative impact of social media
- The risks associated with MMM Ponzi Schemes
- Why Social Media was chosen as a means of Promoting MMM Ponzi Scheme in Nigeria.
- How the Social Media contributed to the Emergence of MMM Ponzi Scheme in Nigeria
- How the economic situation contributed to the success of Ponzi schemes in Nigeria.
1.4 Research Questions
- What is the relevance of Social Media in business growth?
- What are the negative impacts of Social Media?
- What are the risks associated with MMM Ponzi Schemes?
- Why was the Social Media Chosen as a means of Promoting MMM Ponzi Scheme in Nigeria?
- How did the Social Media contribute to the emergence of MMM Ponzi Scheme in Nigeria?
- How did the economic situation contribute to the success of Ponzi Schemes in Nigeria?
1.5 Research Hypotheses
H: There is no significant relationship between Social Media and the rise of Ponzi Scheme in Nigeria.
H1: There is a significant relationship between Social Media and the rise of Ponzi Scheme in Nigeria.
H: There is no significant relationship between the economic situation and the success of Ponzi Schemes in Nigeria.
H1: There is a significant relationship between the economic situation and the success of Ponzi Schemes in Nigeria
1.6 Significance of the Study
The significance of this work cannot be over-emphasized in this period where Ponzi Schemes are spreading in Nigeria like wild fire with their attendant consequences. Specifically, the Media industry as a whole will find this work useful in correcting the anomaly orchestrated by Social Media’s promotion of Ponzi Schemes. Other significance of this work are listed below:
- Financial regulatory agencies like the Central Bank of Nigeria, the Securities and Exchange Commission, The Economic and Financial Crimes Commission, and Nigeria Deposit Insurance Corporation will find this work relevant in their quest to sensitize the masses on the dangers of Ponzi Schemes.
- Prospective investors of Ponzi Schemes will find this work relevant before deciding whether to invest on Ponzi Schemes or not.
- This work is also significant because it expands the frontier of knowledge.
1.7 Limitation of the Study
This study revolves around MMM Nigeria and how the Social Media coupled with the economic situation in Nigeria contributed to its rise and success. The study was conducted within the framework of evaluating the role of social media in the sudden emergence of Ponzi Schemes in Nigeria. It is a study approach of one particular Ponzi Scheme (i.e. MMM Nigeria) and does not cover other Ponzi Schemes to reflect the entire industry evaluation. Hence the result will not be generalized but its findings will be placed in the relevant context of the individual Ponzi Scheme studied.
1.8 Operational Definition of Terms
Social Media: According to Kaplan and Haenlein (2010), Social Media is a group of Internet-based applications that build on the ideological and technological foundations of Web 2.0, and that allow the creation and exchange of User Generated Content.
Social Media Marketing: Social Media Marketing is marketing using online communities, social networks, blog marketing and more.
Ponzi Schemes: Ponzi Scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources.
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