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. Last Updated: 07/27/2016

Mavrodi's MMM Born Again

Sergei Mavrodi, whose MMM pyramid scheme lost millions in 1994, is back in business.


New laws regulating investments, which came into force Jan. 1, will not deter Mavrodi, he says, despite the scandal caused by the collapse of his company.


Officials and regulators say that, just like two years ago, there is little the law can do about operations like MMM-96.


Yury Kotler, a spokesman for Russia's Securities Commission, which regulates traded investments, said modernization of the legal code from Jan. 1 would increase protection for the public but added that no system could provide an absolute guarantee.


"There will always be a million people working out how to cheat and only a few thousand trying to stop them," he said.


Aware of the new securities law, MMM says it ceased trading in "securities." Its deposits are "voluntary contributions" and it avoids using financial market terms like "share" or "note." Russians' best protection probably remains common sense, sharpened by painful experience.


"I lost 4 million rubles [then about $1,300] in MMM in 1994. I had saved it for my handicapped daughter," said one man coming away from the office.


Konstantin Borovoi, a member of parliament who supported MMM's savers, is not too worried about its latest manifestation.


"It's not dangerous," he said. "Once bitten, twice shy. Whatever system he thinks up, people will not respond."


Mavrodi is secure in the legal void of Russia's fledgling financial market. Always somewhat reclusive, he could not be reached for comment on MMM-96, but has often said he would carry on his activities. Staff at the MMM sales office insisted the new savings plan, which they said started up last February and had "many" members, was not a pyramid scheme and was quite different from 1994.


"It's completely new," said another "consultant" who declined to give her name. "This time the return is more modest, but it is also absolutely guaranteed."


According to her, a deposit would grow 4.225 percent in a week and by a guaranteed 30 percent a month -- rather less than that promised by the saleswoman outside. A notice on the wall spoke of returns of 60 to 70 percent a month. In comparison, a nearby Inkombank branch was offering only 45 percent for a whole year -- about twice the rate of inflation. Unlike Inkombank, however, MMM is unwilling to tell savers where exactly their money is being invested.


"You give your money to Sergei Mavrodi," the consultant reassured. "What he does with it is his business."


Outside, the saleswoman said Mavrodi had bought blue-chip Russian stocks in 1994 and was now sharing out the profits. Quite what induced such generosity, she could not say. Nor was she sure why the cash was not going to those who lost in 1994.


Yet some were prepared to give MMM another chance.


"I lost about 3 million rubles last time," said Natalya, a computer programmer in her 50s, who admitted to putting "a few thousand" into MMM-96. "But the new system seems pretty good. I just hope I can make back my losses."


Of the several dozen people who gathered at a shabby sales office in southern Moscow, most were elderly and disillusioned victims of his last financial scheme who still hope to be repaid.


"It's absolutely guaranteed. If you invest today, you'll get a 40 percent profit next week," said a middle-aged saleswoman standing beside notices advertising the new scheme known as MMM-96. "Take this. It entitles you to an extra bonus," she added, handing over a slip of paper which looked like a banknote. It bore the pudgy bespectacled profile of 41-year-old Mavrodi and purported to be worth 10 MMM bilyety, or tickets. Refusing to give her name, she merely shrugged at the irony that the advertisements are pinned next to dispiriting notices for the holders of MMM's 1994 shares, whose promises of 3,000 percent interest tempted millions into a spiral of speculation and ruin.


The ads announce the "reliability" of the "mathematical model" of MMM-96. "The profitability ... is obvious," it adds. In 1994, backed by incessant television advertising, state officials reckon Mavrodi may have sucked $1 billion into MMM.


A few people got rich on profits distributed from the savings of later participants, in the classic manner of pyramid schemes, which prosper "mathematically" while people continue to invest. The system collapses when they stop.


The collapse of MMM and other schemes caused a national scandal that forced President Boris Yeltsin to promise some limited compensation during last year's re-election campaign.


Mavrodi was seized in a spectacular police commando raid in August 1994 and spent two months in jail before being released. Persuading many that he was an innocent victim of official spite, he was elected to parliament in 1994, winning immunity from prosecution before being ejected a year later. His bid for the Russian presidency failed last year when officials ruled that half a million signatures of support had been forged.