MMM (Ponzi scheme company)

Joint stock company "MMM"
Акционерное общество «МММ»

Industry	Office Equipment importer (1989-early 1990s) Ponzi Scheme initiator (1992 onwards)
Fate	Shut down by Russian police in 1994, declared bankruptcy in 1997, reopened in 2011 targeting almost 110 countries.
Founded	1989
Headquarters	Russia
Key people	Sergei Mavrodi

МММ was a Russian company that perpetrated one of the world's largest Ponzi schemes of all time, in the 1990s.^[1][2] By different estimates from 5 to 40 million people lost up to $10 billion. The exact figures are not known even to the founders. In 2011, MMM re-opened as "MMM Global" with subsidiaries in up to 110 countries; it became widely popular in various African countries like South Africa, Nigeria, Zimbabwe, Kenya and Ghana with some attributing this popularity to poverty and poor government regulation or law enforcement.^[3]

History

Russia

MMM was established in 1989 by Sergei Mavrodi,^[2] his brother Vyacheslav Mavrodi, and a woman 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 (1,000%). It is unclear whether a Ponzi scheme was Mavrodi's initial intention, in so far 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 ad 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, etc.).

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. The company attempted to continue the scheme for a few days after 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.

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.

While it was believed that Sergei Mavrodi left Russia and moved to the United States, it is possible that he stayed in Moscow, using his money to change apartments regularly and employ a group of former special agents.

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.

The MMM scandal led to increased regulation of the Russian stock market, but the legacy of the fraud led many to become extremely suspicious of any joint stock companies.

US (Stock Generation)

With the help of a distant relative he started, Stock Generation Ltd., another pyramid scheme based around trading non-existent companies' stocks in a form of the "stock exchange game" on the company's site, stockgeneration.com. Despite a bold-letter warning on the main page that the site was not a real stock exchange, between 20,000 and 275,000 people, according to various estimates, fell for the promised 200% returns and lost their money. According to U.S. Securities and Exchange Commission, losses of victims were at least USD 5.5 million.^[4]

South Africa

In 2015,MMM began operating in South Africa with the same business model as MMM-2011, claiming a "30% per month" return through a "social financial network".^[5] The group was identified as a possible pyramid scheme by the National Consumer Commission and accounts of clients were later frozen by Capitec Bank.^[6] In response to mounting criticism and official investigations by state authorities in 2016, supporters of the South African MMM scheme staged a protest march in Johannesburg.^[7] and had started up again in late November 2016.

Nigeria

In November 2015, MMM launched a website targeting the Nigerian audience, also claiming a "30% per month" return including other acquirable bonuses.^[8] The entity was self-described as a "mutual aid fund where ordinary people help each other."^[8] 2.4 million people had signed up by late 2016, with the country's unemployed as primary targets.^[8] Nigeria's Economic and Financial Crimes Commission has confirmed that they are monitoring the scheme.^[9]

On the 13th of December, shortly after celebrating its first anniversary amid a festive mood from some members, MMM Nigeria announced the freezing of all members' accounts due to what it called "systems overload and the negative attention brought on by the Government and mass media".^[10] This led to wide spread panic in the nation and even attempted suicides.^[11] On the 14th of December, LASEMA (Lagos State Emergency Management Agency) of Lagos State pleaded with Lagosians to dial their emergency number if they spot anyone trying to commit suicide. LASEMA took this action due to the number of suicides MMM caused in Russia^[12]

In 2017, the Redeemed Christian Church of God in Nigeria warned all members against participating in MMM^[13] It was said that some RCGC church pastors were promoters of the scheme from the beginning more than one year ago when MMM made its entry.^[14] By January 2017, hundreds of other similar Ponzi schemes jumped into the ever widening Ponzi industry in Nigeria, amid reports that MMM had crashed in December 2016. Some of these schemes include ABCDonor, Twinkas, Ultimate Cycler etc, with rates offered soaring anything upto 200%.^{[15] [16][17]} All these imitators seek to outdo MMM Nigeria by offering extremely generous rates, creating a cascading effect on the sector.

MMM Nigeria reopened on 13 January, 2017 but has been plagued by grievances from participants concerning delayed or unfulfilled payments. This has been attributed to spiraling fear sweeping amongst participants, some of whom have moved to new ponzi schemes.^[18]

In 11th February 2017,MMM Nigeria announced the lifting of withdrawal limits on the 2017 mavro(ie mavros paid for in 2017 can be withdrawn without limits) while no specific limit for 2016 mavro was stated.^[19]

This aimed to encourage new participants to enter, giving old members some assurance of getting back their money. However this has not allayed the fears of some old members especially after MMM told them that to get back their pre-2017 money they should add new money and the more money they add the better the chances of recovering their old money. In its tweet releases, MMM claimed that programmers will be working towards implementing the release of 3x the amount paid in as new countribution from the old mavros. The tweets however don't say when this will be done.

MMM Nigeria has made some charity and humanitarian donations to the Nigeria Society like donations to internally displaced people's camps and hospitalized patients,^[20] but critics hold that this is a stunt to regain credibility after disappointing existing investors whose money got stuck in the scheme. This strategy of image-cleaning, according to critics, seeks to hoodwink and attract new unsuspecting recruits and use their money to pay off the stranded existing investors. But this only "kicks the can down the street", because the new investors could end up becoming the new victims like the ones they have just bailed out.

Ponzi schemes rely on new contributions to pay existing contributors which make them unreliable since it cannot continue attracting new contributions forever in the required numbers and rates (numbers which actually accelerate quickly at exponential rates with every new level of recruitment) Even if the whole population become participants (impossible as some are unwilling and some will even actively resist it and convince others not to join,just as its impossible for everyone to join a political party and there is always an opposition),this shows there is a limit beyond which no further recruitment is possible or recruitment begins to slow down sharply enough to cripple the scheme's paying ability. Therefore the scheme is ultimately doomed to fail and it is only a matter of when, not if.

Some believers in MMM however adopt varying responses to critics; "After all nothing lasts forever","MMM is an insurance company without guarantee or insurance","it is a gamble,so no guarantees", "It is a Communist ideology the capitalist won't understand".

In view of the rumored suicides of victims and financial losses running upto 18 billion Naira to victims(or $60m as of March 2017), questions have been raised why there has not been a serious media or government effort to push back against the faceless new schemes multiplying willy-nilly in Nigeria on a daily basis,as most of these barely last more than 3 months with consequent heavy distress to many. On the 22nd February, 2017 mmmnigeria released a news through personal Office, that all the suggestions of the participants will be considered for implementation: all bonuses acquired in 2016 will be frozen and the growth of 2016 30% mavro stopped.^[21] Evidence of people who have been selected at random to get help of 2016 mavro was also shown. MMM Nigeria is now paying back 2016 mavro and fake pop is not tolerated anymore.

Zimbabwe

In July 2015, MMM East Africa, launched subsidiary "MMM Global Zimbabwe" targeting the Zimbabwe population.^[22] MMM offered it's participants "30% per month" return on all investments.^[23] It soon became widely popular in Urban areas of Zimbabwe, The Reserve Bank of Zimbabwe warned it's citizens to stay clear of the program as it could be a fraudulent scheme. ^[24] On September 2016, MMM Global Zimbabwe issued a freeze on all accounts, speculations suggest that this occurred due to a fall in number of participants. On 5 September 2016, all MMM accounts were unfrozen, and members were encouraged by MMM to continue "investing" their money, however the MMM unfreeze came with a catch; Members would get an 80% loss of their available funds should they decide to withdraw their funds.^[25]This made some participants let their funds remain in the program while others withdrew their funds to suffer an 80% loss of their money "invested". ^[26] This affected 66,000 Zimbabweans and caused some economic instability.^[27]

China

In January 2016, the Chinese government banned MMM on the grounds that it is a pyramid scheme and it is not registered in the country (since a fraudulent scheme cannot be registered).^[28]

Ghana

In November 2016, MMM was launched in Ghana.^[29]

Kenya

In October 2016, it was reported that MMM entered Kenya and opened a local subsidiary. MMM Kenya offers similar terms to participants as in other countries, including a monthly 30% interest rate to contributors to the scheme.^[30]

In December 2016, the Central Bank of Kenya (CBK), without mentioning MMM Kenya, issued a warning that "virtual currencies such as bitcoins are not legal tender in Kenya" It further said "no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business."

The entry of MMM Kenya has raised fears of a replay of misfortunes that hit Kenyans in 2007 when 148,784 investors lost 8 billion Ksh to 270 fraudulent pyramids and ponzis. A parliamentary report indicated that there was a spate of suicides, stress-related illnesses and family breakups as a result of the losses and directors of the companies stashed some of the proceeds in tax havens such as in Panama.^[31]

In April 2017, CBK warned the public against investing money in pyramids and unlicensed financial institutions, noting that there was a big comeback of new creations of pyramids. It said " “Such entities entice members of the public to place money with them and promise quick and abnormally high returns on their money or acquisition of non-existent properties.”

See also

• GKO-OFZ
• Caritas
• Lyonya Golubkov

References

External links

• (in Russian) 1992 MMM TV Commercials