New MMM Pyramid on Brink of Bankruptcy

The MMM-2011 pyramid scheme operating in Russia and in the CIS states may go bankrupt this year, Moscow News newspaper reported on Friday, quoting experts.

MMM-2011 (the three letters stand for “We Can Do a Lot” in Russia), founded by Sergei Mavrodi, uses the WebMoney online payment system to allow investors to buy tickets that work like shares, but have no real value. The project’s mastermind has promised investors returns of 20-30 percent per month.

Mavrodi said in his latest video message that he had launched a “Phoenix” operation to save the pyramid. As the system faces problems, yield of deposits will reduce to 10 percent a month from the current 40 percent and there will be no bonus payments. All unprofitable units will be also closed down, he added.

Experts from Russia’s Higher School of Economics said that Mavrodi’s actions mean the pyramid could fall and calculated that it might happen in June 2012. The experts also said that it would be hard for depositors to return their funds as MMM managers are going to provide all operations through their personal accounts.

“It is difficult to prosecute participants of the system in Russia because all actions are made through personal accounts and there is no law to prohibit pyramid schemes,” lawyer Vitaly Uliyanenko told the paper.

The pyramid has started to fall due to greed of some of its participants, Vyacheslav Andryushkin, deputy board chairman in SDM-Bank, told Moscow News.

“It is enough [to bring down the pyramid] if anyone pulls out several large sums from the system so there would be no funds to return to ordinary investors,” Andryushkin added.

A former mathematician, Mavrodi was released from prison in 2007 after serving a sentence for offenses relating to the collapse of the original MMM. He described the new project as a “financial social network.”

While his 1994 scheme used an aggressive TV and radio advertising campaign to reel in investors, the new project relies solely on the Internet, a move which many see as a bid to attract Russia’s technologically-savvy youth.

Mavrodi’s 1994 swindle, which came to be regarded as a symbol of the lawlessness of the chaotic 1990s in Russia, was one of the largest among hundreds of other such schemes in that era. The pyramid schemes took advantage of the ignorance of a nation still learning the basics of a new capitalist system. Ponzi schemes became so commonplace that their prices were quoted on the front pages of newspapers.

According to estimates, the MMM scam attracted between two and five million investors, including a number of high-profile celebrities, who lost around $1.5 billion when it collapsed.


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