The pitch from the pyramid scheme sweeping Russia has undeniable appeal: make money and make the world a better place, it says. Like thousands of others, Roman Vorobyev believed the scheme would deliver big returns for him and cascading wealth for others.
So in April Vorobyev ploughed 400,000 rubles ($12,500 U.S.) of savings into a self-styled “mutual aid fund,” known as MMM-2011, promoted by Sergei Mavrodi, a guru-like financier, former lawmaker and convicted fraudster.
“I definitely believed that everything was possible,” said Mr. Vorobyev, a newspaper designer in Irkutsk who invested in the fund despite a remarkable disclosure by Mr. Mavrodi – that it was indeed a pyramid scheme. “If we all help each other, more and more people will come and there will be an endless inflow of money,” he said.
It hasn’t worked out that way. Since parting with his cash, Mr. Vorobyev, 45, has failed to reap the double-digit monthly returns that were advertised, and he’s lost hope of ever seeing his money again. MMM-2011 has closed and is belatedly being investigated by the police, who say the scheme had no chance of delivering the gains it promised.
In other countries, Mr. Mavrodi might become a pariah and such scams would be banned. Not in Russia. Before MMM-2011, Mr. Mavrodi was famous as the mastermind of an even bigger Ponzi scheme in the 1990s. And in the past few months he has launched yet another one, MMM-2012, that is luring hordes of investors by touting the prospect of returns ranging from 30 per cent to 75 per cent a month.
Mr. Mavrodi dismisses allegations of any deception or illegality. “People voluntarily enter the system,” said the reclusive financier in a video he recorded in response to Reuters’ questions. “They are warned of the risks. They are conscious of everything. How can there be fraud here?”
The MMM website proclaims: “This is, in essence, the most sincere and kind system in this thoroughly dishonest, hypocritical and vicious world.”
The Mavrodi phenomenon raises questions about the state of financial regulation in Russia – suggesting elements of the “Wild East” still thrive under President Vladimir Putin. Mr. Putin’s authoritarian rule stands in sharp contrast to the anarchic 1990s, a period of social breakdown, hyperinflation and chaos. Yet the current appeal of pyramid schemes hints at the continuing legal uncertainties in today’s Russia.
Pyramids, which rely on new depositors to pay returns to existing ones, are doomed by the laws of arithmetic to collapse in the end. In countries such as Britain and the United States they are seen as fraudulent and perpetrators are prosecuted.
Yet in Russia and other former Soviet countries, they operate largely unhindered – there are no laws specifically banning pyramid schemes, though other laws have sometimes been used to stop them. One of the problems, say victims, is the attitude of the authorities, who often seem reluctant to close the schemes. As recently as March police said they had no reason to investigate MMM-2011, which boasted that it had had more than 35 million participants, in Russia and beyond, with an average deposit of $1,000.
Mr. Mavrodi has dropped from public view since the end of MMM-2011 but remains popular, cultivating an image as an anti-establishment visionary. He issues periodic videos via his website to promote pyramid schemes as the path to a post-capitalist future. They appear alongside his poetry and philosophical writings.
“Do you want some greedy banker to buy a third … or whatever it is … limousine? Put your money in MMM and you will help a pensioner, an invalid, a poor person. Those who really need your help!” Mr. Mavrodi’s website says.
He also appeals to people disoriented by the financial crisis. He told Reuters: “The modern world, the modern financial system, is deeply unjust. The idea that it’s better to work, and work more – that isn’t true. It’s a fairy tale that is drummed into us from childhood.”
“I am not interested in money,” he said. “My goal is simply to help people – there are no other goals.”