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An undated still image of convicted fraudster Sergei Mavrodi taken from video footage. (HANDOUT/REUTERS)
An undated still image of convicted fraudster Sergei Mavrodi taken from video footage. (HANDOUT/REUTERS)

‘Evil genius’ lures Russians into admitted pyramid scheme Add to ...

Given Mr. Mavrodi’s history with pyramid schemes, his resurrection is remarkable. A graduate of the Soviet Union’s elite physics institute, he created his first pyramid in the 1990s. Amid Russia’s turbulent transition to capitalism, MMM advertised widely on TV, offering a seemingly effortless path to riches.

Several million people, driven by naivety and euphoria, rushed to be part of the bonanza – only to lose their savings when the edifice came crashing down in 1994. Estimates of the losses range from $110-million, the sum later cited in court by prosecutors, to many billions according to a group representing aggrieved investors.

Despite the collapse, so many people still regarded Mr. Mavrodi as their champion that months later he managed to get himself elected to parliament. After a protracted legal battle he was finally convicted of fraud in 2007 and sentenced to jail.

Released almost immediately because he had spent four years in detention awaiting and during trial, he resumed his old ways. Even those who oppose him are in awe of his persuasive powers.

“In my view he is definitely a genius,” said Vyacheslav Sklyankin, the founder of an anti-MMM campaign group on Vkontakte, Russia’s equivalent of Facebook. “As it’s now fashionable to say, he is an evil genius.”

These days Mr. Mavrodi uses the Internet to reach potential investors. While the first MMM operated through a network of retail branches, his new schemes lack visible corporate structure, formal management, or legal identity – a deliberate move, Mr. Mavrodi told Reuters, to complicate attempts by the Russian authorities to stop him.

“There’s no firm hierarchy. I give advice to the participants and they follow it. That’s how it’s organized. Formally there is no relationship, no boss and no workers. In MMM everything is voluntary,” Mr. Mavrodi said.

In the latest schemes, MMM does not collect all the money in one pot. Instead, deposits and payouts are made mostly between individual members’ own bank accounts. Senior figures also extract fees for administrative purposes.

The schemes are promoted through dozens of websites and thousands of videos posted by apparently satisfied MMM depositors on YouTube. MMM’s reward structure encourages recruits to spread the word. Bonuses, calculated as a share of new recruits’ deposits, are paid to those who attract new members – 20 per cent for the first recruit and 10 per cent for each subsequent one.

The system creates a hierarchy based on multiples of ten. Thus desyatniks (“tenners” – those in charge of ten investors) are supervised by stoniks (“hundreders”) who are in turn supervised by tisуаchniks (“thousanders”) – right up to millionniks.

“The growth (in members) is simply huge: from a simple worker, and the unemployed, to businessmen with real money,” said Andrei Emilianov, a former construction specialist from Moscow, who says he quit his job at a prestigious German company late last year to promote MMM full-time. He has risen to the rank of stotisyachnik (hundred-thousander).

Mr. Emilianov, 30, said that when he first heard about the scheme, he was skeptical, but was gradually won over after seeing his investments deliver double-digit monthly returns. So far he has plowed some 900,000 rubles ($27,900) into MMM-2011 and MMM-2012 and has already earned back several times that amount, he said.

The enthusiasm of converts such as Mr. Emilianov doesn’t seem dulled by the fact that Mr. Mavrodi openly presents his schemes as pyramids.

“It’s written on the site that it’s a financial pyramid. There are no promises and no obligations. If you don’t want to participate you don’t have to,” Mr. Emilianov said.

Mr. Mavrodi says the disclaimers are prominent, though others might disagree.

“Everyone is paid everything,” says a slogan on Mr. Mavrodi’s website. “As long as the pyramid still hasn’t encompassed the entire world, as long as you have at least one acquaintance or relative not participating in it – sleep easily,” the site says. “It means, (we) haven’t reached everyone.”

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