Too Good To Be True

See how far you get in this before you say, "Too good to be true."  I must warn you that the perpetrator of this particular plan is Sergey Mavrodi, notorious in Russia for an earlier Ponzi scheme called MMM.  In the early 1990's he bilked millions of Russians out of their life savings.  When MMM collapsed, Mavrodi was punished. He was sent to some sort of prison for 4 1/2 years and fined the equivalent of $390. 

Anyway, Mavrodi has a new scheme, which he calls MMM-2012. Similar to social networks, Mavrodi says, he has created a financial network. "Can you imagine Facebook, but purely financial?" he asks on his website.  "Participants help each other, " he says, "by sending money to who needs it the most, but after a while the money is returned with high interest."

The plan is 100 percent legal, he says, and currently has 35 million participants. Mavrodi invites you to imagine how many participants there will be once the plan is available in Europe and the United States. "It is spreading across the globe at a faster rate than any network in the world."

As Mavrodi explains, "The current world's financial system is built by banks that are loaning us our own money. Contrary to that Social Financial Network allows to create direct mutual financial relationships between the participants. In essence the network is a pure, open financial pyramid like banks, pension funds etc. You "lend" the money to the network and it is used for payouts to other other participants. The deposited money is returned with very high monthly interest - 30%."

Note that Mavrodi admits he's running a financial pyramid. He says it's "a pure, open financial pyramid like banks, pension funds, etc." To many Russians banks don't seem any safer than Mavrodi's rather risky business. Older Russians remember the shock of bank closings in 1998 without deposit insurance to protect them.  There has been some payback since then, starting with the oldest depositors first, but 14 years later, as those in their 40s are getting some money back, it would need to be at least four times their original deposit to account for what inflation has done to purchasing power.  What they're getting instead is a pittance.

 Russians today still put little trust in private banks.  The state bank is safe but is perceived as paying less interest than the rate of inflation.  It's best to spend whatever money you have; however, what happens if an emergency comes up and you don't have savings?  Take your valuables to a pawnshop.  I saw one advertising a rate that was .4 percent per day.  You better hope to redeem your valuables quickly at that compounded rate!

The Russian stock market is highly volatile and corporate financial reporting opaque.  So given all the unsatisfactory alternatives, there is a real attraction to trying to get in early into a Ponzi scheme.  Those who missed out on MMM-2011 now have a chance to get into MMM-2012.

There's something wrong about MMM being 100 percent legal. The Duma appears to be too busy with other matters to address the continuing fleecing of Russian citizens. Yet I seriously doubt that Mavrodi has fooled 35 million people in MMM-2012.  His original Ponzi scheme is thought to have caught 5 - 15 million before it collapsed or was shut down. (Many Russians blamed the authorities for shutting it down, sure that the were about to receive big payoffs.  The authorities may have saved Mavrodi from being tarred and feathered.)

Igor Ogorodnev, a writer for the government-funded RT network, looked at MMM last year and said,  "Many see MMM-2011 as either an indictment of a hopelessly flawed people prepared to spend their life savings on magic beans, or a social system in which many would rather trust a convicted criminal than a bank."

Ogorodnev added, "And until there is a better way for Mavrodi’s misguided flock, there is every chance we will live to see MMM-2021."  So if you don't get into MMM-2012 you will probably have an opportunity to get into MMM-2013.