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Financial schemer returns to Russia

Anna ChapmanRussia's rival to Bernie Madoff is back in business ­ and the authorities are worried about another pyramid scheme ripping through the Russian economy.

Sergei Mavrodi became notorious when his MMM scheme in the 1990s wiped out the savings of millions of Russians.

But now he's back, with MMM-2011, which he says means "My mnogoye mozhem" (We can do a lot).

And promising monthly profits of 20 per cent for most investors and 30 per cent for pensioners and disabled people, it sounds too good to be true.

He admits that the new scheme is another pyramid, "in the sense that there will be no investment", but describes it as a "structural financial social network".

The pyramid

In order to participate in the scheme the person has to open a WebMoney account in US dollars, put some money on it and buy "tickets" whose price will be determined by Mavrodi. The "tickets" have already been used in the MMM pyramid that crashed in the 90s, where it was "a sort of payment unit, a ticket, a share, what's the difference?"

"A virtual ticket is not a stock, it is just a wrapper. Their price will grow and bring profits," Mavrodi said.

Thus the profit of MMM-2011 will depend on the number of new participants: their money will pay for old participants' profits as price of the tickets (that Mavrodi will set up himself on Tuesdays and Thursdays) will go up.

The investors will be divided into tens, hundreds and thousands. There will be "desiatnik," "sotnik" and "tysiachnik" (head of the ten, hundred and thousand respectively).

If someone wants to leave, they will have to sell their ticket and the desiatnik will be responsible for getting the rest of the ten to pay for it. Anyone who refuses to pay will be kicked out of the system with no right of return.

Mavrodi assumes that his project will attract 100,000 participants initially and will increase to a million in the second year.

Not a repeat of the 90s

Mavrodi, who spent 4-and-a-half years in jail, said he would not be working with the money because he is banned from such activity and would appoint an administrator.

He argues that this time the system will not fail. "The system is absolutely invincible, unsinkable, indestructible, even if everyone is afraid that the authorities will do something to me," he assured his audience.

Sergei Mavrodi's previous scheme MMM caused financial damage to 10-15 millions of its investors in 1990s.

He was arrested in 2003 and spent 4.5 years in prison on charges in money laundering and counterfeiting ids. In 2008 he published a book "Temptation" written in prison.

Mavrodi claims that the new MMM will not break any laws, and even though his blog clearly mentions 20 per cent profit, he told Vedomosti that "no one guarantees anyone anything".

"It is a naked scheme. I merely voice it and express my opinion that it will work. And will it work ­ God knows. MMM, for example, worked."

Authorities are worried

The authorities are, however, sceptical about the enterprise. State Duma member and financial ombudsman Pavel Medvedev announced that he would try to prevent the pyramid.

He said the criminal code was very vague in the chapter on loans. "I will try to involve the prosecutor-general and will write a complaint," he told Echo Moskvy.

Medvedev advised people not to "get involved in this shady undertaking."

Head of Russian consumer rights watchdog Rospotrebnadzor Gennady Onishchenko said they will follow the process attentively, "considering the tragic experience for many Russians in the beginning of capitalism in early 1990s."

Federal Anti-Monopoly Services also say that while they cannot do anything because blog entries are not considered advertising in Russia, they will open investigation if they receive complaints.

WebMoney does not approve the scheme

WebMoney representatives said the company did not approve its accounts used for anything other than paying for goods and services and non-profit money transfers.

"Our rules ban the use of the system in schemes with multilevel marketing, financial pyramids and "matrices," WebMoney's PR-director Ksenia Velikina told Kommersant. She added that the company will investigate all the facts of "unhealthy activity" of the owners of web-wallets.

Mavrodi was not fazed by this and told the paper that "all the operations are no more than relations between people. Such activity does not require any licences, as the people are just exchanging money with each other."


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