This is the part 2 of the “MMM’s Ponzi Scheme: To Russia, With Love” article. Read the Part 1.
In general, MMM operated actively only for six months — from the beginning of selling shares (February) to Mavrodi’s arrest, which occurred on August 4, 1994. The pyramid organizer was accused of tax evasion.
The Pyramid Crisis. Mavrodi’s Arrest.
However, the pyramid crisis came much earlier. So, dividend payments on shares continued until July 27, but to get the money, people were standing in line for several days. The situation got extremely aggravated. It came even to the clashes with the militia as the gathered people blocked the traffic on the nearest railway. The situation reached a critical point when Mavrodi said that the value of the shares was reduced in 125 times, ie to the original cost of 1 thousand rubles.
A Sanctioned meeting in support of Sergey Mavrodi, 1995
In order to prevent mass disorder MMM leadership spread two rumors. The first was that MMM was closed on the personal order of Boris Yeltsin, and the second — about the fact that 14 trucks, fully loaded with money, were moving to the office of the company to pay off all depositors. Due to this information, disturbances stopped as investors got calmed.
Mavrodi was arrested on 4 August, when Special Purpose Detachment of Militia stormed the central office. The tax inspectorate confiscated all financial documents. Mavrodi was arrested in his apartment, and his detention was broadcast live on almost all TV channels.
Sergey Mavrodi in a court room. Mavrodi’s arrest.
MMM was officially declared bankrupt only on 22 September 1997, and in 1998, the General Prosecutor’s Office resumed investigation for fraud charges against Mavrodi. Then in December, Mavrodi was put into the nationwide wanted list, and then into the international one. Mavrodi was hiding for more than five years, when on January 31, 2003, he was re-arrested. The verdict against Mavrodi was passed in April 2007. He was sentenced to 4.6 years in prison, but Mavrodi had completed this term while being in the pretrial detention facility, and on 22 May 2007, he was released.
According to the investigation, the damage from the activities of MMM is estimated to be almost 110 million dollars, at the same time, according to the Association of depositors, the damage was equal to 70-80 billion dollars. In general MMM affected about 15 million investors including those 50 people who committed suicide. At the same time, according to unofficial sources, several thousand people in 1994 became millionaires.
Mavrodi went to jail in 2003 and was released in 2007, only to soon start another similar scheme nicknamed ‘MMM-2011’ while also expanding his operations to India with what was called ‘MMM India.’ These operations were shut down earlier in 2012, but he outright referred to them publicly as pyramid schemes on his blog, as Russia’s legal system was not equipped to penalize such financial structures.