If the Mavros never thaw

In July, I met a tall, dark and handsome man. The quintessential chocolate fudge the ladies love. As a woman with amazing intuitions and hutches that are eight times out of ten as constant as the foot of the Himalayas, I assumed he wanted something. I was right, he did want something but not what the compass of my intuitions pointed at.

How he sermonized… fiercely and at every opportunity, via voice calls, SMS, IMs, DMs, pings… he was never miffed by my incessant rebuffs and lethargy to join ‘the money making team’ as he fondly called it.

In that period, I gave myself to reading and thus garnered a lot of information about a ponzi scheme, that has, at this moment in Nigeria, gained the epithet “Moku, Mogbe, Modaran” a lamentation in Yoruba which can be summarised to mean I am finished!

About a week ago, at the early hours of Monday, a horde of wraiths rode on electromagnetic waves and with their poisoned swords, pierced the beating hearts of about 3 million Nigerians. National dailies and several online media platforms spewed headlines with severe semblance with this: “Panic in Nigeria as MMM suspends operation, freezes accounts” and the nation’s atmospheric was indeed fraught with perturbation as experiences that bid the heart break started oozing out from the four cardinals.

Before I try to predict the future based on the present, let us go back to where it all started from…

MMM was established in 1989 by Mavrodi brothers and a third party, Olga Melnikova. Hence, the name of the company. Initially, the company imported computers and office equipment. In January 1992, tax police accused MMM of tax evasion, leading to the collapse of MMM-bank, and causing the company to have difficulty obtaining financing to support its operations. Faced with difficulties in funding its foreign trade, the company switched to the financial sector. It offered American stocks to Russian investors, but met with little success. Later, MMM-Invest was created for the purpose of collecting vouchers during privatization but this effort was similarly unsuccessful. However, MMM created its successful Ponzi scheme in 1994 which would become for its creators, the geese that laid the golden eggs.

The company started attracting money from private investors, promising annual returns of up to one thousand per cent and it grew rapidly. In February 1994, the company reported dividends of 1,000 per cent, but on July 22, 1994, the police closed the offices of MMM for tax evasion. For a few days the company attempted to continue the scheme, but soon ceased operations. At that point, Invest-Consulting, one of the company’s subsidiaries, owed more than 50 billion rubles in taxes (USD 26 million), and MMM itself owed between 100 billion and 3 trillion rubles to the investors (from USD 50 million to USD 1.5 billion). In the aftermath at least 50 investors, having lost all of their money, committed suicide.

Several organisations of “deceived investors” made efforts to recover their lost investments, but Sergei Mavrodi manipulated their indignation and directed it at the government. In August 1994 Mavrodi was arrested for tax evasion. However, he was soon elected to the Russian State Duma, with the support of the “deceived investors”. He argued that the government, not MMM, was responsible for people losing their money, and promised to initiate a pay-back program. The amount ultimately paid back was minuscule compared to the amount owed.

In October 1995, the Duma cancelled Mavrodi’s right to immunity as a deputy. In 1996, he tried to run for Russia’s presidency, but most of the signatures he received were rejected. MMM declared bankruptcy on September 22, 1997.

While it was believed that Sergei Mavrodi left Russia and moved to the United States, it is possible that he stayed in Moscow, using his money to change apartments regularly and employ a group of former special agents.

Mavrodi was found and arrested in 2003. While in custody, Mavrodi was given until January 31, 2006 to read the documents in his fraud case against him (The criminal case consisted of 650 volumes, each 250-270 pages long). At the end of April 2007, Mavrodi was convicted of fraud, and given a sentence of four and a half years. Since he had already spent over four years in custody, he was released less than a month later, on May 22, 2007.

The MMM scandal led to increased regulation of the Russian stock market, but the legacy of the fraud led many to become extremely suspicious of any joint stock companies.