History of Mmm

Popularly called Mavrodi Mundial Moneybox, MMM was founded in 1989 by three Russians: Sergei Mavrodi, his brother, Vyacheslav Mavrodi, and Olga Melnikova. The company reportedly started out as a network of computer importing cooperatives. (Womack, 1994) However, it crumbled in January 1992 after a tax evasion charge levied against it by the tax police. Sergei Mavrodi found a way out by launching the MMM Ponzi scheme in February 1994 which promised a monthly return of up to 250 % and annual return of up to 3000 %. Not finding anything else to use against the company the government discovered a huge tax evasion against MMM and capitalized on that. By December 1997, MMM was bankrupt leading Mavrodi to go into hiding until 2003 when he was arrested and sentenced to a four and a half years prison terms. In January 2011. Mavrodi launched another pyramid scheme called MMM-2011 which later found root other countries like China, India, the Philippines, South Africa, Zimbabwe, Nigeria to name but a few.

How MMM works

The principle of operation of MMM is based on a pyramid model as well as a social financial cooperative where members give and receive financial help. New entrants are required to contribute a certain amount of money (minimum of $10) into the system. This is called giving help. This money is paid to other existing members. After 30days the contributed money grows accruing an interest of 30% which the person can cash out by requesting help. This time the system will match other members who want to give help with him and he will be paid the amount corresponding to 130%of what he initially invested. So, it is like moving money round the system since every member is expected to give help at least once a month. Everybody gets to have a share of the cake from the 30% interest after 30 days. Additionally, members who bring in new members into the system are rewarded with a referral bonus which is equivalent to 10% of what the new member first contributes for the first generation. Guiders are able to earn up to the third generation- 5% for the second generation and 2.5% for the third generation in the pyramid.

Why it Crashed

The system was bound to fail because of its unsustainability. Money was merely pushed around between members monthly. And since the organization was not actually investing the money, all the interest and rewards given to members were derived from the contribution of newer members. An inevitable point will always be reached where there is saturation within the system. That is the rate of people coming into the system declines causing the money that comes in to reduce exponentially compared with the money that is required by existing members. In other words, at the point when help given is less than the help requested the system fails. The water in the bucket model can give us a better understanding of how this works.

Let’s imagine a bucket that is filled by a hose connected to a tap. At the same time, water leaves the bucket from three holes in the body. There are three scenarios to the water problem.

1. If the volume of water that comes in equals the volume that leaves, the level of water in the bucket will remain the same.
2. If the volume of water that enters the bucket is more than the volume that exits the water level will gradually rise until the bucket is filled.
3. If the volume of water that comes in is less than the volume that leaves, the level of water in the bucket will gradually go down till the bucket is empty.

Scenario 3 perfectly describes what happened with MMM. At the point the money coming into system from fresh recruits was less than what was required to pay existing members the system crashed. It crashed in several countries where it was established. For example, in Nigeria when the system reached the point of saturation, accounts of members were frozen in December 2016 causing members to lose lots of money.

Was it a Scam?

“МММ was a Russian company that perpetrated one of the world's largest Ponzi schemes of all time, in the 1990s”, says Bigg, 2102. She continues, “By different estimates from 5 to 10 million people lost their savings. According to contemporary Western press reports, “most investors were aware of the fraudulent nature of the scheme, but still hoped to profit from it by withdrawing money before it collapsed”. The character of the founder of MMM was questionable, he was found guilty of tax evasion, convicted of fraud, and given a sentence of four-and-a-half years. He co-founded the old MMM which was a Ponzi scheme. It came as no surprise when the MMM-global crashed because it was never a real investment. According to Kudaonline, MMM does not have a central account. There is also no central administration which translates to mean that there is no accountability in the system and no one can be called to account or held responsible if something went amiss.

Government Intervention

The million-dollar question now is: with the gripping effect of MMM on people what did the government do to protect its people and forestall the damages MMM could cause?

The government of the countries where MMM existed reacted to save its citizens from the scheme which they thought to be fraudulent. Some were more stringent than others with respect to policies that affected the scheme. For example, in China the government placed a ban on MMM considering it to be an outright illegal venture. The government of Nigeria on the other hand was not as dramatic in its reaction, though they too had a dim view about the scheme. Through the Central Bank of Nigeria, CBN they discouraged people from engaging in the scheme referring to it as fraudulent. CBN unsuccessfully tried to freeze bank accounts that were used for MMM transactions and the parliament even talked about arresting MMM officials.

The MMM community hit back at the government almost immediately. The founder, Sergei Mavrodi sent an open letter to Nigeria’s government in support of the scheme and stated with impunity that the scheme is helping the people where the government is not. Members of the MMM community too lashed out on the government. They considered the warning sounded to be ill-motivated, laced with selfish interest. They believed that CBN wanted to have all the money in its accounts so they can continue to enrich the country’s elite class. They questioned the ability of any commercial bank to give up to 10% interest on money saved, but here was MMM giving out 30%. For them it was a short path to financial freedom and nothing the government would do would prevent that.