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  • 11.05.15

The Russian Ex-Con And The Bitcoin-Powered Investment With “100%” Returns

Regulators around the world are watching Sergey Mavrodi’s MMM Global, a “mutual aid” system they say smells like a pyramid scheme.

The Russian Ex-Con And The Bitcoin-Powered Investment With “100%” Returns
[Source photos: Flickr users Zach Copley, Portable Antiquities Scheme]

Bitcoin prices have risen dramatically over the past month, but international regulators and bitcoin exchange operators warn that one investment opportunity involving the digital currency is likely too good to be true.

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A website called MMM Global tells would-be investors that they can earn “100% per month” by participating in a “global fund of mutual aid,” exchanging bitcoin for an MMM-specific virtual currency called mavro effectively stored on deposit at extraordinary interest rates.

Sergey MavrodiPhoto: via Wikimedia Commons

Mavro takes its name from MMM founder Sergey Mavrodi, who previously served time in Russian prison for fraud after leading an investment company that lost investors millions of dollars in the 1990s. That firm, also called MMM, is now widely derided as a Ponzi scheme, where investors’ extraordinary returns came from the funds supplied by new members rather than actual growth.

Critics say the current iteration of MMM may operate in the same manner: Technically, according to MMM’s website, customers’ initial mavro is awarded when they “provide assistance to another participant” by transferring bitcoin, and cashing out accumulated mavro for bitcoin is merely a request for such assistance.

MMM’s been the subject of an investor warning by the CEO of Chinese bitcoin exchange BTCC and come under government investigation in Indonesia and South Africa.

“The National Consumer Commission [is] currently conducting a preliminary investigation into the practices of nine suspected pyramid schemes, including MMM,” a spokesman for that South African agency wrote in an email to Fast Company. “The outcomes of the investigation will advise on whether the scheme’s practices are legal or not.”

MMM didn’t reply to an emailed request for comment, and a representative replied to a live chat inquiry with what appeared to be a scripted invitation to invest.

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MMM participants, meanwhile, have aggressively promoted the investment through social media, taking advantage of policies that give additional mavro to investors who advertise MMM through various “web-tasks” and those who bring in new participants through an affiliate program.

“But nobody force [sic] the members of the Community to invite new participants,” according to the MMM website. “But at the same time, understanding that MMM network can’t exist without development and participants’ encouragement in the form of referral bonuses motivate many people to take an active position.”

Facebook has blocked the MMM Global site for spamming, according to a Facebook spokesperson, but the investment is still the subject of a steady stream of posts to Twitter and YouTube, where an official MMM channel has collected more than 800 investor testimonials boasting of their high returns.

Mavrodi himself posts weekly updates to the YouTube channel in Russian with English subtitles, typically reassuring potential participants their money is safe.

“Here is the news,” he said in his most recent update. “Well, there’s only one piece of news: Everything is wonderful and great. The System is evolving very rapidly. The participants are happy and content. You can see it from the Letters of Happiness. In other words, all is simply perfect.“

Social media’s been increasingly harnessed in recent times by controversial multilevel marketing companies and possible pyramid schemes, says William Keep, the dean of The College of New Jersey’s School of Business who’s written frequently about the subject.

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“The multilevel marketing companies certainly have been very active on Facebook,” says Keep, pointing at Vemma Nutrition Company, a marketing company that was popular among college students until it was deemed an “illegal pyramid scheme” by the Federal Trade Commission earlier this year. “Social media is a place where fairly quickly one can develop a sort of sense of connectivity, however artificial that might be.”

The original MMM convinced millions of Russians to invest through whimsical television ads that showed working class Russians enjoying extraordinary returns from their investments. The fund ultimately collapsed amid reports that MMM was under investigation. Mavrodi has always maintained MMM was essentially sabotaged by corrupt officials and the banking industry: He even ran successfully for a seat in Russia’s legislature on a platform that included trying to recover his investors’ funds, though he was ultimately removed from office by his fellow lawmakers.

In 2011, after Mavrodi’s release from prison, he launched a second version of MMM in Russia, which also soon shuttered. MMM Global, the current iteration, launched last year, seeking participants from around the world and promising to bring about a “financial apocalypse” that will make ordinary people free from financial tyranny and banks obsolete.

“It’s not that dissimilar from the message that Vemma was conveying to college students,” says Keep. ““In other words, the world’s kind of gone to hell, and implicitly you kind of have to take care of yourself, and fortunately here there’s an organization that’s real and genuine that will help you do that.”

Using bitcoin rather than traditional currency has the potential to make the current MMM harder for authorities to shut down or even audit, suggests Tamar Frankel, a Boston University law professor and author of the book The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims.

Doing it this way, Frankel says, MMM can “escape the money controls established by government.”

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Bitcoin’s purely digital nature and relative anonymity have made it the currency of choice for some illegal transactions, from drug sales on darknet markets like Silk Road and its successors to electronic blackmail operations where valuable data is encrypted by malware and effectively held for ransom. But the currency, which has increased more than 60% in value against the dollar in the past month, has also been touted as a way to easily transfer funds around the world without dealing with banking delays and wire transfer fees.

“In their transactions MMM participants operate with BITCOINS,” explains the MMM Global site. “It is the best possible way to organize smooth transfers between participants from different countries.”

How smooth these transfers actually are remains to be seen.

About the author

Steven Melendez is an independent journalist living in New Orleans.

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