Sergey Mavrodi is one of Russia's most infamous fraudsters in recent history; millions have lost their savings because of his MMM pyramid schemes. "But who sticks to Russian babushkas when there's a much bigger, hungrier and more speculative market just round the corner," asks FT Alphaville China, where Mavrodi's latest MMM Global and MMM China schemes have gone viral, not least because, "for added Ponzification value", they've been tied to Bitcoin.
The impact on the cryptocurrency's price has been dramatic. In the past month, it has soared by 97%. On one day alone last week, it shot up by more than 20% to $490 per coin. Some have questioned whether this is really down to Mavrodi (see box), but the evidence for his involvement seems clear. Hundreds of "MMM evangelists" have taken to YouTube to post glowing testimonials about how "3M" has changed their lives.
Given the returns dangled by Mavrodi's "social financial network" you can see the appeal, says Bloomberg. The global version of the MMM site offers monthly returns of 100% (the more "modest" China scheme a mere 30%). Both bear all the hallmarks of a classic pyramid scheme.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
New members buy Bitcoins to join, which are then converted into Mavros a digital currency invented by Mavrodi and sent to other members as "mutual aid". Bonuses are available for punters making referrals or posting testimonies online. As with Mavrodi's Russian schemes, part of the attraction is the site's "quasi-Marxist ideology that attracts people angry at fat-cat bankers and government".
Born in 1955, Mavrodi a trained mathematician has been perfecting his cash-extraction schemes for decades. In the dying days of the Soviet Union, he set up a firm selling computer kit and pirated videos, which morphed into a voucher business promising a 10% weekly return. But MMM got its real start when he advertised on TV during the Yeltsin era. By 1994, ten million Russians had deposited cash on the promise of "huge monthly returns", says Bloomberg. Within six months, the scheme went bust with hundreds of millions of dollars in losses.
After an attempt at a political career, mainly "to get parliamentary immunity" from prosecution, Mavrodi vanished. In 2003, he was finally caught and served three years in prison, where he wrote several books. A fictional rendering of the MMM story, PiraMMMida, even became a "modest Russian movie hit". By 2011, Mavrodi was back in business with a new scheme, MMM-2011, that ran as a kind of social network making it harder for prosecutors to move against him. But his Chinese scheme is his real masterpiece. "It's not Mavrodi's problem if people are willing to trade money for a non-currency and then send it to each other in exchange for another non-currency." When it goes bust as it surely must he can "just start a new one".
The rise and rise of Bitcoin
Analyst Gil Luria of Wedbush Securities believes the long-term factors underpinning Bitcoin's value are strong. As he told Nathaniel Popper in The New York Times: "The main tangible driver of the recent price surge is the accumulation of all the investments and positive media about blockchain."
Pull the other one, said Leonid Bershidsky on Bloomberg. For more than two years, most of the trading in Bitcoin has taken place on Chinese exchanges, "so it's safe to say that the price spike probably has its origins in China". One theory is that Chinese investors, looking for new assets following the stockmarketbust, have been buying the cryptocurrency. But thatmakes little sense: "Volatile, relatively thinly-traded Bitcoin isno haven."
The most likely explanation for the surge remainsthe viral take-up of Mavrodi's scheme. Gulling people out oftheir cash isn't quite what Bitcoin enthusiasts may have wantedfor the currency. But good technology is only a tool: "Bitcoin'sblockchain can be used by Nasdaq or by MMM. Keeping it inunregulated territory invites the second type of user."
The MMM website has a lengthy "ideology" section, notesIzabella Kaminska on FT.com, which helps its sales pitch noend. "This is a community of ordinary people, selflessly helpingeach other out," it reads. "The goal here is not to make money[but] to destroy the world's unjust financial system." It seemsthat touting Ponzi schemes or, as the hip prefer to call themthese days, "mutual aid" programmes "is so much easier ifyou have a handy Marxist-esque ideology to hand".
