Sergey Mavrodi was born in Moscow in 1955 and went on to study at the Moscow Institute of Electronics and Mathematics before launching his own business. He was briefly jailed for black-market activity in 1983. In 1989, he took advantage of the end of communism to launch MMM. Initially, this was a business importing computers; it transformed into a financial investment scheme in 1994.
What was the scam?
Mavrodi sold shares in MMM, promising investors up to 3,000%-a-year returns for investing in newly privatised companies. In reality the fund was a Ponzi scheme, where money from new arrivals paid earlier investors. MMM’s TV adverts, which portrayed a simple Russian man who becomes rich via Mavrodi’s scheme, acquired cult status, and the fact that some people were indeed making huge fortunes from privatisation led to some five to ten million Russians buying in to the fraud.
What happened next?
The Russian authorities quickly became aware of Mavrodi’s scam, but were helpless to stop it because running a Ponzi scheme was not illegal at that time in Russia. As a result of the sky-high interest rates that the fund was paying, however, MMM quickly ran out of money and Mavrodi was briefly jailed for income-tax evasion. He then turned the tables on the authorities by successfully running for parliament (he claimed this was the only way investors were going to be able to get their money back), giving him immunity from further prosecution. Mavrodi was stripped of his parliamentary immunity in 1996, but he went into hiding and was not arrested until 2003.
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What were the losses?
Some estimates put gross investor losses as high as $1.5bn, though this includes the fictitious balances of those who reinvested their “returns” and doesn’t take into account the winnings of those who withdrew their money before MMM collapsed. Still, there is no doubt a lot of people were left out of pocket. This didn’t stop Mavrodi launching a similar scheme in 2011, this time targeted at investors in Asia and Africa. Despite the fact that he was open about the fact there were no underlying investments, his scheme again attracted a large number of investors and was only halted by his death in 2018.
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