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Cape Town – A new Russian law that criminalises Ponzi schemes could add to the woes of the South African MMM community, whose global founder and leader is Russian.
READ: Alleged SA Ponzi scheme MMM’s global pyramid collapses
Russian President Vladimir Putin on March 30 signed a government bill introducing criminal punishment of up to six years in prison for organising of Ponzi schemes, the Russian Legal Information Agency said on its website this month.
READ: MMM: Pyramid scheme, stokvel or wealth revolution?
The Russian founder of MMM Global, Sergey Mavrodi, served jail time for his MMM Ponzi scheme in 2007, but re-launched MMM on his release in 2011.
WATCH: What is a Ponzi scheme?
He launched MMM South Africa in February 2015 and the “community” has grown in large numbers.
While members of MMM in South Africa have been quick to share stories of their continued success on MMM and describe the platform as an online community for money sharing and not a Ponzi scheme, consumer experts have warned that it has all the signs of a pyramid scheme.
Acting on a SA Reserve Bank request, the National Consumer Commission investigated MMM along with eight other schemes in 2015, and handed over its findings to the Hawks, a specialised crime fighting unit of the SA Police Service.
The Hawks said this week that there were delays in the investigation due to the complexity of the web-based scheme and because there are no victims reporting grievances. This is likely as a result of the alleged pyramid scheme being at a recruiting phase, meaning there are enough newcomers joining to avoid a payout collapse.
Law could prompt police action
With the law in place, Russian investigators will likely go after Mavrodi first, explained BehindMLM, a blogsite that investigates multi-level marketing (MLM) schemes.
“As owner and operator of the largest MLM cryptocurrency Ponzi scheme to date, what’s the bet at least one of those investigations is focused on MMM Global and Mavrodi?”
“The law stipulates criminal liability for Ponzi scheme organisers for obtaining more than 1.5 million rubles (R320 000) in assets belonging to individuals and companies,” the agency said.
“Such crimes would be punished with fines of up to 1.5 million rubles, up to five years of community service or up to six years in prison.
“Currently, around 200 criminal cases on financial pyramids, which caused damage to individuals and companies for a total amount of more than 20 billion rubles (R4.3bn) are under investigation, according to deputy chief of the Interior ministry’s investigation department, Oleg Danshin.
“Over 70% of cases are connected with crimes committed from 2009 to 2010. In 2015, the police completed investigation into more than 20 criminal cases on Ponzi schemes and forwarded them to courts.”
Where is Mavrodi?
BehindMLM blogger Oz (he prefers to remain anonymous for security risks) believes that Mavrodi has gone offline after the Republic of Bitcoin (RB) – which offered 100% returns – collapsed this weekend. Fin24 has however seen a YouTube video of Mavrodi dated April 11, but this date cannot be verified. Oz believes Mavrodi is not in Russia and could be in China or the Philippines.
Oz reported that on 20 March, Mavrodi informed MMM Global investors there would be no more news updates published to the MMM Global website. “On March 30, … Putin signed the new Ponzi bill into legislation.”
“It appears Russian authorities may have been holding off targeting Ponzi schemes until the new bill passed,”said Oz.
“If authorities are genuinely interested in making use of Russia’s new Ponzi legislation, personally I think it’s only a matter of time before Mavrodi is again apprehended,” he said. “Although realistically that might be a bit of a wait yet.
“Mavrodi’s last arrest in 2003 was preceded by six years on the run, following the collapse of the original MMM Ponzi scheme in 1997.”
How this could affect MMM SA
South African members of MMM told Fin24 in numerous emails this week that Mavrodi is not involved in their platform and has no access to their money, which they pay to each other from personal bank accounts.
However, the virtual currency used to incentivise payments, recruitment and testimonials - mavros - could be frozen as happened in the RB, according to Oz.
If that happened, the incentive to pay someone R10 000 for example, would not happen. The system would quickly unravel, Oz explained.
He said the RB collapse this weekend proves there is a central system controller that can freeze the system at any point, thus eroding the argument that it is a legitimate crowdfunding and sharing platform.
A senior MMM leader told PowerFM on Thursday that "our servers are currently in Russia", which means the Russian authorities could shut it down.
A few cases of frozen accounts have been reported to Fin24, but the site does alert its users that their account is normally frozen between two to five weeks between sending or receiving money. "Patience" was key, senior members of the MMM SA structure told its members.
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