MMM investors merrily flout Consumer Protection Act

As former Russian fraudster builds another empire.

JOHANNESBURG – Investors in MMM South Africa, which dubs itself a ‘social financial network’ and promises growth of 30% per month on deposits, are (perhaps unwittingly) contravening the Consumer Protection Act (CPA).

In terms of the CPA, a person must not “directly or indirectly promote, or knowingly join, enter or participate in­ a multiplication scheme.”

In terms of the Act, a multiplication scheme, more commonly known as a Ponzi scheme, exists when an effective annual interest rate, 20% above the repo rate, is promised to investors.

With the repo rate currently at 6%, any investment promising annual interest of 26% and above would be considered a Ponzi scheme in terms of the CPA.

Promising annual interest of 360%, MMM South Africa is, in terms of the CPA, a Ponzi scheme.

Yet it is being marketed far and wide by members, including on Facebook, YouTube, via webinars and at presentations across the country.

The MMM community, which claims to be a community of financial aid and donation exchange, is the brainchild of Sergei Mavrodi: a Russian suspected of defrauding millions of other Russians out of the equivalent of $4.3 million in the 1990s. Found guilty in 2007 of defrauding 10 000 investors, Mavrodi served a four-year sentence for fraud and then reappeared plugging MMM-2011 and later MMM-2012.

According to Russia Today, both these schemes collapsed shortly after their launch. While Mavrodi blamed media for creating a panic and provoking a run on MMM-2011, the scheme openly admitted on its website that funds from new members were used to pay dividends to older investors, Russia Today reported here.

A house of cards

Despite Mavrodi’s chequered past, a senior member of MMM South Africa is convinced that the system is legitimate. “Everybody has a past and he came forward and put his past upfront so that we can make our own decisions about whether to carry on with the system or not,” the member told Moneyweb.

“He didn’t have anything to hide. He knew exactly what the Russian government was against and he changed that on the system. He did not change the name of the system but made sure that there is no law this system was breaking,” the member added, referring to later adaptations of the scheme.

Mavrodi is not breaking any laws, “otherwise they [the government] would’ve put him back in jail,” the member said.

But media reports suggest that due to loopholes in Russia’s financial regulation, authorities have not managed to find grounds on which to convict Mavrodi, prompting Russian authorities to develop laws imposing fines and jail terms for Ponzi-scheme participants and eliciting warnings from the Central Bank against pyramid schemes.

The member who spoke to Moneyweb questioned why, if the MMM system was illegal, the South African government has not done anything to stop it and protect its citizens.

History suggests, however, that South Africa’s financial regulators are slow to act in tackling Ponzi schemers, many of whom are never actually prosecuted.

When asked how money earns monthly returns of 30%, the member said it is by “waiting”.

“I would like everybody to know that we as the MMM community do charities to give back to the community all over the world including SA,” he said, noting that “each and every member” (he couldn’t say how many), was making money in MMM.

“This is not an investment entity or a company but a stokvel. We as community members don’t deal with investments, but willingly exchange donations among us,” according to the member. He has never met Mavrodi in person and it’s not clear whether Mavrodi has ever been to South Africa, although he posts weekly YouTube videos to communicate with South African investors.

How it works

By clicking the ‘Provide Help’ button on the MMM system, Member A is given the bank account details of Member B and “donates” money into their account, receiving Mavro in return: the internal currency of the system that does the 30%-per-month growing. To get money out the system, Member A clicks the ‘Get Help’ button and Member C does the donating, and so on. Members can also earn 10% commission on the deposits of each new member they recruit.

The entire system functions online, making it difficult to track transactions.

As with other multiplication schemes, the value of your Mavro depends on how many new members buy into the scheme, which is probably why Mavrodi stresses in his most recent YouTube video: “Go on working actively as now, and everything will be fine as it is now. Everybody likes getting 30% per month. So, apply some efforts for that. Just tell people about the system.” 

The problem with this method of earning returns is that it’s prone to collapse at any moment since it relies on an ever-increasing flow of funds from new investors.

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i would love to meet this “senior MMM member” for a cup of tea and a nice chat.

I have worked out what this “Mavro” thing is that you get. It stands for “Many A**holes Very Ripped Off”

End of comments.

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