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Back from oblivion, top Russian fraudster pushes new scam

Back in the threadbare 1990s, Sergei Mavrodi founded the most notorious pyramid scheme Russia has known, MMM, persuading millions that they could earn fantastic returns by investing in worthless paper.

Now, helped by the Internet explosion, he is doing it again, and has scores of Russians buying into his new scheme despite the relative stability of the oil-powered economy.

So far authorities have been powerless to stop him.

Mavrodi, a reclusive former mathematician, ex-lawmaker and convicted fraudster with wild hair and geeky glasses, has flaunted the fact that his latest ventures are “pyramids”, or Ponzi schemes.

Cheekily, his ads warned “pyramids are dangerous for your financial health.”

Soon after the breakup of the Soviet Union, up to 15 million people invested in coloured bills bearing Mavrodi’s face. Reportedly 50 people committed suicide after the scheme collapsed in 1994.

Mavrodi’s new scheme, launched early last year, is called MMM-2011 and is organised on the Internet.

“This is where the money lives,” said an electronic billboard in Moscow’s Sheremetyevo airport, while an ad sprayed on pavements read: “Get your 40 percent per month!”

On June 1 Mavrodi announced that due to a “panic” that he blamed on media, he was freezing payouts for two weeks. With typical chutzpah, he added he was starting a new scheme called MMM-2012.

Moscow police said Thursday they had opened a criminal probe into MMM-2011, over attempted fraud by an organised group on an especially large scale, with a maximum sentence of 10 years.

But Mavrodi was not named or charged. He is currently in hiding and did not respond to interview requests.

But his lawyer argued that authorities did not have any evidence to start proceedings against the scam artist.

“I don’t think they will charge him. There is a lack of corpus delicti,” Roman Tabachkov told AFP Thursday.

He argued that Mavrodi simply headed an “association of citizens based on certain interests — financial interests.”

Several other regional authorities have also launched legal action against MMM-2011.

The Federal Anti-Monopoly Service (FAS) recognised MMM-2011 as a financial pyramid last year. Yet the scheme is tough to pin down on because it is not registered anywhere and participants make payments in virtual Internet money.

“You can’t ban participants from handing each other money. It’s a kind of financial flashmob,” Dilyara Ibragimova of the National Agency of Financial Investigations said during FAS discussions last year.

The question is why people are taking the risk, given Mavrodi’s dubious track record.

State opinion pollsters VTsIOM in April found that four percent of Russians would consider investing.

Alexander Katyanov, a grey-haired man in glasses, was handing out free MMM-2011 newspapers outside the metro.

A hard-up former businessman, he said he invested 10,000 rubles ($308) in April and then recruited others. He was due to receive his first payments on June 20.

“I didn’t drag anyone here. I honestly explained that this is a pyramid,” he said.

“The reward I should receive is very good for me.”

Asked if he trusted Mavrodi, he paused.

“Not completely, I’m not that gullible. He warned that ‘Yes, it’s a pyramid, it could crash’ and so on. I accepted this.”

Many passers-by reacted negatively.

“MMM? No thanks, we already got burnt once,” one middle-aged woman said.

“My father-in-law bankrupted himself on this,” said a gold-toothed pensioner. But one neatly-dressed grey-haired man said he had invested in MMM-2011 and got a return.

“When will it all start rolling again?” he asked.

Mavrodi claims that 35 million people have joined the scheme, also operating in ex-Soviet states including Ukraine and Belarus.

A colourful figure, at the height of the original MMM, Mavrodi paid for the Moscow metro to be free for a day. After its collapse, he became an MP to gain immunity from prosecution.

He was eventually arrested in 2003 in a rented apartment, wearing a wig in an apparent escape bid.

He was jailed for four and a half years for fraud.

The VTsIOM poll found 75 percent of Russians think he is a swindler. Seventeen percent see him as a “financial genius.”

Some argue that this time, investors know exactly what they are getting into.

“The government did all it could to make everyone understand about MMM,” lawmaker Viktor Zvagelsky, deputy chair of the lower house of parliament’s economic policy committee, said in televised comments.

“All those people who want to be duped once again, they will be duped. Whatever we do, whatever laws we write,” added Zvagelsky.