History Of Mmm
Table of Contents
What is MMM?
Why It Crashed
Was it Scam?
Government interference
MMM is a popularly known company called Mavrodi Mudial Moneybox. Three Russians founded it in 1989: Sergei Mavrodi his brother Vyacheslav Mavrodi, and Olga Melnikova. According to reports, the company began as a group of computer-importing cooperatives. It collapsed in 1992, after the tax police filed a charge of tax evasion against it. Sergei Mavrodi came up with a solution by launching MMM Ponzi scheme, which offered a monthly profit of 250 % or an annual profit of 3000%. The government, unable to find any other evidence against MMM, discovered that the company had committed a massive tax fraud and took advantage of it. Mavrodi was forced to hide in the shadows after MMM declared bankruptcy in December 1997. During the month of January in 2011. Mavrodi launched a new pyramid scheme named MMM-2011, which was later adopted by other countries such as China, India and the Philippines.
How MMM operatesThe MMM model is a combination of a pyramid scheme and a cooperative financial society where members are able to give and receive help. New members must contribute at least $10 to the system. It is called helping others. These funds are paid to members. The person who requests help can withdraw the money after 30 days. The system will now match him up with other members who are willing to provide help. He will get paid 130% of the initial investment. Since each member must give at least one help per month, it’s almost like moving the money around. After 30 days, everyone gets a slice of the cake. A referral bonus of 10% is given to those who introduce new members. Guiders can earn up to a third generation.
It was inevitable that the system would fail due to its insustainability. Money was just pushed from one member to another monthly. The organization didn’t invest any money. All the rewards and interests were paid to members based on the contributions made by newer members. The system will eventually reach saturation. It is because the number of new members is declining, and the amount of money coming in is falling exponentially when compared to the amount needed by existing members. The system will fail when the amount of help provided is less than what was requested. The model of the water bucket can help to better understand how it works.
Imagine that a bucket is being filled from a hose. The bucket is filled with water from three different holes. The water problem can be viewed in three different ways.
If you keep the same amount of water in your bucket, it will stay the same.
The bucket will fill up if the volume of water entering the bucket exceeds the volume leaving it.
If there is less water than water leaving the bucket, it will gradually reduce the water level until the bucket becomes empty.
Scenario 3 describes perfectly what happened to MMM. The system crashed when the amount of money that was coming in from new recruits was not enough to pay the existing members. It crashed across several countries. In Nigeria for instance, when the system had reached saturation level, member accounts were frozen and members lost a lot.
Was it Scam?”Bigg, 2102 says that III was a Russian Company which perpetrated the biggest Ponzi scheme in history. She continued, “Accordingly to various estimates, anywhere from 5 million to 10,000,000 people lost all their savings. Western media reports from the past state that “most investors knew the scheme was fraudulent, but still wanted to make money by withdrawing their money before the collapse”. He was found guilty for tax evasion and fraud. His character was questioned. He was also a co-founder of the old MMM Ponzi scheme. MMM global’s failure was not surprising, since it was a Ponzi scheme. Kudaonline claims that MMM has no central account. It is important to note that MMM does not have a central account.
Government InterventionThe big question is now: what did the government to protect the people from the potential damage MMM could do?
The governments in the countries that MMM was present reacted quickly to protect their citizens against the fraudulent scheme. Some countries had stricter policies in place to combat the MMM scheme. In China, for example, the government banned MMM because it was deemed an illegal venture. Nigerian authorities, however, were not as harsh in their reaction to the scheme. They did have a negative outlook on it. CBN discouraged people by calling the scheme fraudulent through the Central Bank of Nigeria. CBN attempted to freeze accounts used in MMM transactions but failed. The parliament also discussed the arrest of MMM officials.
MMM community responded to the government immediately. Sergei Mavrodi the founder sent a letter of support to Nigerian’s government and said with impunity that this scheme helped people in a way the government could not. MMM members also criticized the government. The warning was perceived as being ill-motivated and laced with self-interest. CBN was believed to want all money in their accounts to continue enriching the elite class of the country. The question was whether commercial banks could offer interest rates of up to 10%, while MMM offered 30%. It was their short-cut to financial liberty, and they believed nothing the government did would stop them.
