A racketeer like Mr Sergey Mavrodi, the man behind the MMM “transparent” pyramid schemes we drew attention to last week, flourishes in such an environment. The more contradictory the information about him on the internet, the better for him. The same goes for other transparent pyramid schemes (such as all cryptocurrencies). Historically-tested logic about why pyramids are economically flawed is reduced to an opinion, much the same way that scientifically-verified proof about how carbon emissions are causing climate change also gets reduced to an opinion by certain special-interest groups.
Below we share a Q&A with Mavrodi. And he’s done us a little video to prove that we are communicating with the man himself…
Following FT Alphaville’s linking of Mavrodi’s latest Chinese scheme to the recent surge in bitcoin’s value, we were struck by the number of bitcoin fans who found this something of an inconvenient truth. They alleged, for example, we had no grounds to assert MMM was making bitcoin fly.
Which is funny because in the meantime, even the men running bitcoin exchanges have come out to warn about the influence of MMM on bitcoin’s current price volatility. Here’s what Bobby Lee, CEO of Chinese Bitcoin Exchange BTCC, told Nathanial Popper at the New York Times:
But he said he had seen signs that Chinese investors were using Bitcoin to move money into an international investment scheme, MMM Global, which claims to have been created by a man who did prison time in Russia after a previous Ponzi scheme collapsed.
To its credit, the outwardly respectable arm of the Bitcoin community seems to be doing its darnedest at this point to warn the “ecosystem” about the destabilising effects of MMM. (Without a hint of irony, but that’s another story.)
Since Wednesday, we have gained a lot more understanding about the linkages between MMM and bitcoin. For one, we now understand that MMM is a series of different pyramid schemes. MMM China, which accepts bitcoin, started operation in April 2015, according to Mavrodi. But, says Mavrodi himself, it’s his MMM Global scheme that’s been driving all the bitcoin volumes.
Unlike Mavrodi’s other schemes, MMM Global — also popular with Chinese investors — operates exclusively in bitcoin. It’s also open to anyone in the world. Furthermore, in contrast to the paltry 30 per cent monthly returns promised by MMM China, MMM Global claims monthly returns of 100 per cent.
To what degree is MMM driving bitcoin volumes?
Well, here’s the correspondence we had with Mavrodi over the weekend:
1) Where is Sergey Mavrodi based? Is he in China or somewhere else?
Not in China.
2) is Mr Mavrodi one of the mutual aid beneficiaries?
No. It would be immoral.
3) How long has MMM China been running?
Since April 2015
4) When did MMM start using Bitcoin?
I guess you misunderstand the situation. There is a national structure MMM-China where Bitcoin almost isn’t used (although using it isn’t forbidden), and there is an international structure MMM-Global (Bitcoin Republic) where exclusively Bitcoin is used. At the same time, there are a lot of Chinese participating in MMM GLOBAL, but it’s a different matter. Moreover, one can participate both in MMM-China and MMM Global (Bitcoin Republic) at the same time.
5) In what capacity is Bitcoin used?
In MMM Global (Bitcoin Republic) only Bitcoin is used for the structure is international, and international banking payments are expensive and complicated for ordinary members.
6) Which exchanges are MMM participants directed to?
We don’t direct anybody to anywhere. Participants are free to choose the most convenient service for them.
7) What does Mr Mavrodi think of Bitcoin?
Nothing. It’s just a convenient international payment instrument.
8) How much money has been mutually exchanged via MMM China?
You might be talking about MMM Global (Bitcoin Republic)? It’s comparable to the world stock exchanges volumes. If I refuse using Bitcoin tomorrow, it will fall down. You can have a look at the daily happiness letters on the website to estimate the volumes. Nevertheless, keep in mind that we don’t public all letters not to overload the servers. It’s impossible to public all of them.
9) Are you confident that people understand the risks of knowingly engaging in a financial pyramid?
MMM isn’t a financial pyramid. There is neither legal entity nor central banking account where participants’ money accumulates (where it can be stolen from). There are only accounts belonging to private individuals – ordinary members who transfer money to each other directly, without any intermediaries. MMM is just a dispatcher. With regards to the risks, all existing risks are mentioned on the website. What else to add… I don’t know. If you think it is not enough, feel free to send the warnings that you think should be mentioned on the site. We will publish them with pleasure. Together with the current ones. Generally, MMM is the most honest of the existing organizations. There are risks everywhere, however only MMM declares them openly. All the others just lie.
10) How can we contact Mr Mavrodi?
It’s easy. Actually, you have already done it.
11) In how many countries is MMM currently operating?
All information is available on the website. The issue is that in some countries our presence isn’t visible. Yet. Eventually MMM will be everywhere. How else could it be when it really pays up to 100% per month?
12) How many associates does Mr Mavrodi have?
I haven’t understood the question. Actually, it’s not related to the issue.
13) How many people are engaged in the current Chinese scheme?
All the participants do their best to help the system. Actually, I suggest you registering in the system as an ordinary participant to check everything by yourself. You will see that all these “crazy interests” are real. And everybody really gets paid. That’s the power of MMM and the secret of its popularity.
14) Are Chinese banks still facilitating yuan transfers between MMM participants?
Chinese banks just make transfers in yuan between private individuals. How can they know that they are MMM participants? They are ordinary private transfers.
15) What is Mr Mavrodi’s relationship like with the Russian and Chinese authorities?
No relationship. I don’t need anything from them and I hope they don’t need anything from me either. At least, I don’t violate any laws. None of the letter of the law!
16) Does Mr Mavrodi think the Bitcoin price rally is connected to MMM?
What is there to «think» about? It’s obvious. Taking into account our volumes. See question 8. If there are any further questions, please ask! Sergey Mavrodi will be pleased to answer them. Together we change the world!
And we followed up with:
Given the confusion about the Bitcoin use, can I ask when did MMM Global begin and when did it start using bitcoins, or has it done so from the beginning?
MMM Global had started earlier, but only after the launch of China it had a qualitative leap. As millions of Chinese have become involved both in MMM-China and MMM Global. (In MMM Global the growth rate may be higher if you do the tasks. And all members perform them indeed quite willingly.) Accordingly, it has created a huge demand for Bitcoin and abruptly increased its price. But that’s just a side effect. I have never made it a special aim to manipulate the Bitcoin price.
Given your description below about the peer transfer nature of MMM Global, does that mean it operates exclusively on trust?
That’s right. The participants transfer money to complete strangers (other participants) without any papers, guarantees and promises of paying back. In fact, they just donate it. For example you have registered and announced that you are willing to provide help for such a sum. You will receive information from other participants to whom it will be necessary to transfer this sum. To transfer it for free! Demanding nothing in return. There will be contact details of those people so you can communicate with them if you wish, and make sure they are real, living people. The same ordinary participants, as you are. If you refuse to transfer, you will be expelled from the system. Without the right to participate in it anymore. And that’s all. Everything is very simple. But in general, you’d better register and check everything in practice. It makes the most sense.
What were the actual charges that Mr. Mavrodi was found guilty of in Russia. Reports in the archives range from tax evasion to securities fraud.
As far as in the year 1994 it was necessary to stop me by all manner of means and there was nothing they could accuse me of. I faced a hastily fabricated accusation of tax evasion (What for? For pyramid? Yet the authorities claimed that MMM was a pyramid). As the investigator then openly spoke to me: “Well, we had to find at least something to blame you for. If MMM would have worked a couple of months longer, it could have resulted in Parliament or the President becoming obsolete. There would be one pure MMM.” The prosecution then naturally failed, not even coming to trial, but the goal was achieved: I was isolated and it sparked panic among the participants. It was in 1994. And in 2003 I was charged with fraud, for which I got 4.5 years’ imprisonment. When at the trial I asked the prosecutor what was the point of charging me for fraud, since everybody had been warned about everything initially, about all possible risks. The prosecutor calmly said, “but the people didn’t understand what they were doing.” Adult, capable people and yet “did not understand”! Of course, this would mean that anyone and for any reason can be put in prison. And the argument would be “people did not understand.” I served, by the way, my whole sentence not in a regular prison, but in the special detention center 99/1 (prison inside prison) with professional killers, maniacs and crime bosses. I had 15 hunger strikes and a lot of times I was isolated in the disciplinary cell (I even was set free from the same disciplinary cell), because I believed that they treated me wrong and I strongly rejected to abide by the prison regime. But it is so, besides the point.
So, according to Mavrodi his scheme is completely legal because the risks are well presented (a.k.a the caveat emptor defence of Silicon Valley techies) and that “it’s obvious” that without MMM the price of bitcoin would collapse.
A couple of quick, obvious points in return, are:
A 100 per cent return per month implies that a £100 investment would yield £409,600 in 12 months — clearly insane. The ignorant people putting money up here almost certainly can’t afford to lose it, which they will.
Mavrodi claims that the peer-to-peer nature of the scheme, wherein MMM mostly operates as an introduction service to voluntary “charity” transfers which are based on trust in the system, means the banks can’t stop them. This is bunk. In the regulated banking world, know-your-customer and anti-money laundering provisions ensure that if an account holder suddenly starts receiving hundreds of thousands of dollars of revenue from multiple sources outside of their usual revenue pattern, these sums will be investigated. Furthermore, most countries have caps on how much “gift aid” a private individual can receive tax-free. There are allowances for registered charities or churches, but as comedian John Oliver has highlighted just because you claim televangelical church status, doesn’t make this “seed planting” scheme any less of a scam. If the sums are received in bitcoin accounts, they amount to paper gains only. The chances that investors can cash them out in dollars or materialise the profits via exchange for real world goods and services, are low.
What’s weird is that Mavrodi hasn’t been closed down yet. We hope to have more on that matter soon.