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. Last Updated: 07/27/2016

Thousands Protest as MMM Halts Sales


MMM, Russia's largest investment company with at least 5 million stockholders, stopped honoring its own shares Tuesday at offices throughout Moscow in what could be the collapse of the reputed pyramid scheme.

"This is a catastrophe," said Anna Chernova, 25, one of some 20,000 angry investors who gathered outside MMM headquarters in southern Moscow after being turned away from the company's 60 other offices in the capital. Many said they planned to spend the night.

Until Tuesday, the company's shares had skyrocketed in value, from 1,600 rubles in February to 105,600 rubles on Monday (from about $1 at the February exchange rate to more than $50 at the current rate).

The company's aggressive advertising campaign, along with a promise to redeem its own shares at values quoted in advance, brought in droves of new shareholders. MMM commercials and share quotations for Thursday citing a buying price of 125,000 rubles per share continued to run Tuesday on Russian Television amid news reports that the company could be collapsing.

MMM officials said Tuesday that the shutdown was temporary. As of Tuesday afternoon, MMM shares were still selling for 110,000 rubles apiece at the Russian Raw Materials and Commodities Exchange, while speculators were offering to pay 50,000 rubles per share at MMM headquarters.

Nonetheless, investor Antonina Kozina, 65, said she was sure the company had collapsed, and immediately blamed the government for the several million rubles she lost.

"The government turned into worthless paper my savings in Sberbank three years ago and now it kills the company which helped me get by," she said, referring to the freezing of accounts at the state savings bank in early 1992.Russian officials at all levels have long been warning that the company had no substantial investments. Last week alone, the Finance Ministry issued a statement warning Russians that some MMM securities were illegal, Russian tax authorities announced that one MMM division had failed to pay 49.9 billion rubles in taxes and sanctions, and the State Anti-Trust Committee rejected MMM's request to raise its charter capital and issue more shares.

Russian Television reported Tuesday night, however, that MMM-Invest, one of the company's 22 divisions, was the third largest shareholder in giant carmaker AvtoVAZ after the government and the All-Russian Automobile Alliance. The report could not immediately be confirmed.

Anatoly Krasikov, head of President Boris Yeltsin's press service, declined to comment on the news Tuesday afternoon. "We're not dealing with it," he said. "This is not our question."

One official with MMM admitted this week that the company was running a pyramid scheme, in which high returns on investments are paid with revenues from the sale of more shares. However, MMM spokesman and advertising director Bakhyt Kilibayev, who was out filming a new commercial Tuesday, denied the pyramid allegation in an interview over his cellular telephone.

Some investors have also acknowledged that they were playing a game. "I always knew I could lose and now it happened," said Liya Galkina, 60, on Tuesday after she learned that her shares would not be redeemed.

But Yevgeny Beletsky, deputy manager of one MMM office in downtown Moscow, said in a telephone interview that the shutdown was the result of a temporary cash supply problem.

"We've received an instruction from our headquarters to temporarily stop buying the shares," Beletsky said. "The instruction explained that the company lacks money collectors and those it has are not doing a good job to provide cash supply to all offices."He said that he was told by higher MMM officials that the company needed "to wait until its dispute with the Finance Ministry and tax officials is settled.

"I have no idea what will happen tomorrow," he said.

The news of MMM's refusal to pay came as MMM president Sergei Mavrodi, in newspaper advertisements published Tuesday, threatened to hold a referendum among the company's shareholders on confidence in the government.

In a statement headlined "Declaration of Dislike," the secretive MMM founder maintained that the company had 10 million shareholders, calling them a "political force" that the government dare not stifle by cracking down on the company.

Referring to characters in the company's advertisements, who grow rich through investments in MMM, Mavrodi wrote: "So, the authorities do not like Lyonya Golubkov and Marina Sergeyevna. But do Lyonya Golubkov and Marina Sergeyevna like these very authorities?"

Valery Grishin, spokesman for Prime Minister Viktor Chernomyrdin, said in a telephone interview Tuesday that the government was worried about possible social consequences of the collapse of the pyramid.

"This scheme is well known around the world and it never lasts very long," Grishin said. "When it comes to an end, the top takes off and shareholders raise a storm. And who do you think they would ask for protection? The government."

-- Mark Whitehouse contributed to this article.