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. Last Updated: 07/27/2016

For the Law, A Lesson From MMM

Whatever else you may think of Sergei Mavrodi, the mastermind of the MMM pyramid scheme, you must at least be amused by his chutzpah. He has continuously challenged the boundaries of Russian law with one intricate share-selling shenanigan after another.


His latest contrivance, calling MMM sales "donations," tops all the rest and reveals his obsessive desire to tiptoe on the boundary of legality. Apparently Mavrodi believes that such donations are not covered by securities regulations, allowing him to get around limitations on the number of shares he can sell and also not pay taxes.


That Mavrodi should apply his obviously formidable creative talents to more legitimate business activities goes without saying. But his scheming does a service by pointing to the most glaring deficiency of Russian law and law enforcement.


The Russian legal system, perhaps in a vestige of its bureaucratic past, is married so forcibly to the letter of its antiquated laws that it cannot handle the likes of Mavrodi, who simply attaches new names, companies or pieces of paper to the same activity.


The inability of Russia's legal system to interpret the law means it cannot use the most obvious judicial test: If it looks like a duck, smells like a duck and acts like a duck, it must be a duck.


Indeed, a Finance Ministry official contacted Thursday could not say whether receiving donations in return for securities was legal or not. An official should be able to say unequivocally that it does not matter what Mavrodi calls the payment.


In most legal systems, such a problem would not occur because interpretation is one of the main weapons used against those trying to break financial or tax regulations. Regulators will treat a security as such even if the seller calls it a refrigerator. The regulator would not search in his financial regulations for the treatment of a refrigerator.


This is not to encourage officials to ignore the written law. It is to say that if Russian law enforcement ever expects to keep pace with the creativity of lawbreakers with brains as febrile as Mavrodi's, a radically different approach is needed.


The approach is not so much in the law, although there are crying needs there too. But no law can ever be specific enough to define and then regulate every type of security, every type of corporation and every type of scandalous financial transaction.


Tax officials, security regulators and the courts must be given the authority to interpret. That flexibility would send a clear message to the next pyramid promoter: Your time and creativity is better spent on more legitimate concerns, because we do not care what names and fronts you use, we only care what you do.