Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Stopping The Casino Pyramids

Just over three weeks have gone by since the inevitable thunderbolt struck MMM, forcing the vast pyramid


scheme's collapse. The company's mastermind, Sergei Mavrodi, is in jail and has been charged with tax fraud. But the biggest questions have are yet to be answered.


Question No. 1: What about all the other pyramid schemes that are out there, building up to similar MMM-style implosions? The Russian House of Selenga, for example, has just closed its doors. It is said to owe some trillions of rubles in taxes and fines. But the Finance Ministry claims to know almost nothing about the company.


Question No. 2: What are the laws governing these kinds of scams? The Finance Ministry maintains that the laws simply do not exist to prevent pyramids from developing in Russia. But other experts in the field say that although messy, the laws do exist. They simply have not been enforced.


The government is reluctant to be seen to get involved. Justifiably or not, the average Russian would trust a necromancer with money before his government and the political risks to the Finance Ministry in being seen to close down these vast nationwide casinos are considerable. But to do and say nothing is no answer at all.


The need for some kind of response has become especially acute since Mavrodi, acting from his prison cell, has ordered MMM's offices to begin trading its shares again.


At the very least a high-level commission should be formed to establish which investment companies are pyramid schemes and which have genuine investments.


The names of the Germes and Telemarket companies are constantly tossed around as future MMMs, for example. These are already huge concerns and could become far larger. But if the government will not audit them and then either warn investors away or clear the companies of unfair suspicion, then who else can? However distasteful the task of policing the securities markets may be, this is a vital responsibility of any government and Russia's Finance Ministry must, sooner rather than later, shoulder the burden.


Question No. 3: How can it be that advertising for these companies continues long after they have closed down? The government has taken some action to limit the wild claims that investment funds can make in their advertising. But final responsibility lies with the editors of newspapers and directors of television stations, who have their own reputations to weigh against the mounds of hard cash that pyramid schemes can offer.


Together, these questions amount to an important matter of principle. Neither the free market nor democracy will last long in Russia if experience teaches the voter that the market is nothing but a crapshoot in which the smartest con-artist takes the pot.