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. Last Updated: 07/27/2016

Watchdog Targets Unlicensed Investing

The Federal Securities Commission, Russia's market watchdog, has requested that law enforcement officials take legal action against nearly 1,000 unlicensed investment companies, the commission's head said Tuesday.


Commission chairman Dmitry Vasilyev said the request to crack down on illegal investment schemes was prompted by the situation in Albania where pyramid scheme victims have touched off riots and other civil strife. "The people behind these schemes are crooks, and crooks must pay for their deeds," he said. "They must be put in prison."


A rash of Russian pyramid scams, which peaked with the collapse of MMM in 1994, robbed Russians of about 50 trillion rubles (around $23 billion at 1994 exchange rates), according to official estimates.


Vasilyev, speaking at a press conference, was flanked by Yevgeny Kovrov, head of the Federal Fund for the Defense of Depositor and Shareholder Rights, who described how money is being collected to compensate Russian pyramid scheme victims.


To date, only 10 billion rubles ($1.75 million) has been collected to compensate victims, with funds coming from the confiscated property of failed schemes and a 2 percent levy on income from privatization, which Russian regional administrations are being asked to pay voluntarily.


"There are several regions we are having trouble getting money from, for example Belgorod," Kovrov said. A fund spokeswoman said it is lobbying for a law requiring regional contributions.


Kovrov and Vasilyev acknowledged that the fund, which will pay World War II veterans first, would never be large enough to fully reimburse all the investment scheme victims, but suggested funds could grow if invested wisely by licensed mutual fund managers.


Decisions on payment sums and deadlines depend on the fund's trustee council, which consists of the representatives of cheated investors, Kovrov said.


Aisha Khaziyeva, head of the organization that defends the rights of Muscovites who lost out to MMM, was dismissive of the fund's efforts.


"They will never get any of the money back from MMM, because all that money already has new owners," Khaziyeva said. She condemned Russia's new mutual funds as an effort to "squeeze out the $45 billion that ordinary people still have left."


The head of one of the new mutual fund management companies said the compensation plan was good news but would be hard to implement.


"It will need a team of forensic lawyers, and even then it will be very tough going," said Charles Mallory, the head of Credis management company. "Records have been destroyed, and the money is overseas."