Sergei Mavrodi Convicted of Fraud in MMM Trial

By Kevin O’Flynn

Staff Writer

Published: April 27, 2007 (Issue # 1266)

MOSCOW — Sergei Mavrodi, the mastermind behind the notorious MMM pyramid scheme that scammed millions of people in the early 1990s, was convicted of fraud on Tuesday in a Moscow court in what appears to be the end of a bizarre saga that stretches across the entire post-Soviet era.

Reading out the verdict Tuesday, Judge Nadezhda Markina of the Chertanovsky District Court said Mavrodi had defrauded MMM investors “by deception, betrayal and abuse of trust.”

MMM was the first and the biggest in a series of financial pyramids that hit Russia in the 1990s. Mavrodi was found guilty of defrauding 10,000 investors out of 110 million rubles ($4.3 million), though in reality millions of people lost money in the scheme.

Markina is expected to finish reading the 820-page verdict later this week and to sentence Mavrodi on Saturday. Prosecutors have asked for a five-year sentence, but it is likely that Mavrodi will be released soon, as he has already spent four years in custody.

Mavrodi’s lawyer Olga Makarova insisted that her client was innocent.

“We do not consider him guilty,” Makarova said just before Markina began reading the verdict.

There is no article in the Criminal Code that applies to what happened to MMM, Makarova argued.

MMM, which operated from 1992 to 1994, was a sensation thanks to a clever saturation advertising campaign on national television that promised spectacular overnight returns on investments.

MMM’s droll, 60-second television spots, featuring ordinary Russians whose lives improve drastically after they purchase the company’s stock, captured the nation’s imagination.

The advertisements’ fictional heroes, Marina Sergeyevna and Lyonya Golubkov, became household names as MMM shares soared in value from 1,600 rubles (then about $1) to 105,600 rubles (about $65). Dividends were paid with money from new share sales.

Some 2 million to 10 million people lost their savings when the pyramid scheme folded in July 1994, and thousands of panicked people took to the streets. Investigators have estimated that Mavrodi made off with up to $100 million.

After MMM collapsed in 1994, Mavrodi was charged with tax evasion and jailed. But he was released in October 1995 to run for a seat in the State Duma, which he won, largely on the promise to spend $10 million on improvements in the Moscow suburb.

About one-quarter of the district’s voters were reported to hold MMM shares, and many shareholders believed Mavrodi’s claim that MMM had been brought down by a government plot.

As a Duma deputy, he secured immunity from prosecution. A year later, however, the Duma stripped him of his seat, and thus his immunity, and the police resumed their investigation into possible fraud at MMM. Mavrodi remained at liberty during the investigation, and in 1996 he tried to register as a presidential candidate.

The police closed their investigation in 1997, citing a lack of evidence. The Prosecutor General’s Office reopened the case in 1998, and when prosecutors attempted to bring Mavrodi in for questioning, they found he had disappeared.

Although police initially suspected that Mavrodi had fled abroad, he was eventually arrested in his apartment in central Moscow in 2003.

The court on Tuesday was filled with the mainly elderly supporters of Mavrodi, most of whom had lost much of their life savings in his financial scheme. They, along with Mavrodi, were forced to stand while the verdict was read.

Mavrodi was given medical assistance after he collapsed two hours into the verdict while standing in the defendant’s cage. None of his elderly supporters required assistance. Despite their losses, the defrauded investors remain loyal to the bespectacled Mavrodi, an unassuming figure who was dressed in an Adidas tracksuit Tuesday and who looks like the computer salesman he once was.

“Let him go, he didn’t kill anyone,” said Marina Bolotova, 71, a former cleaner who lost tens of thousands of rubles when MMM crashed and complained that she had no money for her funeral. “They should put in jail those who caused this chaos.”

Mavrodi told the court last year that if set free he would do his best to pay back investors, partially by cashing in his $1.5 million in shares of state-owned gas giant Gazprom.

If left in prison, however, Mavrodi said, “there can be no talk of returning the money,” national media reported.