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Russia's Madoff Strikes Again

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There are so many fascinating particulars in Time’s latest piece on Russian ponzi schemer Sergei Mavrodi it’s hard to know where to begin.

So we’ll start with this fantastic description of his physical appearance: “Take the swindling power of Bernie Madoff, combine it with the hypnotic creepiness of a midnight televangelist, wrap it in a math teacher's wardrobe, and you'd be pretty close.”

Which is sort of difficult to imagine. But here’s what I came up with.

Anyway, back in the post-Soviet madness of the early 1990s, Mavrodi swindled millions of people out of millions of rubles in what was called the MMM pyramid scheme. He was ultimately found guilty of defrauding 10,000 investors out of 110 million rubles ($4.3 million).

But that’s where the similarities to  Madoff end. After Mavrodi was released from prison, he ran for a seat in the State Duma. And, quite shockingly, he won. His political success was, however, indebted to a further scheme by which he promised his would-be constituents, many of whom were MMM shareholders, that he would begin to pay them back. In winning the election, Mavrodi also won himself immunity.

A year later, the Duma stripped him of his seat, and the investigations into Mavrodi’s tax evasion and fraud resumed.

Flash forward to today, and Mavrodi is still at it, albeit in a slightly more honest way. Time reports:

On Jan. 11, Mavrodi launched a new pyramid scheme, MMM-2011, which uses pretty much the same trick that got him sentenced to 4½ years in prison the last time. It asks investors to buy his so-called MMM Dollars — which he playfully calls "candy wrappers" — and wait for him to assign them a new value twice a week on his blog. He said he expects their value to grow by 30% per month for "pensioners and invalids" and 20% for everyone else, but stressed that this was only his opinion: "I could be wrong," he said on his blog.

That kind of candor is what sets Mavrodi's game apart from your average pyramid scheme. Unlike the original MMM, which Mavrodi passed off as an upstanding financial institution with retail locations that sold its shares (complete with Mavrodi's picture on the front), the new MMM is more up-front. "This is a pyramid," Mavrodi said in his appeal to the nation on his blog. "It is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!" Somewhat less believably, he added, "I'm not getting a penny out of this. I'm simply showing the way."

And yet, Russians are still buying!!!

And this time, in part because of Mavrodi’s disclaimer, Russian authorities are finding it difficult to actually find any laws that he’s violated. Instead, some lawmakers are suggesting that the Kremlin engage in an act of “selective justice,” which is code for “just throw the SOB in jail and forget about it.”

But who's really to blame here? After all, we all know the old adage: "Fool me once, shame on you.  Fool me not twice but maybe five or six times, and, hey, that's just whacky old Russia, now shut up, drink this vodka, and have a pickle, na zdorovyeh!!"
POSITION:  No positions in stocks mentioned.