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Sunday, October 30, 2016

MMM PONZI SCHEME IN NIGERIA, " MATTERS ARISING "


As many Nigerians Are excited to log in and fill membership forms on the website of MMM-Nigeria, they should perhaps have taken a minute to think about the long string that runs from the firm all the way back in time to a certain man called Charles Ponzi. 
In 1920, Ponzi became the first person to actualize the financial scam mentioned in Charles Dicken’s 1844 novel, Martin Chuzzlewit and another novel written in 1857 titled Little Dorrit, and earned the dishonour of the scam being named after him.
According to Wikipedia, Ponzi’s original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors’ money to pay himself and the earlier investors.
His operation took in so much money, and it was the first to become known throughout the United States. Today, operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.


Ponzi schemes occasionally begins as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.

Here comes the MMM era…
MMM started in 1989 as a Russian company and it rode on the financial waves in the 1990s. It was established by three people: Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova. The company derived its name from the first letters of their surnames.


From inception, the company focused on the importation of computers and office equipment, but the business failed woefully. Before long, the firm was prosecuted for tax evasion by Russian tax police, which ultimately led to the collapse of the business. The three owners tried to sell stocks to shore up the capital, but the effort failed. After awhile they teamed up again to form MMM-Invest, which was also not successful. However, fortune smiled on them when MMM created its own version of Ponzi scheme in 1994. The company attracted money from many private investors. The business grew rapidly and it thrived on word of mouth. But most of the company’s success came from its extremely aggressive advertising campaign, which appealed to the general public by using “ordinary” characters that viewers could identify with.


In July 22, 1994, the police closed the offices of MMM for tax evasion. For a few days the company attempted to continue the scheme, but soon ceased operations. At that point, Invest-Consulting, one of the company’s subsidiaries, owed more than 50 billion rubles in taxes (equivalent of US $26 million), and MMM itself owed between 100 billion and 3 trillion rubles to the investors (from US$ 50 million to USD1.5 billion). In the wake of the crisis, 50 investors who lost their money committed suicide.
It is estimated that five to 40 million people lost up to $10 billion. The founders did not even know the exact figures.


In 2016, MMM was launched in Nigeria through a website with a business model claiming to pay a 30 per cent return monthly through a social financial network.
The firm states on its website: “MMM is not a bank, MMM does not collect your money, MMM is not an online business, HYIP, investment or MLM program. MMM is a community where people help each other.” Yet people were asked to invest their money and in return, 30% interest will be given to you. A friend told me that if you invest 200,000 Naira, at the end of the month. You will get 60,000 Naira as a profits.

Let's take a look at Past Ponzi scheme in Nigeria.
A notorious Port Harcourt-based businessman, by name Umanah Umanah, who allegedly swindled countless number of unsuspecting Nigerians in the early ‘90s with his company, Resources Managers Limited, an unregistered financial outfit operating in Port Harcourt. In those years of its operation, Umanah literally ran licensed commercial banks out of operation, as he lured depositors with a carefully crafted scheme which allowed anyone to withdraw his or her full deposit with 100 percent interest after four weeks. This became a huge attraction for the teeming depositors, who thronged commercial banks to withdraw their deposits and placed them in the wonder bank. Even some top shots in the public service were not left out, as some of them fell for the deal and also put their cash in the wonder bank.

When eventually the bubble burst, Umanah was arrested by the Police and arraigned for operating a bank without a licence by the Federal Government and in violation of the regulations set out by the Central Bank of Nigeria (CBN). Umanah was charged alongside his company with illegal banking operations in the country before the Federal High Court in Port Harcourt. Both Umanah and his firm, Resources Managers Limited, however, pleaded not guilty. Umanah applied for bail, which the court granted. The charges were subsequently amended by the prosecution and the proceedings in the matter suddenly got stuck. No one heard of Umanah again or his money or any proceedings relating to the charge preferred against him. Umanah and his wonder bank just disappeared into the thin air till date.


Similarly, the managing director of another alleged wonder bank in Enugu, Lets Partner With You Ltd, Patrick Nwokike, was equally arrested by the EFCC for allegedly defrauding unsuspecting members of public to the tune of N4billion. His arrest followed several petitions from across the country on the nefarious activities of his company. Nwokike was alleged to have solicited and obtained deposits from the general public for five years with a promise of mouth-watering interest in return.
Before the security operatives uncovered the unregistered company, reports said, some depositors had enjoyed a 10 per cent interest on their invested capital, but the largesse suddenly stopped and all efforts by others to have at least their initial investments returned became futile.

Petitions from Nigerians alleged that Nwokike not only lived a very flamboyant lifestyle but acquired several personal assets and used their deposits for philanthropy. Although Nwokike admitted in his statement that depositors’ funds with his company amounted to N4 billion, he claimed that his company was into a partnership business, which received money from interested partners who desired interest over a period of time. According to CBN report, no less than 560,000 Nigerians were fleeced of N1 billion by wonder banks between 2009 and 2012.

In conclusion, I will say that, what appears to be a new wonder bank with a new name "MMM NIGERIA" has commenced online operations in Nigeria, and probably without license from the appropriate regulatory authorities. The funny thing about the so called " MMM" is that it has no known address. Yet some Nigerians are already queuing up, online, and depositing money into a certain bank accounts as directed by the organisation. When will the bubble burst? Only time will tell.

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