Building A Fortune On Misfortune: Pyramid Schemes Still A Bane In Russian Hinterland
By Kirill Kruglikov, Robert Coalson February 15, 2020
VELIKY USTYUG, Russia -- Posters outside the Veliky Ustyug Cultural-Entertainment Center advertise a concert on February 23 to mark Defender of the Fatherland Day and, a couple weeks later, a performance of Tchaikovsky's opera Eugene Onegin.
But on many days, the venue hosts quite a different spectacle. The massive hall is converted into a makeshift courtroom, with the judge's bench and tables for prosecutors and the defense arrayed in front of it. The rows of stackable chairs fanning outward toward the back of the hall fill up with many of the 382 people who say they were victimized by a company called MSO Invest Group, which prosecutors allege was a financial pyramid scheme.
Pyramid schemes, or Ponzi schemes -- in which investors are attracted by promises of outlandish returns which are then paid out from funds taken in from additional investors -- were a hallmark of the so-called "wild 1990s" following the collapse of the Soviet Union and the introduction of economic shock therapy.
The most notorious case involved the national firm MMM of Sergei Mavrodi, in which at least 5 million people lost a total of up to $10 billion before the scheme collapsed in 1994. But there were many others, firms with names like Tibet, Chara, Khoper-Invest, Selenga, and Germes.
Such frauds were an unsavory aspect of Russian life that Vladimir Putin vowed to put an end to when he rose to power in 1999 and pledged to impose a "dictatorship of law" in the chaotic country.
But it appears pyramid schemes never went away -- and their numbers may be rising. In 2019, the Russian central bank identified more than 200 suspicious organizations that appeared to be pyramid schemes, up from 168 the previous year, according to the financial news website Dolg.rf.
Earlier this month, prosecutors in the North Caucasus region of North Ossetia announced fraud charges against a company in the provincial capital called Sberkassa Alanii, which was accused of stealing 288 million rubles ($4.6 million) from would-be investors.
In Omsk, businessman Dmitry Danilov is currently on trial, accused of defrauding more than 100 people out of a total of 20 million rubles ($317,000) in an apparent pyramid scheme.
'A Decent Guy'
For decades now, snow-covered Veliky Ustyug, a city of some 30,000 people about 1,000 kilometers northeast of Moscow in Vologda Oblast, has tried to brand itself as the festive home of Ded Moroz, or Grandfather Frost, the genial Russian equivalent of Santa Claus. But since the MSO Invest Group project collapsed in April 2018, the mood in the city has been decidedly somber.
"I got caught up in this situation," would-be investor Pavel Sverkunov told RFE/RL. "What can I say – they cheated me. There really is nothing more to add."
Sverkunov's story is typical of the alleged victims in this case. He was attracted by the MSO Invest Group advertisements that blanketed the city after the firm's founding in 2015. While normal banks offer 3 or 4 percent annual interest, the ads claimed, MSO Invest Group offered 8 percent per month -- a phenomenal annual rate of 96 percent.
For nearly two years, Sverkunov held off "investing" with the company, monitoring its reputation. Veliky Ustyug is small, and he knew several people who assured him that MSO Invest Group owner Oleg Markov was reliable.
"They told me he was a decent guy," Sverkunov recalled. "They knew him and his family. They said he wouldn't cheat anyone. So, I decided to invest."
Sverkunov picked precisely the wrong moment to jump in.
"I invested in 2018," he said. "Before that, they paid off like they promised." He invested "about" 150,000 rubles ($2,400) on the promise of getting back over 200,000 ($3,200).
He never received anything and now has attended almost all 30 sessions of Markov's fraud trial. He says he still hopes to get at least some of his money back.
In all, Markov and his company are accused of swindling 200 million rubles ($3.2 million) from 382 residents of Veliky Ustyug and nearby cities, including Kotlas, Vologda, and St. Petersburg.
Veliky Ustyug resident Sergei Lobantsev said the fact that Markov was a local played a major role in his decision to invest with the company.
"I knew him," Lobantsev said. "I knew that he was who he said. He didn't come from some far-off place. I read about him and his family on the Internet. His business license was registered here. I thought to myself, 'Well, OK, let's give it a try.'"
Lobantsev got in early and received several payments, all of which he reinvested with the company. He declined to say how much money he lost.
Another investor who asked to be identified only as Yulia told RFE/RL that she was one of MSO Invest Group's biggest victims, losing more than 500,000 rubles ($8,000). She remembers clearly how she made the decision to invest.
"Every day on the way to work, I saw their advertisements," Yulia said. "On buses and on the television and in the newspapers and in every mailbox. This was very enticing. And I knew Oleg personally. At that time, I thought I could trust him, that he was reliable…. I knew some women who worked in his office. That's it. The rest was greed."
"Welcome to the club of successful people," was the slogan on the homepage of the now-shuttered MSO Invest Group Website.
"We are a team of independent traders who operated on [the Russian stock exchange] FOREX and secondary Russian and international fund markets at a professional level," the company's description ran. "From the perspective of reliability, adherence to the laws of the Russian Federation, and the attractiveness of investment terms, we have many advantages over our competitors."
Founder Markov was born in Veliky Ustyug in 1987. Many of his alleged victims remember him from school. No one quite knows whether he had any training or experience in business or finance.
MSO Invest Group opened in 2015 with an aggressive advertising campaign that lasted the firm's entire three years. Veliky Ustyug quickly proved too small for the company, which opened two offices in Kotlas, a city of 60,000 in Arkhangelsk Oblast, in 2016.
The company kept itself in the limelight with contests, giveaways, and other promotions. It sponsored local sporting events, for which it was commended by the municipal authorities in Kotlas. Markov regularly posted on social media and gave investment advice on his now-cancelled YouTube channel.
MSO Invest Group had already planned further expansion to Vologda and Murmansk when the police first came knocking in early 2018. The firm announced it would be closed from April 3 to April 15 because of an "audit." Its accounts were frozen and Markov himself left the city.
He didn't get far, however, and police arrested him about 600 kilometers away, in Cherepovets, on April 21. Since then, he has been held under house arrest without access to the Internet. His trial opened in September 2019.
'They Got What They Deserved'
For nearly a year after the firm was closed down, its advertisements continued to adorn city streets. They weren't cleared away until after victims petitioned local officials.
Markov's victims say they haven't gotten a lot of sympathy from other townspeople, who often express some version of "they got what they deserved."
"People wanted easy money," Nikolai Yegorov, a former Vologda Oblast lawmaker from Veliky Ustyug, told RFE/RL. "It is a story as old as the world. We had MMM and the people still haven't learned."
For Veliky Ustyug, the next chapter of that age-old story may already be beginning. On December 5, 2019, law enforcement arrested Denis Molev, the founder of the local real-estate agency Uyutny Dom (Cozy Home).
He is accused of using his real-estate business as a cover for a pyramid scheme that prosecutors say defrauded clients of an estimated 25 million rubles ($400,000).
And elsewhere, there are indications of the pyramid-scheme fraud producing a secondary fraud market.
In the North Caucasus region of Kabardino-Balkaria earlier this month, police arrested a man who is accused of defrauding a woman of 1.4 million rubles ($22,200) by posing as a lawyer and promising to help her recoup the money that she lost in the 1990s MMM scandal.
In Penza a woman reportedly lost 87,000 rubles ($1,400) to a telephone scammer who also promised to help her recover money lost in an earlier pyramid-scheme fraud.
Written by RFE/RL senior correspondent Robert Coalson based on reporting by correspondent Kirill Kruglikov of the North Desk of RFE/RL's Russian Service
Copyright (c) 2020. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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