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Reports that the MMM’s Republic of Bitcoin had collapsed this week sent shock waves through the South African investment community who have invested at the local MMM branch.
The MMM scheme has been investigated by the National Consumer Commission.
In December, the commission handed all information related to MMM to the police’s Specialised Commercial Crime Unit, so it could find out whether MMM was a pyramid scheme.
According to the Consumer Protection Act, “a person must not directly or indirectly promote, or knowingly join, enter or participate in a pyramid scheme”.
In a development on Friday, Deon Jansen van Rensburg, who said he was an independent financial advisor and acting on behalf of ‘members of the MMM community, issued a statement to the effect that an application had been filed in the North Gauteng High Court to declare that the MMM Community was ‘not a multiplication or pyramid scheme as defined by the Consumer Protection Act’.
“It is also crucial to address the baseless allegations made through the media that MMM Global has closed,” van Rensburg said.
“What happened was an internal reorganisation, which took place in MMM ... MMM is a platform for exchange of donations,” he added.
MMM markets itself as a social financial network to help people get themselves out of debt. It offers returns of up to 30% a month, but the risks are enormous and apparent.
Firstly, as there is no central account where the money is held and individuals are in effect .anonymous, the online system is crucial in maintaining the money flow between individuals.
Secondly, the survival of the structure, as MMM acknowledged, relies entirely on new inflows – these inflows need to grow exponentially to maintain the level of returns.
In a radio interview this week, the head of charity coordination at MMM, Edward Phiri, acknowledged that the MMM system relied on new inflows to sustain its return.
A great deal of faith has been placed in the online system, which sits in a server in Russia, and is in effect managed by the architect of MMM – Sergey Mavrodi, a Russian national who was arrested for fraud and tax evasion after the Russian equivalent of MMM collapsed in 1994.
In an interview with Financial Times, Mavrodi confirmed that he was charged with fraud, and imprisoned for four and a half years.
According to Wired.com, Interpol Moscow also believed that Mavrodi was the mastermind behind Stock Generation, a massive internet pyramid scheme that collapsed in 2003.
Reports that Mavrodi cashed out and that one of his operations, Republic of Bitcoin, had shut down and that he had gone into hiding set off alarm bells around the future of MMM South Africa.
Republic of Bitcoin’s Facebook page offered the following message: “We regret to inform you that we have to close down the Republic of Bitcoin. “It was an experiment and, unfortunately, it failed.”
It asked members for their understanding.
The announcement claimed that what Mavrodi owed to investors in Republic of Bitcoin would be transferred to the branches of MMM, and 10% of the input in the system would go to repaying these members.
If this indeed happens, it means that these new members join the number of existing members asking for donations and therefore even more new members are required to feed the system, putting pressure on the pyramid structure.
In the words of Bongani, a Twitter user who claimed to be an MMM member in South Africa, but declined to reveal his surname: “The risks are dependent on your faith in whatever it is you are investing in, or the person investing for you.”
It seems MMM’s investors have put their faith in a system and a man who is both unaccountable and unreachable.
