Personal-Finance

What is the deal with MMM?

2016-03-30 10:00

It appears to follow a classic pyramid scheme and is run by a man already convicted of operating a similar scam

Seraki writes:

I would like to know if you know anything about MMM SA Investment. My friends and colleagues are making a lot of money every month through this investment scheme.

I am tempted to join MMM, as I know that one must take risks at some point to become successful.

I would like to know if my bank account will be at risk, prompting the SA Revenue Service to knock on my door later to demand its portion.

City Press writes:

We have received many reader queries about MMM and whether or not it is a safe investment.

The scheme has been investigated by the National Consumer Commission, which states that it has “handed all related information to the SA Police Service for further handling”.

The Consumer Protection Act describes a pyramid scheme as any business model that promises an investor an annual interest rate of 20% above the repo rate, which is currently at 7%.

Currently, MMM claims to pay between 20% and 100% per month, but makes it clear that this is not a yield and not guaranteed – it all depends on whether or not someone wants to offer you “assistance”.

MMM is the brainchild of Russian national Sergey Mavrodi, who ran a similar scheme in Russia in the 1990s, which, according to Wikipedia, collapsed, losing investors $10 billion (R154 billion).

Based on the information provided on the website, MMM follows a classic pyramid structure.

The participants derive their income or returns primarily for the recruitment of new members.

In other words, the returns are not based on investments or the selling of any product, but on money paid by new people joining.

The philosophy is that you offer assistance by paying a joining fee.

Using a simplistic example, if all members pay R1 000 to join and the monthly return is 20% (R200), then as a new member, you pay R1 000 to “assist” other members.

This R1 000 would be divided among five existing members, giving them each R200. The next month, you receive “assistance” and a portion of the next new members’ joining fee is allocated to your account.

In this basic example, you would need one new member per five existing members to keep the scheme afloat just to meet a 20% return – let alone the 100% return.

For example, once there are 10 000 members, for each member to receive their 20%, a further 2 000 members would have to be recruited the next month.

As they join, so the speed of recruitment has to increase.

Now you have 12 000 existing members and need 2 400 new members the next month, 2 880 the following month and then 3 456 new members, and so on.

This is a compounding effect and hard to maintain.

Existing members will be working really hard to recruit new members to keep the system going, so keep that in mind when your friends are trying to convince you to join.

MMM uses a virtual currency called Mavro (based on the surname of the founder), which is purchased via the official virtual Bitcoin currency.

We can only infer that what your Mavros are worth in rands is determined by how much someone buying or selling Bitcoins with rands would be prepared to pay.

There is also the issue of taxation of the returns received from such schemes – they should be declared in your tax return.

With increasing concerns around the viability of MMM and an investigation under way by the police, no doubt to be followed by the Receiver of Revenue, it appears likely that MMM will collapse sooner rather than later.

Bear in mind that successful people take sensible risks.


November 18 2018