8 arrested in Spain for running a 'cult-like' crypto trading academy scam targeting young people

Spanish police have arrested eight people in relation to an online crypto trading academy that they have described as a 'pyramid scheme'. 

Jaime Velazque

EuroNews

April 29, 2022

 

Lorena’s daughter was just 17 when she joined the IM Academy, an online trading course that promised to bring her wealth and success by training her in foreign exchange and cryptocurrency investing.

But like hundreds of other young people in Europe, Lorena’s daughter ended up being sucked into what Spanish investigators are now calling a pyramid scheme.

According to María Fernández, the Spanish National Police Spokesperson, leaders of the organisation used cult-like techniques to persuade youngsters to cut ties with their families and focus only on the organisation.

Finland to sell confiscated Bitcoin worth €75 million to support Ukraine's war effort

The group’s leaders would lure young people by bragging about their luxury lifestyles allegedly achieved as a result of changing their mindset towards a success-led mentality.

Instead of hosting training materials related to financial learning, the IM Academy is merely a collection of motivational videos.

Unable to pay for their fees to stay at the Academy, students would then be offered money to bring new members into the organisation. The more people an individual recruited, the more money they would make.

A former middle-rank member told Euronews that he recruited up to 30 people and would spend 14 hours a day "evangelising" his group and trying to register new members.

It took him two years to realise he was being used as an instrument of a pyramid scheme.

Almost all the IM Academy members are victims of coercive persuasion.

As such, more than 60 families are now receiving counselling from RedUne, an association specialising in cults and sectarianism.

"Those who promote these kinds of groups have a playbook on how to capture and groom recruits," Juantxo Domínguez, the president of the organisation, said.

"You don’t realise where you are headed, because you have a need, you have a vulnerability".

https://www.euronews.com/next/2022/04/29/8-arrested-in-spain-for-running-a-cult-like-crypto-trading-academy-scam-targeting-young-pe

Why China Keeps Falling for Pyramid Schemes

Pyramid schemes are big business in China – much to the government’s chagrin.

By Eugene K. Chow
The Diplomat
March 05, 2018

In China, cheap knives and questionable nutritional supplements are the least of regulators’ worries when it comes to pyramid schemes. Crafty scammers have bilked unsuspecting Chinese out of billions of dollars, draining the meager savings accounts of recent college graduates, migrant workers, and pensioners.

One pyramid scheme alone defrauded 900,000 people of $7.6 billion. But that’s only the tip of the iceberg. More than 40 million people have been ensnared by these sham investments, according to the China Anti-Pyramid Selling Association.

Fearing financial instability and social unrest, the central government announced a sweeping nation-wide crackdown on organized crime, naming pyramid schemes as a top priority alongside drugs, gambling, and human-trafficking.

But in a surprising twist, those duped by these scams are some of their greatest defenders. Firmly believing in the legitimacy of these fake companies, the defrauded have even publicly rallied against the government’s efforts to shut them down.

An Environment Primed for Swindlers

According to Zheng Zichen, an economist and sociologist with the state-run Guangdong Academy of Social Sciences, pyramid schemes have gainedwidespread appeal across vast segments of China’s population because of “China’s deep-rooted problems – its wealth gap and unbalanced development between urban areas and hinterland provinces.”

While China’s economy has grown at unprecedented rates, large portions of the population have been left out of the country’s meteoric rise. The wealthiest 1 percent of Chinese households own a third of all wealth, while the poorest 25 percent own 1 percent, according to a 2016 study from Peking University.

Eager to get rich, but with few opportunities, migrant laborers, workers laid off from state-owned enterprises, and recent college graduates in second and third tier cities are particularly vulnerable to pyramid schemes.

But unlike in the United States, pyramid schemes in China use far more insidious tactics. Authorities aptly call these scams “business cults,” as they rely on heavy brainwashing to trap participants and entice new ones.

Potential recruits are lured to an isolated place by a friend or family member, and for the next week recruiters will psychologically break them down, emphasizing the benevolent nature of the business, promising wealth, and appealing to personal ambition and their responsibility to provide for their family.

Those that agree to join then spend every moment with their “co-workers,” eating and singing communal songs.

Li Xu was one of the many who believed what recruiters told him. His family had put him in touch with Tianshi, a company claiming to sell cosmetics in Jiangsu province, and after paying his “joining fee” of 2,800 yuan ($340) he quickly climbed the ranks by recruiting others.

After a year Li began to grow suspicious. He was surrounded by his co-workers 24/7 and rarely saw customers or profits. Eventually he figured out that the company’s only revenues came from the “donations” he and other recruits continued to give in the hopes of striking it rich.

“Pyramid sales are like spiritual opium,” Li said. “The organizers brainwash people to believe they will definitely get rich. Like drug addicts, you have to get them out of that environment to help them.”

Li left the company before it was shut down by authorities, but his co-workers stayed, convinced that it was legitimate until the end.

Kindhearted Exchange

The case of Shan Xin Hui shows how successful these scams are at duping participants. Shan Xin Hui, which means Kindhearted Exchange, marketed itself as a charity-minded investment group that focused on alleviating poverty and conserving forests.

With promised investment returns of 10 to 30 percent within weeks as well as bonus payments for those who recruited new members, Shan Xin Hui enrolled more than 5 million people within a year.

When investigators shut the scam down in 2017 and arrested its founder Zhang Tianming, thousands gatheredin Beijing for the largest protest in nearly two decades. In a rare public rebuke, demonstrators called on President Xi Jinping to allow the company to continue to operate and asked for Zhang’s release.

“They call us a pyramid scheme, which is absolutely not true. We came here today first to save ourselves and the platform. Second, we want Mr. Zhang to be released. Mr. Zhang is such a fine man,” said one protester.

Although pyramid scams are illegal in China, business cults often masquerade as direct sales organizations, which are legal. There are about 90 government-approved direct sales organizations like Avon and Amway, which recruit individuals to sell products.

Crooked companies will claim official status, but do not sell any actual goods, instead promising payment to recruits who sign up additional members. These are essentially Ponzi schemes as they use registration fees from new recruits to pay existing members.

Continued Popularity

Despite increased efforts by authorities to take down business cults, they continue to proliferate faster than authorities can contain, moving online and becoming smaller and more targeted.

While they cannot employ many of the brainwashing techniques that rely on physically isolating recruits, online business cults are still able to use tight-knit social media chat groups to successfully brainwash participants.

Though smaller in size, these online schemes have penetrated deeper into society, targeting new groups like the affluent, poor students, and the children of migrant workers.

“There is a business cult for everyone” now, said Li.

These cults are able to continue attracting new recruits and investors as they promise much higher returns than most Chinese investments.

For years the central bank kept interest rates below inflation to ensure industry could borrow cheaply, but it left few options for investors. Seeking better returns, investors are readily enticed by the claims of pyramid schemes.

Zhao Xijun, deputy dean of the school of finance at Renmin University of China, believes that people will continue to fall victim to these scams due to a lack of financial literacy.

“People are eager to achieve high returns, but they do not have adequate knowledge of the financial risks or how to screen for them,” Zhao said.

“Chinese people have invested heavily in financial products, such as wealth management funds, but only for a very short period of time. They have very little experience.”

Eugene K. Chow writes on foreign policy and military affairs. His work has been published in Foreign Policy, The Week, and The Diplomat.

https://thediplomat.com/2018/03/why-china-keeps-falling-for-pyramid-schemes/

A multi-level scourge Pyramid schemes cause huge social harm in China

Ponzi schemes cause huge social harm in China. Crackdowns may not be working

The Economist
Feb 3rd 2018

Pyramid schemes cause huge social harm in China

THE authorities call them “business cults”. Tens of millions of people are ensnared in these pyramid schemes that use cult-like techniques to brainwash their targets and bilk them out of their money. In July 2017 victims of one such fraud held a rally in central Beijing (pictured), an extremely unusual occurrence. The police quickly dispersed it and the government, in panic, declared a three-month campaign against the scams. Hundreds of them were closed down and thousands of people arrested. But the cults are adopting new guises. The problem may still be growing.

Li Xu shows how they work and why they are so hard to fight. Mr Li was 34 when his family got him a job at Tianshi, which claimed to be a company selling cosmetics and health products in the coastal province of Jiangsu. He paid 2,800 yuan ($340) as a “joining fee” and rose quickly through the ranks. He recruited others, including his younger sister. “They gave you a vision of wealth and success,” he says. “It does wonders for your confidence.”

As he became more senior, however, Mr Li started to worry about the business. Its head office was miles from anywhere. Surrounded by colleagues day and night, he rarely saw outsiders, or customers—let alone the riches he had been promised. There is a genuine cosmetics company called Tianshi, but the firm Mr Li worked for was not it, nor did it seem to make money selling cosmetics. Rather, he thought, its revenue came from the “donations” which he, his sister and other members of the swelling workforce willingly paid out in the expectation of big returns. Eventually Mr Li realised the operation was a scam. The firm’s real business, he realised, was to trick people into handing over money and then persuade them to hoodwink others to do the same.

Mr Li left the firm and convinced his sister to do so as well. But most of his colleagues believed the company, not him. They stayed with it right up until it was closed down for breaking laws on fraud. Determined that others should not suffer as he had, Mr Li told his family that he was going to become an itinerant labourer. Instead, his travels took him in search of other victims of pyramid schemes. Most of those he found believed, like his former colleagues, that the companies which had taken their savings had their best interests at heart. Beginning with a couple of phones and volunteers, he founded and built up an NGO, the China Anti-Pyramid Promotional Association, into the main private institution taking on this warped product of China’s growth.

Many countries suffer from Ponzi schemes, which typically sell financial products offering extravagant rewards. They pay old investors out of new deposits, which means their liabilities exceed their assets; when recruitment falters, the schemes collapse. China is no exception. In 2016 it closed down Ezubao, a multi-billion-dollar scam that had drawn in more than 900,000 investors. By number of victims, it was the world’s largest such fraud.

Chinese pyramid schemes commonly practice “multi-level marketing” (MLM), a system whereby a salesperson earns money not just by selling a company’s goods but also from commissions on sales made by others, whom the first salesperson has recruited. People often earn more by recruiting others than from their own sales. Since 1998 China has banned the use of such methods, although it does allow some, mostly foreign, MLM companies to do business in China as “direct sellers”. This involves recruiting people to sell products at work or at home.

Family connections

The distinguishing feature of the Chinese scams is the way they combine pyramid-type operations with cult-like brainwashing. Typically, says Mr Li, a friend or family member will persuade a new recruit to go to an unfamiliar, often isolated place for a week of “introductions and training”. Cao Yuejie, for example, was enticed into joining such a scheme by her husband while on honeymoon. In many cases the recruiter (who is often duped) will spend the first three days trying to persuade the victim that the firm is a benevolent institution (not like those awful Ponzis!) and that working for it would be for the good of the family. For the next four days, the company’s representatives will appeal to the recruit’s ambition and greed, as well as his loyalty to his family.

In southern China these interactions usually take place in small groups, or one to one. In the north the persuasion is often done in groups of 30, crammed into a small room. In both systems victims sometimes have their mobile phones taken from them. They say they never have a moment to themselves. By the end, eight out of ten will leave but the last two will become converts. Once in the firm, everyone lives and eats together and sings communal songs. Some sample lyrics: “The poor shall escape their fate and the rich will gain more than they dream of.” “Invest once and your family will be rich for three generations.”

Many perfectly legal companies try to boost morale by getting staff to sing company songs or organising awaydays. China’s business cults, however, combine such techniques with violence. Zhang Chao was a 25-year-old who was trying to break away from an illegal MLM company outside the northern port city of Tianjin. He was found dead from heatstroke, dumped at the side of a road by colleagues. In another case, Cheng Cuiying and his wife walked for two days to Tianjin to rescue their son from an MLM business. They found him drowned in a lake. People were arrested in connection with both deaths. But the firms, and the money, disappeared.

Business cults seem to be growing. In the first nine months of 2017 the police brought cases against almost 6,000 of them, twice as many as in the whole of 2016 and three times the average annual number in 2005-15. This was just scratching the surface. In July 2017 the police arrested 230 leaders of Shan Xin Hui, a scheme that was launched in May 2016 and had an estimated 5m investors just 15 months later (see chart). In August 2017, after the government launched its campaign against “diehard scams”, police in the southern port of Beihai, Guangxi province, arrested 1,200 people for defrauding victims of 1.5bn yuan ($223m). One scheme in Guangxi, known as 1040 Project, was reckoned to have fleeced its targets of 600m yuan. If Mr Li’s estimate of tens of millions of victims is accurate, they must have handed over tens of billions of yuan in total.

The scale of the scams worries the government. Their cultish features make it even more anxious. The Communist Party worries about any social organisation that it does not control. Cults are especially worrisome because religious and quasi-religious activities give their followers a focus of loyalty that competes with the party. Hence the relentless repression since 1999 of Falun Gong, a spiritual movement which the government describes as a cult. Hence, too, new rules on religious activity that took effect on February 1st. They are aimed at reinforcing state control over worship, decreeing that no religion may imperil the stability of the state. The party decides what constitutes a threat. Its threshold is very low.

The case of Shan Xin Hui suggests that, although business cults are a problem, people do not blame the authorities for causing it. If anything they want the government to help the schemes. The protest in Beijing last July was held by thousands of Shan Xin Hui’s depositors. The authorities closed off roads in the city centre and sent the police to break up the demonstration. Yet the unrest was triggered not by the scam but by the arrest of the company’s bosses. “They have accused the company of pyramid selling, but they did nothing wrong. They only wanted to help poor people,” one demonstrator-investor told the Reuters news agency. “Shan Xin Hui supports the party’s leadership”, says the banner pictured on the previous page.

The authorities will find it hard to curb the scams for three main reasons. First, in order to encourage cheap loans for industry, the central bank keeps interest rates low. For years they were negative, ie, below inflation. That built up demand among China’s savers for better returns. With gross savings equal to just under half of GDP, it is not surprising that some of that pool of money should be attracted to schemes promising remarkable dividends.

Second, it is often hard for consumers to spot frauds. In 2005 China legalised direct selling, arguing that there was a distinction between that practice and the way that Ponzi schemes operate. But Qiao Xinsheng of Zhongnan University of Economics and Law argues that the difference is often “blurred” in the eyes of the public. Scammers can easily pass them themselves off as legitimate. Dodgy companies exploit government propaganda in order to pretend they have official status. For example, they may claim to be “new era” companies, borrowing a catchphrase of China’s president, Xi Jinping.

Third, argues Mr Li, business cults manipulate traditional attachments to kin. Companies in America often appeal to individual ambition, promising to show investors how to make money for themselves. Those in China offer to help the family, or a wider group. Shan Xin Hui literally means Kind Heart Exchange. It purported to be a charity, offering higher returns to poor investors than to rich ones. (In reality everyone got scammed.) Business cults rely on one family member to recruit another, and upon the obligation that relatives feel to trust each other. This helps explain why investors who have lost life savings continue to support the companies that defrauded them.

Off with their many heads

It also explains why they are hydra-like. As the authorities shut down large business-cults, smaller ones find new ways to survive. Experts say that, increasingly, pyramid schemes are moving onto the internet. They are often relatively small, usually with hundreds or thousands of followers, not millions. They cannot rely on brainwashing in an isolated location, as face-to-face schemes do. But they are skilled at using the closed environment of social-media chat groups to replicate that kind of real-world experience. And they appear to be flourishing.

These new forms could be even more pernicious than the old because they are extending their social reach. Previously, schemes concentrated on pensioners and migrant workers, the two groups that save the most in China. The new scammers target all sorts: from the ultra-rich with money to burn; to poor students who face a tightening job market; to the children of migrant workers, struggling with poor education and falling demand for cheap labour. It was bad enough when the scammers operated mainly on the margins of society, targeting its most isolated members. Now, says Mr Li ominously, “there is a business cult for everyone.”

This article appeared in the China section of the print edition under the headline "A multi-level scourge"

https://www.economist.com/news/china/21736182-ponzi-schemes-cause-huge-social-harm-china-crackdowns-may-not-be-working-pyramid-schemes-cause

What is a pyramid scheme?

Excerpted from "Sometimes, life is like a box of cacao products," by Scotty Reifsnyder, The Washington Post, August 1, 2014.

In the controversy over multilevel marketing, the central question is whether the companies are fraudulent pyramid schemes. There is no federal law defining a pyramid scheme, and courts have interpreted the concept in various ways.

"A significant percentage of MLMs could be pyramid schemes," said Bill Keep, the dean of the School of Business at The College of New Jersey - and the man Wall Street turns to with questions on the matter. "We don't know how much."

Traditionally, pyramid schemes are organizations in which people pay some amount to join and then can profit by recruiting other people to buy into the organization. Bernard Madoff's infamous swindle exploited new investors to pay off earlier investors. Such schemes, which have no products to sell and depend on new recruits for revenue, are widely recognized by the courts as fraudulent.

Multilevel marketing organizations are relatively ambiguous because of an unusual characteristic many of them share: Most of their customers are salespeople who also buy products for themselves. Many dissatisfied former distributors have stories, like Martinez's, about gorging themselves on the companies' products.

The industry's defenders point to these customers as evidence that the companies are filling a demand in the market. In surveys commissioned by the trade association, more than half of distributors identify discounts on products as a reason they joined the ranks of multilevel marketers.

On the other hand, opponents of multilevel marketing contend that distributors buy inventory solely to establish and maintain their position in an organization, with the goal of making money. Bruce Craig, a retired assistant attorney general for Wisconsin who successfully prosecuted several multilevel networks, estimated that about 99 percent of recruits in major companies will take losses.

In any case, many distributors discover that the only way to find new buyers for products is to recruit new distributors. Whether these recruits want the products for themselves or are hoping to make money is generally not clear.

That fact makes it difficult to distinguish between a legitimate retailer that seeks to broaden its base of customers and a fraudulent pyramid scheme that relies on continual recruitment.

The trade association requires its members to offer distributors refunds on unsold inventory, arguing that refunds allow distributors to keep only the products that they want for themselves or can resell. "No pyramid scheme would ever be able to sustain such a policy," said Mariano, the association president.

Yet advocacy organizations say that even when refunds are available, the emotional pressure of multilevel marketing and the close relationships that develop among distributors can lead them to consume or throw away unwanted products rather than return them. "These companies have some sort of magical hold over people," said Wilkes, whose organization began collecting Latin Americans' complaints about Herbalife and other multilevel marketers after discussions with Ackman, the hedge-fund manager.

Joe Mariano, the President of the Direct Selling Association called it "extraordinarily elitist" to suggest that so many people could be so easily brainwashed. He also accused Ackman of manipulating investors and journalists, impugning Herbalife, and multilevel marketing generally, for his clients' financial gain.

"The real people that are direct sellers are somehow going to rely upon a Bill Ackman or a Washington Post reporter to represent them and protect their interest, and they can't?" Mariano said. "I find that, on their behalf, so offensive."

But without a clear standard for identifying pyramid schemes, critics argue, prosecuting even unambiguously fraudulent companies is difficult.

"Regulatory actions over the last 20 years have been insufficient to provide, I think, good consumer protection," Keep said.

Sometimes, life is like a box of cacao products

Scotty Reifsnyder
The Washington Post
August 1, 2014

Enrique Martinez didn't like chocolate, but he was eating as many as 10 pieces a day, drinking chocolate protein shakes and rubbing a chocolate-based skin cream on his face. It was expensive chocolate, too. Martinez and his wife, Michelle, were going through $2,000 in chocolate a month.

The debt they accumulated this way — more than $100,000 over five years — is now with a consolidation company. Their credit is ruined. There is a crack in the driveway at their home in Albuquerque from a 14-wheeler that once delivered 12,000 cans of chocolate energy drinks to their garage.

The chocolate came from MXI Corp., which uses a controversial business model called multilevel marketing. MXI has more in common with Avon Products, Herbalife and Amway than with a conventional candymaker such as Hershey. These are companies without a sales force that recruit their customers to sell products, often in bulk to other customers, who might in turn sell to other customers, and so on.

Critics accuse multilevel marketers of using slick pitches to persuade the unwary to buy goods in bulk, promising them that they'll make money by selling those products to others. In this way, the companies are paid upfront, and the rank and file bear a good deal of the financial risk.

Defenders of multilevel marketing say the business model makes sense. They say the customers are largely enthusiasts who initially join to buy their favorite products at wholesale prices, not to make money. They add that, in any industry, satisfied customers often make the best salespeople.

What's more, companies such as MXI offer these customers, who are effectively their salespeople, refunds on unsold inventory and other protections so that they are never forced to remain part of the organization. That many do so anyway demonstrates that the products are genuinely popular both in themselves and as a source of income, according to the Direct Selling Association, multilevel marketing's trade group.

"These people are making a life for themselves, or helping themselves, however modestly, by virtue of this activity," said Joe Mariano, the association's president. (MXI is not one of its 171 members.)

Yet industry analysts and investors say that in some companies, nearly all recruits will lose money. Former multilevel marketing distributors compare the groups to cults. For decades, the model also has drawn scrutiny from regulators. Late last month, a grand jury returned a fraud indictment against the owners of a multilevel marketer called TelexFree that sold telephone services.

Bill Ackman, the wealthy hedge-fund manager who reportedly bet $1 billion that Herbalife's stock price would fall, has accused the company of fraud, most recently in a presentation to investors last month. The company sells powdered protein shakes and supplements in what Ackman calls a pyramid scheme. Wall Street has heatedly debated his claims.

Herbalife revealed in March that it is under investigation by the Federal Trade Commission. The company has stated that it complies with the law and that it will cooperate fully with the investigation.

Special Report: Grandmaster of Russia's pyramid cult

Jason Bush
Reuters
September 15, 2012


Moscow - The pitch from the pyramid scheme sweeping Russia has undeniable appeal: make money and make the world a better place, it says. Like thousands of others, Roman Vorobyev believed the scheme would deliver big returns for him and cascading wealth for others.

So in April Vorobyev ploughed 400,000 roubles ($12,500) of savings into a self-styled 'mutual aid fund,' known as MMM-2011, promoted by Sergei Mavrodi, a guru-like financier, former lawmaker and convicted fraudster.

"I definitely believed that everything was possible," said Vorobyev, a newspaper designer in Irkutsk who invested in the fund despite a remarkable disclosure by Mavrodi - that it was indeed a pyramid scheme. "If we all help each other, more and more people will come and there will be an endless inflow of money," he said.

It hasn't worked out that way. Since parting with his cash, Vorobyev, 45, has failed to reap the double-digit monthly returns that were advertised, and he's lost hope of ever seeing his money again. MMM-2011 has closed and is belatedly being investigated by the police, who say the scheme had no chance of delivering the gains it promised.

In other countries, Mavrodi might become a pariah and such scams would be banned. Not in Russia. Before MMM-2011, Mavrodi was famous as the mastermind of an even bigger Ponzi scheme in the 1990s. And in the past few months he has launched yet another one, MMM-2012, that is luring hordes of investors by touting the prospect of returns ranging from 30 percent to 75 percent a month.

Mavrodi dismisses allegations of any deception or illegality. "People voluntarily enter the system," said the reclusive financier in a video he recorded in response to Reuters' questions. "They are warned of the risks. They are conscious of everything. How can there be fraud here?"

The MMM website proclaims: "This is, in essence, the most sincere and kind system in this thoroughly dishonest, hypocritical and vicious world."

The Mavrodi phenomenon raises questions about the state of financial regulation in Russia - suggesting elements of the "Wild East" still thrive under President Vladimir Putin. Putin's authoritarian rule stands in sharp contrast to the anarchic 1990s, a period of social breakdown, hyperinflation and chaos. Yet the current appeal of pyramid schemes hints at the continuing legal uncertainties in today's Russia.

Pyramids, which rely on new depositors to pay returns to existing ones, are doomed by the laws of arithmetic to collapse in the end. In countries such as Britain and the United States they are seen as fraudulent and perpetrators are prosecuted.

Yet in Russia and other former Soviet countries, they operate largely unhindered - there are no laws specifically banning pyramid schemes, though other laws have sometimes been used to stop them. One of the problems, say victims, is the attitude of the authorities, who often seem reluctant to close the schemes. As recently as March police said they had no reason to investigate MMM-2011, which boasted that it had had more than 35 million participants, in Russia and beyond, with an average deposit of $1,000.

Mavrodi has dropped from public view since the end of MMM-2011 but remains popular, cultivating an image as an anti-establishment visionary. He issues periodic videos via his website to promote pyramid schemes as the path to a post-capitalist future. They appear alongside his poetry and philosophical writings.

"Do you want some greedy banker to buy a third... or whatever it is... limousine? Put your money in MMM and you will help a pensioner, an invalid, a poor person. Those who really need your help!" Mavrodi's website says.

He also appeals to people disoriented by the financial crisis. He told Reuters: "The modern world, the modern financial system, is deeply unjust. The idea that it's better to work, and work more - that isn't true. It's a fairy tale that is drummed into us from childhood."

"I am not interested in money," he said. "My goal is simply to help people - there are no other goals."
"Evil genius"

Given Mavrodi's history with pyramid schemes, his resurrection is remarkable. A graduate of the Soviet Union's elite physics institute, he created his first pyramid in the 1990s. Amid Russia's turbulent transition to capitalism, MMM advertised widely on TV, offering a seemingly effortless path to riches.

Several million people, driven by naivety and euphoria, rushed to be part of the bonanza - only to lose their savings when the edifice came crashing down in 1994. Estimates of the losses range from $110 million, the sum later cited in court by prosecutors, to many billions according to a group representing aggrieved investors.

Despite the collapse, so many people still regarded Mavrodi as their champion that months later he managed to get himself elected to parliament. After a protracted legal battle he was finally convicted of fraud in 2007 and sentenced to jail.

Released almost immediately because he had spent four years in detention awaiting and during trial, he resumed his old ways. Even those who oppose him are in awe of his persuasive powers.

"In my view he is definitely a genius," said Vyacheslav Sklyankin, the founder of an anti-MMM campaign group on Vkontakte, Russia's equivalent of Facebook. "As it's now fashionable to say, he is an evil genius."

These days Mavrodi uses the Internet to reach potential investors. While the first MMM operated through a network of retail branches, his new schemes lack visible corporate structure, formal management, or legal identity - a deliberate move, Mavrodi told Reuters, to complicate attempts by the Russian authorities to stop him.

"There's no firm hierarchy. I give advice to the participants and they follow it. That's how it's organized. Formally there is no relationship, no boss and no workers. In MMM everything is voluntary," Mavrodi said.

In the latest schemes, MMM does not collect all the money in one pot. Instead, deposits and payouts are made mostly between individual members' own bank accounts. Senior figures also extract fees for administrative purposes.

The schemes are promoted through dozens of websites and thousands of videos posted by apparently satisfied MMM depositors on YouTube. MMM's reward structure encourages recruits to spread the word. Bonuses, calculated as a share of new recruits' deposits, are paid to those who attract new members - 20 percent for the first recruit and 10 percent for each subsequent one.

The system creates a hierarchy based on multiples of ten. Thus desyatniks ("tenners" - those in charge of ten investors) are supervised by stoniks ("hundreders") who are in turn supervised by tis??chniks ("thousanders") - right up to millionniks.

"The growth (in members) is simply huge: from a simple worker, and the unemployed, to businessmen with real money," said Andrei Emilianov, a former construction specialist from Moscow, who says he quit his job at a prestigious German company late last year to promote MMM full-time. He has risen to the rank of stotisyachnik (hundred-thousander).

Emilianov, 30, said that when he first heard about the scheme, he was skeptical, but was gradually won over after seeing his investments deliver double-digit monthly returns. So far he has ploughed some 900,000 roubles ($27,900) into MMM-2011 and MMM-2012 and has already earned back several times that amount, he said.

The enthusiasm of converts such as Emilianov doesn't seem dulled by the fact that Mavrodi openly presents his schemes as pyramids.

"It's written on the site that it's a financial pyramid. There are no promises and no obligations. If you don't want to participate you don't have to," Emilianov said.

Mavrodi says the disclaimers are prominent, though others might disagree.

"Everyone is paid everything," says a slogan on Mavrodi's website. "As long as the pyramid still hasn't encompassed the entire world, as long as you have at least one acquaintance or relative not participating in it - sleep easily," the site says. "It means, (we) haven't reached everyone."

Despite the inherent risks, his website claims the high ground: "It's not the System (MMM) that is amoral, but the world around it that is amoral! The System is the sole oasis. A small island. Of goodness and justice. The first green shoots. Of the new! Of the best! Of truth and light! Of freedom!"
Cult-like magnetism

In some ways, Mavrodi's notoriety has proved one of MMM's greatest strengths.

"MMM is a brand that everyone knows. Everyone knows about Mavrodi," said Anton Ryzhikov, a former MMM investor in Kharkov, Ukraine, who rose to be a 'stonik' (hundreder).

One explanation for his popularity lies in the conspiracy-minded attitude that many Russians and Ukrainians have towards the first MMM debacle in the 1990s.

"It wasn't (Mavrodi) who stole the money. It was the police, the state, the tax authorities," said Emilianov, the hundred-thousander, reflecting a common sentiment towards the authorities. "Definitely one respects this person. He says the right things and has shown what he is capable of."

Former depositors say Mavrodi also exerts a kind of spiritual hold over his followers. "MMM is very similar to a cult. You have to clap and shout 'hurray!', 'We Can Do Much.' You can't talk about other structures. You can only write good things on the internet," said Vorobyev, the graphic designer.

And then, of course, there is the desire for a quick buck. "People brought money because the basic human characteristic is greed," said Ryzhikov. "If you hold on for a bit longer you will earn a bit more. People simply couldn't stop themselves."

Ryzhikov, a 22-year-old technical draughtsman, said he borrowed money to invest in the scheme on the advice of a relative, because he needed cash when his employer temporarily slashed his pay during a downturn. He got out in time, but many other hard-up people in Kharkov took out loans to invest in MMM-2011 and lost money.

"I have several people who are paying their child benefits (welfare payments meant to support families) to the bank (to pay off their debts). It's an unacceptable situation," he said.
Too little, too late

Russian officials have banned MMM's billboard advertisements and advised the public not to invest in its schemes. But critics argue the authorities have done too little, too late.

"It's absolutely amazing what Mavrodi continues to do," said Igor Kostikov, a former head of Russia's stock market watchdog, who now heads Finpotrebsoyuz, which lobbies on behalf of financial consumers. He accuses Russia's Federal Service for the Financial Markets (FSFM), the successor to the body he once headed, of failing to act, and says authorities could pursue Mavrodi under laws governing securities and banking.

"The position of the financial regulator is that it's not their piece of bread. The question is: why do they exist?" he said. "The FSFM should be ringing all the bells and not sleeping by the fireplace."

A spokeswoman for the FSFM said the service's responsibilities don't include regulating pyramids. She called Kostikov's criticisms "amateurish."

Andrei Kashevarov, deputy head of Russia's Federal Anti-monopoly Service, which also regulates the advertising market, said there are loopholes that make it difficult to act more decisively against Mavrodi. For example, websites such as MMM's are not categorized in Russian law as advertising, which is regulated, but as information, which is not. But he says, "the legislation is changing and will be made tougher."

Shortly after MMM-2011 folded, Russia's government instructed the finance ministry to draw up legal changes to combat pyramid schemes. Alexei Savatyugin, deputy finance minister, has said organizers of such schemes should face up to ten years in jail and a fine of up to a million roubles.

For now, though, Mavrodi the pyramid grandmaster remains defiant.

"It's impossible to ban it," Mavrodi said. "It's your money... You can burn it. You can throw it away. You can give it to someone else.

"I'm trying to change the world. The old world of course will try to resist."