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Pyramids do not teach Russians, but harden them. Important signs of a financial pyramid

Hello! Today we’ll talk about financial pyramids so that you know what they are, how they work, and so that you don’t fall for such “earning money” schemes in your life.

A market economy is characterized by freedom of enterprise and freedom of choice in the way of doing business. For any businessman, the main goal of his business is to make a profit. The universal measure of performance evaluation is money. The functioning of a legitimate business is based on the production, sale or resale of goods, provision of services and other schemes. There is such a term as financial pyramids. Most often, although not always, these are deliberately created fraudulent models for obtaining money by their creators.

What is a financial pyramid

In economic terms, a financial pyramid is an organized scheme for its participants to generate income by attracting funds from new participants. That is, people entering the pyramid today “provide” for those who came there earlier. Or all the money can be accumulated by one person - the organizer.

The average person will immediately remember the MMM financial pyramid in Russia in the early 90s, which ended in a loud collapse with thousands of people affected. And indeed, in most cases they disguise themselves as investment, charitable funds, companies with goods that have no real value, or simply promise to make money out of thin air.

However, the classic business scheme can lead to a financial pyramid. This happens when the owner miscalculates profitability and the company runs at a loss or has difficulty covering its cost. Money borrowed or raised from investors cannot be returned. To support the business, new loans are taken out and used to pay off previous debtors. It is incorrect to interpret this as fraud; this situation is closer to the concept of illegal entrepreneurship.

Fraudsters often take advantage of this loophole, carefully covering up financial pyramid schemes in order to evade responsibility. A business may bring in a small profit, but if systematically the added value (the result of the company’s work) is less than the income payments, then this project is a financial pyramid. In fact, most of the profit in this case is money from new investors.

To denote a deceptive scheme, this expression began to be used in England from the early 70s. last century, although financial pyramids originated much earlier. The first company operating under a financial pyramid scheme is the joint-stock company (JSC) “Organization of India” by John Law. According to the plan, it was supposed to invest the funds raised in the development of the Mississippi River. In fact, the investments were minimal, and the enterprising Scot used most of the proceeds to purchase government bonds. In fact, he paid off all of France's foreign debts. Law promised that the shares bought today would soon rise in price. Because of the hype, within six months the cost of one paper exceeded the original price several times. France was forced to issue more and more paper money. When the money supply became enormous and the price of shares rose to unprecedented levels, this pyramid collapsed. Prices for goods rose sharply and paper money was not accepted as payment.

Subsequently, financial pyramids began to appear periodically in other countries. He organized a large fraudulent scheme related to coupons in 1919. in the USA Charles Ponzi. This was the first analogue of the modern single-level pyramid. It collapsed because coupons could not be sold for cash, but could only be exchanged. Payments to the first participants came from the following newcomers. In Russia, the pyramid boom occurred during the transition period to the market in the early 1990s, when the famous MMM JSC was created by Sergei Mavrodi.

Financial pyramids are prohibited in many countries (Canada, Mexico, Germany, Italy, Kazakhstan, Poland, etc.), including Russia (Article 172.2 of the Criminal Code of the Russian Federation). In the UAE and China, there is even a death penalty for building such a structure. If the country does not have a separate article for financial pyramids, then such fraud may be classified as illegal entrepreneurship.

Reasons for the emergence of financial pyramids

The emergence of financial pyramids is due to a number of changes in the economy and government policy. Basic prerequisites:

free securities market;
the activities of such structures are not regulated by law;
improving the standard of living of the population;
moderate inflation and stable economic growth;
the country's transition to a market economy;
the emergence of various financial institutions offering both to preserve their savings and increase them;
lack of reliable information and illiteracy of the population in financial matters.

The essence of a financial pyramid

The main goal of such a scheme is to enrich the organizers of the pyramid due to the influx of new people. Perhaps those who immediately joined the front ranks and then withdrew their money on time will also benefit. Contributions from participants are not invested anywhere and go to reward the upper levels, that is, those people who invited them and others above them along the entire chain of the pyramid. Accordingly, if the current investor also invites people, he will receive his income from them, etc. In some models, it is possible that some product may be present to cover the “business,” but the essence does not change: profit in the pyramid is obtained through investments new members.

The distribution of funds of joining members occurs according to different schemes. The principle of a financial pyramid is as many newcomers as possible. But when the flow of investors decreases and there is no money to pay out the promised money, the pyramid collapses. The fact is that the number of people on our planet is finite. Not everyone has a chance to get their money back, not to mention the promised interest. The last ones who entered are unlikely to see their money. The organizers may withhold payments for some time, and then collect all available savings and disappear.

How does a financial pyramid work?

There are many variations of fraudulent pyramid schemes. The essence remains the same, but the ways to “show off” the average citizen are becoming more and more sophisticated. Let's look at 2 illustrative examples:

	Example 1	Example 2
Stage 1	The organizers are conducting an advertising campaign for growing flowers, mushrooms, exotic plants, etc. at home. People are invited to buy seeds and make a certain “entry fee.” The total amount is 4 thousand rubles. After 3–4 months, the company promises to buy the seedlings for 8 thousand rubles.	The organization presents itself as an investment fund. You need to invest at least 5 thousand rubles. You need to invite 4 more people to the project and then you can get your profit in the amount of 10 thousand rubles. When the first 6 people join, the company’s profit at this stage is 25 thousand rubles.
Stage 2	Rumors about this quickly spread among the population, and there is no end to those interested. Seeds are actively being bought, and the first participants are already receiving their profits. In fact, this is money from new buyers.	Each of the 6 applicants invites 4 people, who also contribute 5 thousand rubles. The company already has: 25+645=145 thousand rubles. Of these, she pays the first participants: 10 * 6 = 60 thousand rubles. The company's profit will be 145-60=85 thousand rubles.
Stage 3	At some point, the “boom” for this idea passes and there are fewer and fewer new members of the pyramid. The organizers disappear without a trace with all the money. It turns out that the plants are ordinary and are not worth the money claimed. Therefore, many people do not receive the promised profit or investment.	Participants of the second level also invite 4 people who invest 5 thousand rubles each. The company already has 85+2445=565 thousand rubles on hand. Of these, she pays off the second investors: 10*24=240 thousand rubles. The company's profit will be 565-240 = 325 thousand rubles. The growth of the pyramid will be exponential (geometric progression, when the growth rate is proportional to the number of participants). The time will come when new entrants will no longer be able to find new members. The pyramid is collapsing, and the organizers are skimming off the cream.

These descriptions are presented in a simplified version. There are complex, intricate schemes with the presence of a real product and are very similar to network marketing, which is a legal business. Financial pyramids survive only due to the influx of new people: there are no other sources of income payment. The collapse of any such organization is inevitable.

Perhaps, just a few months after the start of work, the company begins to feel a “shortage” of new members. At the same time, liabilities grow, and panic often begins among investors. They begin to sell “securities” en masse, if any. Or they impulsively decide to withdraw their investments. And if someone says that they were able to make money on the pyramid, it means that they were among the first, or at least in the middle. The top (organizers) will earn more in any case. Sooner or later, a huge number of participants will be scammed, leaving them without money.

In order not to fall for the bait of scammers, you need to know the main signs of financial pyramids. It happens that a person knows about such schemes, but skillful psychological influence and misinformation leads him to the decision to invest his hard-earned money. Signs by which it is highly likely that a business proposal is a financial pyramid:

High interest rates and fast payback period. A yield above 30% should already raise alarm bells. There are not many legal ways to secure such returns, and those that exist are all medium to high risk. If a company promises to pay back a project in a few months or even weeks, then a logical question arises: why is it looking for investors among ordinary people, and not among large businessmen and experienced investors?
Large amount of “entry fee”. More often in the range of 5–20 thousand rubles. However, then the deceived person is unlikely to go to court for this money. This sign is not always clearly expressed.
In exchange for the money invested, a person may receive goods at an inflated price and that do not correspond to the declared characteristics, or counterfeit securities. Documents confirming the receipt of funds are not issued, or the person is given an agreement indicating that if the investment strategy does not work, then the invested funds cannot be returned.
The company's emphasis on PR. Impressive presentations, product know-how, a beautifully designed website, convincing salespeople, mailings and SMS - all this is aimed at reaching a large number of people. There are slogans like “Hurry to be among the first!”, “Hurry up and buy a device that has no analogues in the world!” At the same time, the advertising is vague: a specific product or method of generating income from participation in the project is not indicated.
Concealment of information about the owners of the enterprise, lack of licenses and permits to engage in financial activities. However, all this can happen if the company is registered under a dummy person or is registered far abroad. If there is no company at all, and a person is invited to an office where only money is exchanged, this is definitely a financial pyramid.
Unusual and unclear compensation plan. The abundance of information, complex terms and overly optimistic forecasts should make you wary.
They indirectly or directly talk about the need to involve their relatives and friends in the project. At the same time, they offer to learn special psychological techniques or neurolinguistic programming (NLP) methods.
Excessive persistence of the organizers. Convincing a person to make a decision and give money “here and now”, requiring him to sign a non-disclosure agreement and promising easy money for minimal effort.

Types of financial pyramids

All fraudulent pyramid schemes are divided into 3 types according to their structure. Sometimes there are assurances from the organizers that they have created a completely new project. However, upon closer examination, the scheme will belong to one of three types known today.

Single-level (Ponzi scheme) pyramids

Ponzi scheme (Ponzi) is one of the most common and simple types of financial pyramids. It got its name from the name of a famous Italian who was the first to organize a massive deception of the population.

The creator attracts the first participants with high interest rates and guaranteed income for a short period of time. Everyone who joins is not required to attract other people. He can pay the first profit to investors from his own funds. When this project becomes more popular and the number of participants increases, money is transferred - the organizer pays the old participants with the funds of the new ones. The number of people wishing to join is growing steadily and many are re-investing.

Of course, there is no declared activity in this pyramid. It can present itself as an investment project, a charity project, a mutual aid fund, etc. The game of “sack” continues for a certain time. There comes a period when obligations to investors increase, and the influx of new participants decreases. The organizer curtails his activities and disappears along with all the money.

Schematically, such a pyramid looks like this:

In the center is the organizer of the financial pyramid. Contributors are highlighted with small circles:

1st stage;
2 lines;
3 lines;
4 queues .

The lifespan of such a pyramid depends on its popularity. More often, such schemes last from 4 months to 2 years. About 80–90% of investors remain at a loss. Examples of financial pyramids of this type: the first MMM JSC by S. Mavrodi, the investment company of B. Madoff, the iPhone pyramid in 2011. in Moscow, B. Tannenbaum’s project for investment in drugs to combat AIDS, “Vlastilina”, “Hoper-invest”.

Multi-level financial pyramids

Each entrant pays an entrance fee. This money is distributed among the upper levels of the pyramid: the participant who invited him and several higher ones. After this, the new investor must bring several people into the pyramid (usually from 2 to 5). They explain to him in an explicit or hidden form that in order to make money in the project, it is new participants who are needed. He will begin to receive money from them, that is, recoup his investments and make a profit.

In essence, this is a simple transfer of money, just like in a Ponzi scheme. As the depth increases, the number of participants increases very quickly and after 10–15 levels it will comprise the entire population of the entire country. Obviously, investors at lower levels will lose their money, since there will come a time when there will be no one to invite. Such people make up 85–90% of the entire financial pyramid. At this time, the organizer closes the project, taking the maximum amount of money from it.

Schematically, this structure looks like this:

Such organizations do not last long. The collapse (scam) of the pyramid occurs after 2–6 months. To increase this period, the organizers rename the name of the pyramid and move to another city to continue the “work.” Many people go into virtual space for better camouflage. Examples of such companies: MMM-2011, MMM-2012, Binar, Talk Fusion.

Matrix financial pyramids

These schemes are a complicated modification of multi-level pyramids. Usually there is a real product (for example, gold, silver, a set of weight loss products, etc.) although there may be a fictitious “entrepreneur training system” that costs money. These organizations belong to the new financial pyramids and many people sincerely believe that these are investments.

Let us illustrate the operation of such a structure using the example of the Emgoldex company:

Upon entry, a new participant under number 4 invests 540 Euros, enters the matrix and waits for the entire level to be filled. Next, the matrix is divided into 2 of the same, the person rises to a higher level and must bring 2 people to fill part of the lower level. Perhaps the participant number 3 on the left who invited him will promise that he will find people instead of him. Investor No. 1 receives his reward - 7 thousand. Euros (less commission) in the form of a purchased gold bar, which he can sell back to the company. Essentially, 14 people chip in for a “gift” for one.

When dividing matrices (in Emgoldex they are called “tables”), participants gradually move towards their “top”. Participant #1 opens a new table and ends up in the lowest level. Accordingly, new participants are needed to fill out the matrices. The purchase of gold in an online store itself is legal, but the mechanism for collecting money and making a profit is a financial pyramid. As long as there are newcomers, the system will work.

The Emgoldex company itself is registered in Germany; gold purchases are carried out in Dubai. The belief that gold is rapidly growing in price and that this is what brings good interest to the investor is not supported by real facts. By all indications, this is a clever way of laundering money abroad. After all, as the number of people joining increases, there will be more and more tables. And the time will come when there will be no one to fill them.

It is worth noting that in matrix pyramids the conditions for receiving remuneration are vague: you have to wait until the matrix is complete, and the company does not guarantee when this will happen or whether it will happen at all. Therefore, they function longer than other types of pyramids. But the “hour X” will come for them too. Most investors will be left at a loss.

A comparison of the characteristics of all 3 types of financial pyramids is presented in the table:

	Single-level	Multi-level	Matrix
Structure	The center of interaction is the organizer. It accepts deposits and pays interest up to a certain time.	There is no single center. Each participant is in contact with their higher levels. The organizer supervises only the first people and monitors the activities of the pyramid.	The center of interaction in matrices is 1–2 active participants. Subsequently, they can easily “forget” about the newcomer if he does not bring new people.
Source of profitability	A “profitable” business opportunity, investment or charity project.	New member contributions only. It is possible to disguise it with direct sales to confuse the scheme.	New member contributions only. Complicated schemes involving the purchase of real goods serve to “fuss the brains” of new participants.
Life cycle of a pyramid	It can take a long time, it all depends on the ingenuity of the organizer and his ability to persuade	Short as the number of participants is growing rapidly	It can take a long time, since the company does not promise exact deadlines for filling out the matrices

The emergence of the World Wide Web provided new opportunities for the creation and development of pyramids. The geographic reach of potential participants has increased significantly, and material costs for advertising have decreased. It is more difficult to track the movement of money through electronic payment systems. Registration of sites often occurs with fictitious persons or so that the owner’s data is not exposed. This makes it difficult to find a virtual fraudster and bring him to justice.

The largest financial pyramid in the Stock Generation network was organized by S. Mavrodi. Under the guise of gambling, shares of virtual companies were traded in this pyramid. The scenario was somewhat reminiscent of the MMM project, but on the website for many of these companies there was a disclaimer: prices can go both up and down. This “game” worked for 2 years, the number of victims ranged from 300 thousand to several million.

Mavrodi’s projects MMM-2011 and MMM-2012 are also large-scale. The virtual currency “Mavro” was invented, the purchase and sale of which was carried out in the first project through level managers - foremen, centurions, thousanders, etc. In the second project (referred to as the “mutual aid cash desk”), payments were made directly by the participants themselves. When the influx of deposits began to decline, delays in payments began to be noted, cases of theft of money from the system and the pyramid were closed. Mavrodi announced a restart several times, but there was no longer any trust in him and the scale of the following projects was much smaller.

Among active Internet users, the NewPro pyramid is known, offering to buy a key for 99 rubles and attract 3 newcomers. Next, a second level key is purchased. However, reaching the coveted level 28 is unrealistic. This will require more than 20 trillion people. Pyramids with a similar structure: SuperProgik, Power MLM, MoneyTrain.

Among the variety of online pyramids, HYIPs and seven “magic” wallets stand out in separate categories.

HYIPs are also pyramids

Investment projects with high returns according to the financial pyramid scheme are HYIPs (hype projects). They justify their interest by investing in shares, mutual funds, and trust management, but they may simply remain silent about their activities. There is an opinion that investing in HYIPs is one of the most profitable types of earnings if you invest your funds wisely. On the Internet you can even find articles where experienced participants in these projects talk about the correct investment strategy with the goal of “exiting the game in time” before the closure of the hype and at the same time making money.

In essence, all online pyramids go through the same life cycle stages as their offline counterparts. Money is transferred from the pockets of some to the pockets of others and no further activity is carried out. Therefore, there will be people who actually make a profit from such investments. But you need to understand that this happens at the expense of other participants, whose total contributions are always greater.

There are websites of venture capital - investments with a high level of risk - companies that actually invest money in risky and high-yield financial instruments (such as Forex). In contrast, HYIPs have the following characteristics:

colorful design of the resource and excessive advertising about the need for investments and a guarantee of return;
the profitability is promised to be 0.5–10% per day, which is an unreasonably high figure, however, there are projects offering 15% per month and this feature is not applicable to them;
fictitious investment objects or lack thereof;
there is no information about the company (address, phone number, management), licenses, official registration and other documents or they may be fictitious;
a complicated scheme for generating income, the essence of the project is not clearly clear.

To conduct financial transactions, HYIPs offer participants electronic payment systems Perfect Money, Bitcoin, Payeer, Qiwi and a number of others, which do not require personal identification. Most HYIPs do not work with WebMoney. Based on income level, all HYIP projects are divided into 3 categories:

Low-income financial pyramids. They exist from 1.5 to 3 years and offer relatively low rates - up to 15% per annum per month (up to 0.5% per day). They are characterized by a well-thought-out pyramid scheme and large-scale advertising. Very similar to legal investment programs associated with asset trust management.
Mid-income financial pyramids. They exist from 6 months to 1 year and offer returns of 15–60% per annum per month (up to 3% per day). They promote quickly, but reach the peak of popularity very soon.
Highly profitable financial pyramids. They work for 2–5 weeks and offer rates above 60% per month (over 3% daily). They have aggressive, intrusive advertising like “Register quickly and get a lot of money!”, “Hurry, these rates are only for 1 month!” They close unexpectedly and try to attract as many new investors as possible.

In addition to the organizers of such projects themselves, so-called referral guides play an important role in the system. They spread information about the new project and encourage network users to become participants. The success of the project largely depends on their actions. The creators of HYIPs work with these “agents” through affiliate programs, that is, they award the “referral leaders” a certain percentage of investors’ deposits. The distributors themselves try to advertise the hype project more colorfully and in detail on social networks, forums and blogs. Often, investors are asked to promote hype themselves and participate in the referral program. This gives maximum promotion among online investors and a large influx of money.

For a certain period of time, the hype operates successfully, and some investors receive the promised interest due to the growing popularity of the project. But there comes a time when the volume of cash payments begins to exceed the volume of cash receipts. The hype is closed (scammed) and all the money remains with the organizers.

Magic wallets - a regular financial pyramid

A potential participant is invited to send a small amount (within 10–70 rubles) to seven electronic wallets in the WebMoney or Yandex-money system. After that, remove one of the top wallets, enter your own and post a message on 100–200 forums, message boards, and sites where people are looking for work. It is believed that if everything is done correctly, money will “fall out of a bag” because the next participants will send money to your wallet and also begin to promote information. In fact, this is an ordinary financial pyramid, and also uncontrolled.

There is no guarantee that the person who falls for this will not write down their wallet numbers in order to “squeeze out” more for themselves. But even if all participants follow the instructions and only 5 people respond to mass spam, the pyramid will grow to gigantic proportions. These 5 participants will also attract 5 newcomers, and the total earnings of the first person in theory will be 600–900 thousand rubles. By this time, there will be about 98 thousand participants in the pyramid. This figure grows exponentially: after 2 levels, 2–3 million people are needed to connect, then several tens of millions, then trillions, etc. It is clear that the entire population of the planet will cover only a few levels of such a pyramid.

Payment systems are actively fighting such messages, even to the point of blocking the wallet. Financial monitoring and security services monitor the distribution of such spam and identify pyramid schemes within a few days.

Financial pyramids in Russia (list)

The first pyramids came to Russia after the collapse of the USSR. JSC MMM became one of the largest and most famous. The company issued large volumes of shares (about 27 million) and tickets (about 72 million). Investors were promised 500–1000% per annum. Powerful propaganda in the media brought 10–15 million people into this financial pyramid. No documents were given to people. These “papers” were not allowed into free circulation; only the company itself could buy them back. The price of shares and tickets was set by the organizer S. Mavrodi himself.

Due to the hype, their cost rapidly increased and reached 125 thousand rubles. per share. In reality, these papers were not worth that much money. Rumors spread among investors about Mavrodi’s problems with paying taxes and illegal entrepreneurship. The ensuing panic led to a sharp drop (by more than 100 times) in the cost of shares and tickets. In fact, they turned into worthless “pieces of paper”. The office of MMM JSC was stormed by law enforcement agencies. Mavrodi was arrested and sentenced to 4.5 years in prison. In total, he managed to earn about 3 billion rubles. Subsequently, this man created other pyramids.

In addition to MMM, large financial pyramids in the 90s and 2000s were:

"Vlastilina";
"Russian House Selenga";
"Tibet";
"Hoper-invest";
"Rubin" ("SAN").

The number of victims amounted to millions, the lost amounts of investors varied from several million to trillions of rubles. As a result, almost all the organizers received real prison sentences, and only a few managed to escape.

Despite this, financial pyramids continued to exist in Russia. This is explained primarily by people’s desire to get “free” money, their gullibility and greed. The development of the Internet also played an important role. Participating in such roulette is comparable to playing in a casino: someone will get a “piece of the pie,” but the owners will earn money in any case, and most players will lose.

New financial pyramids include:

Super Piggy Bank;
Eleurus;
GO-Partner$
MMM-2012
MMM-2016;
SuperProgik;
Give1 Get4;
SETinBOX;
Recyclix;
Credex and a number of others.

For organizing pyramids in Russia, along with criminal penalties, administrative liability has been introduced (Article 14.62 of the Administrative Code).

Financial pyramids and network marketing

With the development of the industry (MLM business), financial pyramids increasingly began to disguise themselves as it.

The fact is that a multi-level structure occurs both in fraudulent schemes and in legal businesses.

But a closer look reveals significant differences. The network business is absolutely legal (according to the decision of the US court in 1979 against the Amway company) and is based on creating a network of consultants (distributors) to promote goods from the manufacturer to the buyer. A comparison of features is presented in the table:

Sign	Financial Pyramide	Network marketing
What does the entry fee go towards?	Fully or almost entirely for payments to the upper levels of the pyramid, that is, people who joined earlier	To receive a starter kit of products for a consultant, training materials, brochures. In some companies, a certain amount (20-30% of the contribution) goes to reward sponsors (upper levels).
Product Detail	Unclaimed, fake or overpriced	High-quality products that people periodically buy (usually cosmetics, cleaning products, dietary supplements, etc.). The largest players in the MLM business have a fairly large assortment and may include durable goods (filters, dishes, clothing).
What the company offers	Unreasonably high interest rates for a short period of time. They may promise low interest rates, but do not mention the exact time of return on investment. The entry fee is often large. They say that there is practically no need to work.	Part-time work with a flexible schedule and, as a result, a small increase in the basic income. In the future, it is possible to create a passive source of income (with a large and stable turnover), but this will not happen quickly. The amount of profit directly depends on the work of the consultant.
Source of income	Entry fees for new members. The product serves only to cover up a fraudulent scheme.	Trade turnover structure of each consultant. The price of goods includes distributors’ profits (15–25%), which are distributed throughout the network. Simply connecting people without them purchasing goods does nothing. At the same time, the remuneration plan is designed in such a way that you can outstrip higher levels in terms of income.
Company characteristics	Official documents are hidden, forged, or made in the name of a fake person located far away. The information on the websites is vague and illogical.	All activities are conducted openly; many online companies have their own websites with detailed information (product properties, address, company phone number, trainings, etc.)
Behavior of people promoting to join the company	Obsessive beliefs, emphasis on advertising and quick money. They demand to give money immediately and often without presenting supporting documents (checks, receipts).	A calm story about this type of business, emphasis on personal consumption of products, studying the action and purpose of each product, mastering sales skills, making presentations, communicating with people. A beginner may want to think twice before engaging in online business (usually they give 2-3 days).

What to do if you have already invested money in a financial pyramid?

First of all, you should calm down and soberly assess the situation. First you need to contact the office of the company where you gave the money or the person who invited you. The chances of getting your money back increase if you have documents confirming the receipt or transfer of money.

If the return is refused, hint to the scammers that you plan to contact the police and prosecutor's office. And if this does not help, then immediately contact these authorities. It is recommended to provide detailed information about the scammers: external signs of the people, what product they are promising, the name of the organization, office address, etc. There is a possibility that by the time law enforcement agencies begin to act, the “businessmen” may disappear.

Despite the illegality, financial pyramids will continue to be created, trapping gullible citizens. To recognize them, you need cold calculation and an understanding of the essence of how pyramid schemes work.

Introduction

In the mid-90s, Russia experienced a period of massive creation of financial pyramids. This period became an integral part of the history of Russia during the transition period. However, Russian financial pyramids were not a specific discovery of their founders, but became another page in the history of the emergence of such organizations on the world stage. Basically, the issue of financial pyramids in Russia, the reasons for people’s participation in financial pyramids, and the importance of these organizations for the country’s economy were investigated.

The emergence of the pyramids

According to the situation in which the pyramid is born, financial pyramids can be divided into two groups. Organizations of the first group initially arise as financial pyramids. (for example, JSC MMM). Organizations of the second group become financial pyramids due to certain reasons at one of the stages of their development. Initially, they were created as absolutely normal companies, financial structures and could not become financial pyramids. (for example, the GKO system in Russia). Among the conditions in which financial pyramids of the first group arise, four main ones can be distinguished.

1. First of all, there must be a market for shares or securities. The market makes it possible for the main instrument of financial pyramids to exist: securities or shares, with significant fluctuations in their prices. In Russia in the early 90s, paper money and shares appeared, and manipulation with them became possible. Of course, paper money and securities existed in Russia (as part of the USSR) before, but there was no securities market within the country, there were no shares - enterprises belonged to the state.

2. It is also necessary that there are no legislative restrictions on the organization of the activities of financial structures operating on a pyramidal basis. It should be noted that financial pyramids, as a rule, arise absolutely legally, on legal grounds. At the same time, legal restrictions most often do not exist due to lack of experience. But at the same time, it must be said that, as researchers note, “the improvement of laws alone is not capable of putting a barrier to financial scams, since it essentially prohibits not the financial pyramid as such, but only the conduct of certain operations that are most often used to create financial soap bubbles. Thus, their appearance is complicated, but not canceled.” However, under the existing “anti-pyramid” legislation, financial pyramids of the second group arise more often than the first. Thus, in Russia in 1994-1995 there was no law prohibiting the schemes most often used to create financial pyramids.

3. The third important condition for the emergence of financial pyramids is the ability of the population to save (buy shares, securities), that is, a certain level of material well-being of the population. By 1994, there had been some improvement in the material condition of the population in Russia: real income per capita increased, the previous frantic rates of inflation decreased slightly, privatization took place, the country began to enter the market economy (the first stage of the transition period passed), the population “woke up” a little after shock 1991-1993 As a rule, pyramids of the first group rely on households as investment units. For example, the main investors of MMM JSC were ordinary investors, including pensioners and disabled people. Therefore, when assessing the likelihood of the emergence of financial pyramids, one should pay attention to the motives for saving and the propensity to save of the population.

4. Finally, the last main condition is the presence of the population’s inclination to invest money in financial institutions, including financial pyramids.

Pyramids of the first group

First of all, a financial pyramid can sometimes be divided into several smaller pyramids. Thus, the period of existence of MMM JSC “is divided into four main stages - the first pyramid, the second pyramid, the third pyramid and the completion of the first two. Moreover, each stage of the large pyramid (JSC MMM) - a small pyramid - is similar to another stage. These stages differ mainly only in duration. The development of the financial pyramid of the first group can be divided into 4 main periods:

1. The first period includes the emergence of a company and the growth of its shares on the market to their maximum value. It can be called the period of construction of the pyramid. It is the longest period of her life, the period of her “well-being”. For example, for the first pyramid of MMM JSC, this period lasted from February 1994 to mid-July of the same year.

2. The second period represents the moment of maximum value of the company's shares. This is the "top of the pyramid." Unlike the construction period, it does not last long. JSC MMM experienced this period for about two to three weeks in July 1994.

3. The third period is the collapse of the financial pyramid. During this, as a rule, short period, the company's stock price collapses to its original, and sometimes even lower, value. The first pyramid of MMM JSC went through this period from July 26, 1994 to July 29, 1994.

4. The fourth period is the post-pyramidal period. During this period, the affected shareholders organize meetings and rallies demanding compensation for the damage suffered and punishment of the perpetrators (the board of the pyramid company), the government carries out arrests, various inspections and often confiscates the company’s property in order to find the perpetrators and return the missing money. Sometimes this is followed by compensation to shareholders. For the first pyramid of MMM JSC, this is the period from the end of July, when the first rallies begin, to mid-October.

Pyramids of the second group

The pyramid of the second group can also be divided into 4 periods:

1. The first period is the period when the financial structure is not a pyramid. It can be called the non-pyramidal period, or the pre-pyramidal period. It can last quite a long time. GKOs and OFZs go through this period from 1994-1995 to 1997.

2. The second period is the issue of securities and the transformation of the financial structure into a financial pyramid. It can be called the pyramidal period. The beginning of this period will be marked by a significant depletion of the company's cash resources, the structure paying dividends. It issues securities to improve its financial position. By the end of the pyramidal period, the financial position of the company or structure is deteriorating, and it faces the question of paying dividends on securities. The GKO system went through this period from 1997 to the summer of 1998.

3. The third period is the collapse of the built pyramid. It is accompanied by the liquidation of the financial structure and its declaration of bankruptcy. For the GKO system this is August 1998.

4. The fourth period is the post-pyramidal period. It largely coincides with the post-pyramidal period of the pyramids of the first group. Its peculiarity is the absence of payment of compensation, since the financial resources of the financial structure are depleted to zero, and compensation, as a rule, is paid from confiscated property. The post-pyramid period in Russia was practically absent, since the collapse of the debt pyramid was accompanied by a crisis situation in the country, the freezing of most accounts, the devaluation of the ruble, and rising unemployment, as a result of which measures were taken to get out of the crisis, rather than looking for the culprits.

Influence

Financial pyramids have an impact on the economic situation in the country. Their main consequence, as a rule, is a drop in the savings activity of the population, especially with regard to investing money in stocks and securities, due to a drop in confidence in those investment institutions. Thus, the volume of investment, which plays an important role in the economy, is reduced. Here is what A.V. Anikin writes about the consequences of the collapse of John Law’s Mississippi Company in France at the beginning of the 18th century: “The collapse of Law’s system had a great impact on the French economy in the 18th century, right up to the revolution at the end of the century. The trauma of the collapse of the Mississippi scam and the entire Law system slowed down the development of banking and the growth of industry.”

Financial pyramids in Russia caused similar consequences. After the events of 1994-1995, the composition of household savings changed, the share of savings in stocks and securities decreased. The population's desire to save in this form has also decreased. Moreover, according to a survey by the Public Opinion Foundation in July 1997, 74.5% of those who invested money in financial pyramids consider themselves to have lost money as a result of the investment, and only 9.4% of those who invested money in financial pyramids consider themselves to have received a profit from the investment. It was the previous negative investment experience, which is one of the most important factors that can influence the current choice of investment strategies by a particular household, that affected the decrease in savings in securities and shares. Another consequence of financial pyramids is the adoption of a law banning them and the creation of a system to protect the rights of investors. In Russia, on November 4, 1994, the Federal Commission for the Securities Market of Russia (FCSM) was created, whose functions include the development of uniform standards of insurance and guarantees in the securities market, the creation of a system for protecting the rights of depositors. The creation of the FCSM was the state’s reaction to the surge in the emergence of financial pyramids.3 In England, in June 1720, the “Bubble Act” was introduced, which prohibited the establishment of joint-stock companies without an official license under threat of fines and imprisonment. This law was aimed at protecting investors from small financial pyramids.

Financial pyramids in Russia

In the mid-90s, several organizations appeared in Russia, operating on the principle of pyramidal payments and posing as joint-stock companies: “Chara”, “Tibet”, “Russian House of Selenga” and others. But, of course, the most grandiose and scandalous of them was MMM JSC.

MMM managed to force Russians to reveal such secret savings that the tax police would not have been able to reach. And citizens voluntarily brought all this money to Mavrodi’s company. According to the Federal Fund for the Protection of the Rights of Depositors and Shareholders, the company did not have a license from the Central Bank of Russia to raise funds. But despite this, the pyramid continued to successfully siphon money from the population for years.

It is “MMM” that first comes to mind for a Russian when he hears the word “pyramid.” Sergei Mavrodi created MMM back in 1988, shortly after his release from prison. The company MMM JSC was registered on October 20, 1992 at a branch of the Moscow Registration Chamber. And already in August 1994, Sergei Mavrodi was detained for concealing income from the Invest-Consulting company he headed.

Powerful advertising of a new joint stock company appears in the media, including on television, promising to pay the largest dividends. Soon the stock price begins to rise, and by July it rises 5 times compared to February (from 25 thousand rubles per share to 125 thousand rubles per share). JSC MMM is becoming extremely popular. At the main point of MMM JSC (26 Varshavskoye Shosse), large queues of people wishing to purchase shares very soon begin to form, the number of which in July reaches an average of 300-600 people, and the head of MMM JSC, Mavrodi, is one of the leading entrepreneurs in Russia . In July, the collapse of the financial pyramid occurs: on the 29th, the stock price collapses from 125 thousand to 1 thousand. On August 4, S. Mavrodi was arrested. But a week later (August 5) after the collapse of the first pyramid, new MMM JSC tickets went on sale, and the construction of a new pyramid began. The share price gradually begins to rise - from 500 rubles to 5 thousand rubles by mid-September. At the end of August, a collection of “voluntary donations” is announced. In mid-September 1994, a serious turning point occurred. A large batch of MMM JSC tickets are thrown onto the market, which causes a sharp decline in their rate and the closure of the point of sale. Panic begins among shareholders, they begin to hand over tickets. In the last ten days of September, the ticket price increases quite sharply. However, already on September 29 it decreases sharply again (from 7-8 thousand to 600 rubles). And on October 5, all reception centers of MMM JSC are closed. A little earlier, on September 24, Mavrodi was approved as a candidate for elections to the State Duma. On November 1, 1994, S.P. Mavrodi, elected as a deputy of the State Duma, opens sales points and announces the introduction of a two-month “transition period regime.” All previously issued shares and tickets are frozen, and a new series of MMM JSC tickets are issued at the initial rate of 1000 rubles. New tickets are being purchased quite actively. Throughout November 1994, the rate of JSC MMM tickets of the latest issue increased very steadily from 1000 to 3500 rubles. However, already on December 1, Mavrodi changes the quotation rules, introducing a “floating” rate, determined by the short-term balance of supply and demand. As a result, the stock price quickly falls to its original level. During December, the rate drops to 500 rubles. From December 20, 1994 to January 3, 1995, JSC MMM organizes holidays, and during this period the stock price drops to 170 rubles. Subsequently, the rate gradually increases and by mid-March reaches the thousand-ruble mark, but on March 16-17, relatively massive surrenders occur, and the rate drops to 200 rubles.

On March 20, Mavrodi introduces a new “stabilization regime.” Tickets of a new “special series” are introduced and at the same time tickets of the previous series are frozen. At first the rate rises, but after a sharp rise it falls again (by 4.5 times). On April 24, tickets of the new series are introduced again and all previous ones are frozen, but already on May 4, the rate of tickets of the new series drops by 4 times. On May 10, 1995, a series of “privilege tickets” were introduced, for which fixed quotations and sales volume restrictions were established. Transactions with tickets from previous series that were frozen until June 20 will not be resumed within the specified period. The activity around the MMM JSC sales points is gradually fading away: the financial pyramid is ending. The number of victims of the financial game of MMM JSC in Russia is estimated by experts to be from 5 to 24 million, but no one knows the real number of victims. It should be noted that mostly ordinary investors, including pensioners and disabled people, became shareholders of MMM JSC. And it is these population groups that have suffered the most.

Wherever Sergei Mavrodi hid, he did it very successfully. Until January 2003, law enforcement agencies were unable to trace him. By that time, many of his colleagues in the pyramids had already been put on trial. Thus, the head of the Tibet financial pyramid, Vladimir Dryamov, was sentenced to 15 years in prison. The founders of the financial pyramid “Russian House of Selenga”, Alexander Salomadin and Sergei Gruzin, were each sentenced to nine years in prison, to be served in a general regime colony. And the head of “Vlastelina” Valentina Solovyova managed during this time to serve the five years assigned to her by a court decision in a colony and again engage in the same business, maintaining all the same architectural passions. In the city of Podolsk near Moscow, she established a certain ZAO Interline, which sells cars and operates on the principle of a pyramid. Mavrodi Jr., Vyacheslav, and even Sergei Mavrodi’s wife, Elena, were put on trial. Sergei himself was put on the international wanted list. However, nothing was heard about him, although they seemed to be looking for him very diligently. In September 1997, the Moscow Arbitration Court declared MMM bankrupt. The damage caused by MMM to millions of investors was then estimated at $100 million. In 1998, the Investigative Committee of the Ministry of Internal Affairs of the Russian Federation combined all materials related to the activities of MMM JSC into one proceeding and created a single investigative and operational group. Over the years, the magical power of MMM began to wane. At first, as you can see, the pyramid began to draw money worse, and then the protection provided by the structure to its creator weakened.

On February 3, Russian media reported that former MMM investors had a chance to get their money back. On that day, the Investigative Committee under the Russian Ministry of Internal Affairs asked former investors of MMM and the company’s subsidiaries to send statements to the committee about the damage caused to them. To recognize them as victims, citizens must also provide photocopies of all documents defining financial relations with the companies of the MMM group - checks, tickets, certificates.

Russian House Selenga

As mentioned above, “MMM” is not the only pyramid operating in Russia. In Volgograd in 1992, the “Russian House of Selenga” was registered - a company that became the “progenitor” of thousands of financial pyramids. The main objective of the company was to invest capital in large industrial facilities and create its own financial empire.

Tibet

In 1992-1994, the Tibet concern launched an aggressive advertising campaign to attract investor clients. During this time, the company owned by Dryamov entered into loan agreements with 200 thousand Russian citizens. He fraudulently deprived investors of 17 billion 344 million non-denominated rubles

In 1994, the head of “Tibet” disappeared and was put on the international wanted list. He was later arrested by Greek law enforcement authorities for committing petty theft at a supermarket. A Greek court sentenced Dryamov to a year in prison. In March 1998, he was handed over to Russian law enforcement agencies. During the investigation, Vladimir Dryamov was found guilty of committing large-scale fraud, which was confirmed by the court.

Hopper

Another company followed in the footsteps of RDS - Khoper (it was advertised on television by the cabaret duo Academy). Millions of investors' dollars were smuggled into Israel.

In 1994, its office was registered in Moscow. The founders of “Khopra” are Liya Konstantinova, her son Lev, a relative of the Konstantinovs - Tagir Abbazov, Volgograd businessman Oleg Suzdaltsev. Khopra branches operated in 70 Russian regions. The company included about 50 different structures: check funds, insurance companies, related OJSCs, LLPs, and others.

According to statistics, there were more than four million people who were defrauded. It was the largest financial pyramid in Russia. Judging by the papers, from 1993 to 1997, Khoper attracted over three trillion “old” rubles, about $500 million at the 1997 exchange rate. All the funds that investors brought to Khoper (with the exception of funds for current expenses and small interest payments on shares) were sent abroad by the Konstantinovs. Either in cash or under fictitious contracts through foreign banks: Moscow People's Bank in London, approximately $20 million passed through the Bank of New York, then the funds were deposited in coded accounts in Israeli banks. The rest of the money was taken to Israel in “black cash” in suitcases.
Until the moment the money crossed the border in suitcases, it was deposited in safe deposit boxes or kept at Lev Konstantinov’s home.
After the collapse of other financial pyramids, real estate and shares of operating enterprises remained, which could be sold and partially return money to investors. There was nothing left after Khopr - everything was taken abroad in cash. Although the Khoper company has been involved in various criminal cases since 1994, the reason for the arrest of the four accused appeared only in 1997, after numerous audits of all Khoper structures.

GKO system (1994-1998)

The era of financial pyramids ended in 1994-1995, but just three years after the end of mass pyramid building, another financial pyramid collapsed, this time built by the state. In 1994-1995, the Ministry of Finance of the Russian Federation switched to financing the deficit by issuing securities - state treasury obligations (GKOs) with a maturity of 3 and 6 months and federal loan bonds (OFZ) with a maturity of one to three years - instead of direct borrowing from the Central Bank and emission of money. At first, this measure had a positive effect. However, the state of the country's economy and finances soon led to the abuse of this instrument. In the fall of 1997, foreign investors, who by that time had a significant share of securities in their hands, began to sell government securities, which threatened to deplete the foreign exchange reserves of the Central Bank and undermine the exchange rate of the ruble against foreign currencies. As a result, the Central Bank used its only effective weapon - increasing the refinancing interest rate. In the fall of 1998, it reached 150% per annum. The increase in the refinancing interest rate caused a general increase in interest rates, including yields on government securities. The state debt pyramid has grown. In 1997 and in the first half of 1998, the federal budget was subordinated to the task of paying interest on the public debt. Between January and July 1998, federal interest expenditures accounted for more than 60% of all tax revenues, and each new issue of these obligations had to be made on higher interest terms. A situation arose in which new issues of securities not only did not provide money to the budget, but also absorbed budget revenues themselves. In August 1998, a crisis arrived.

Consequences

The collapse of financial schemes can also lead to macroeconomic effects. The consequences include a loss of confidence in national financial markets, expressed in a fall in prices for financial assets, currency exchange rates and rising interest rates, leakage of deposits from banks, diversion of savings from effective use, and their transfer abroad with significant consequences for the country’s balance of payments. If the losses of affected clients are compensated from the state budget, then the fiscal burden on the economy also increases. In addition, the collapse of pyramid schemes entails a fall in consumer spending, which was motivated by paper profits from participation in financial schemes, and an increase in problem assets in the financial sector if financial institutions were involved in dubious investments.

Currently, the Russian Ministry of Internal Affairs is in favor of tightening criminal liability for organizing “financial pyramids.” The Minister of Internal Affairs of the Russian Federation, Boris Gryzlov, ordered the creation of a working group of representatives of the departments of the ministry, which will develop relevant proposals. According to the Ministry of Internal Affairs, over the past 9 years, about 500 thousand people have become victims of “financial pyramids” in Russia. In total, they lost 9.5 billion rubles and almost 240 million dollars. During this period, 324 criminal cases involving “financial pyramids” were initiated and investigated. Currently, 52 of them are suspended due to the search for suspects.

More than ten years have passed since financial pyramids ended their inglorious march across the country. However, in our everyday life there are still words from television commercials glorifying the fastest way to getting rich: “I’m not a freeloader, I’m a partner!”, “I’ll buy boots for my wife,” “Not a bad increase in pension.”

Sources

ru.wikipedia.org/wiki/%D0%9C%D0%9C%D0%9C

rosbalt.ru/business/2011/01/24/811611.html

Research group ZIRCON: Financial activity of the Russian population in 1995-2001 //: “Exclusive marketing.” 2001/ 3(24)

Carroll R. T. Financial pyramid // Encyclopedia of misconceptions: a collection of incredible facts, amazing discoveries and dangerous beliefs. - M.: Williams Publishing House, 2005. - 672 p. - ISBN 5-8459-0830-2, ISBN 0-471-27242-6.

Recently, more and more people are becoming victims of financial pyramids. In reality, recognizing a financial pyramid is not so difficult; you only need certain knowledge.

Financial Pyramide is an organization that seeks to attract people's money and invest it in a certain project. However, in reality, no investment activity is carried out; the promised payments to participants are made by replenishing the pyramid’s budget with funds from new participants.

What do financial pyramids do? They attract money from the population, promising a fairly high interest rate and, accordingly, a high level of profitability. In addition, the owners of financial pyramids claim that the money will be invested in successful projects, often real estate or the Forex currency market. In fact, no investments are being made.

The interest promised to participants is paid from the funds that again come from new participants in the financial pyramid. But with all financial pyramids there comes a time when it goes bankrupt. This happens for the reason that there are no more new participants, and the old ones do not want to invest, therefore, there is nothing to pay interest with. As a result, you lose all the money you once invested there. It is never known in advance how long a financial pyramid will last.

What is the danger of financial pyramids?

1. You can quite easily and quickly lose all your invested money, because a financial pyramid can cease to exist the next day after opening and receiving money from participants.

2. The outcome of such organizations is always unpredictable, so you are unlikely to be able to guess when to withdraw your invested money so as not to become a victim of deception.

3. If you make your profit, it will be solely at the expense of the money of other people, who will subsequently lose their money.

Signs of a financial pyramid

- guaranteed income. If any company assures you that you will receive guaranteed income, then there is a high probability that this is a financial pyramid. In accordance with our legislation, no organization has the right to guarantee an income higher than the refinancing rate (with the exception of banks, but they rarely guarantee a 10-11% return). Therefore, if you are guaranteed income of more than 20% per annum, it makes sense to be wary;

Now financial pyramids have become somewhat smarter and more cunning: they have stopped using the phrase “guaranteed profitability”. To attract customers, they turn to history and statistics: they demonstrate the company’s income over the course of a week, a month, or a year. If, according to the data, during this time every day the organization receives significant income, and there is not a single unprofitable period, then most likely this is a financial pyramid. It is impossible to obtain high income over a long period of time in financial markets; there will certainly be unprofitable periods and unprofitable transactions;

Most financial pyramids say that they invest money in the Forex market and promise a very high income - about 30% per annum. Of course, the Forex market can bring big profits, but you can also face big losses. Often financial pyramids do not withdraw money to Forex;

Payment of commissions. Pyramid leaders are ready to reward their members for attracting new clients.

Reasons for widespread use

1. Fairly simple organization. The organizer only needs an office or a created website, as well as the ability to accept and pay out money. You can say and write anything to yourself.

2. Absolute impunity. At any time, the organization may suddenly close its operations, and participants will not have the opportunity to return their invested money.

3. There is a great desire of people to get easy and quick benefits. At the same time, most investors do not have financial literacy and do not understand the principle of operation and features of financial instruments.

Currently, most financial pyramids exist thanks to the Internet, because it is much easier to organize your activities there.

If you are already a member of any financial pyramid, try to withdraw all your investments from there as quickly as possible. Be careful yourself and protect your loved ones, friends and acquaintances from the trap called a financial pyramid.

Larisa Glushkova

At one time, financial pyramids brought Russia a lot of troubles. However, this history did not teach the Russians anything, but only strengthened them. People continue to give money to scammers. Whereinpyramids are different, scammers are constantly improving, he said on airwebsite manager of the Federal Fund for the Protection of the Rights of Depositors and Shareholders Marat Safiulin.

Will they declare war on financial pyramids?

— Marat, n how much financial Pyramide terrible evil? How many people suffer from financial pyramids? What is their damage?

— The active activity of financial pyramids is a sad page in the history of the Russian Federation. This is truly an absolute socio-economic evil. Harm is also caused to the state in the form of negative consequences for the development of the financial market, a negative impact on financial institutions and instruments.

Of course, enormous damage is caused to citizens: loss of savings, health, socio-economic shocks... Families are destroyed, some people even commit suicide because they could not come to terms with the fact that they lost their savings.

This type of fraud must be fought actively and aggressively, and the activities of financial pyramids must be strictly suppressed. In 2014, according to the Ministry of Internal Affairs, about 270 organizations were identified that met the criteria of financial pyramids. They caused damage to Russian citizens in the amount of about two billion rubles. About nine thousand citizens were injured.

— Can a pyramid always be recognized? Or are there some complex structures, well disguised as decent financial institutions?

— Fraudsters are very creative people. However, there are certain signs of financial pyramid activity. A fairly well-known typology of seven main types of pyramids has been formed.

There is a classic understanding of a pyramid, when illegal activities are carried out to attract funds and property of citizens, in which the payment of income or other benefits to persons who entered earlier is carried out at the expense of newly attracted persons. At the same time, no investment activity is carried out, or it is carried out in incomparable volumes. Some immediately say that this organization is a financial pyramid and declares that the invested funds may not be returned to citizens.

Among other types of financial pyramids, debtor debtors have recently become very famous, when you are asked to repay your loans to one of the organizations. This is prohibited by law, since all relations between you and credit institutions are regulated by law. And it does not provide that you can transfer your rights to another person, in any case, without notifying the bank about it.

Fraud can be expressed in any form, and any legend can be invented for actively taking money from citizens. Therefore, you need to be very careful when making certain economic decisions, and understand that all responsibility within the framework of the decisions made lies with the person who made them. Fraudsters are creative people. Each time something new is introduced into these fraudulent schemes.

Our citizens are well aware of the name Mavrodi, but he continues pyramidal construction. In our history, six or seven of his pyramids are already known. It is interesting that some people have formed a peculiar attitude towards this pyramid builder - a certain positive understanding. Therefore, it was hardly possible to avoid such pages in the history of the Russian Federation and a repetition of this in the future.

Financial and economic decisions must be made carefully. It is important to proceed from the fact that all activities in the financial market are related to licensing. A single body, the so-called regulator - the Central Bank of the Russian Federation - issues these licenses.

When identifying your counterparties with whom a person wants to enter into certain relationships, you need to check their presence in the relevant registers, check the availability of appropriate licenses and all relevant information related to their activities, which is posted without fail on the websites of these companies.

— Can pyramids be licensed?

- Quite.

— What other signs of pyramids are there? If a licensed organization may turn out to be fraudulent, what should you look out for?

— Disclosure of information about the organization’s activities. On the company's website, its activities should be widely covered. This is a legal requirement. An organization should not hide from the press. Therefore, transparency in the company’s activities is one of the factors that should either alleviate some concerns in this matter or alert the citizen.

Payment of income is possible only within the framework of an economy with limited conditions; resources in the economy are not unlimited. And pyramid schemes usually promise an almost endless growth in savings.

Having counted the promised payments, it is quite possible to understand that it is inevitable that the population of Russia, or even the entire globe, will not be enough to make payments to the citizens who entered this financial pyramid. That is, any pyramid has a limitation on development.

— Are there borderline, not quite pyramidal structures on the edge?

- There are some edge cases. Not every organization that operates within the framework of attracting participants in multi-level marketing is a financial pyramid. For example, network marketing is simply a specific concept for selling a particular product or service.

Therefore, it may well be used in ordinary activities. If a company resorts to such concepts, this does not mean that it is a pyramid scheme, and vice versa.

A fairly well-known example of a borderline state is the largest pyramid in the United States, Investman Securities, which at a certain stage nevertheless grew into a financial pyramid from a normal organization, a professional participant in the financial market, which provided services for wealthy clients. She began to commit fraud against her clients using unfavorable financial practices.

This pyramid caused damage to the citizens of the United States of America and other countries in the amount of 65 billion dollars. Its activities lasted for several decades. Its main organizer, Bernard Madoff, was sentenced to 150 years in prison.

— On what basis are organizers held accountable in Russia?

- Regarding the activities of financial pyramids, of course, criminal legislation prevails. These are articles 159 and 172 of the Criminal Code. Other articles of the Criminal Code are also used when there is a statement from a citizen that he has suffered damage. After which the suppression of this activity begins.

Of course, at this stage it is quite difficult to return the property and funds of citizens. The activities of authorized bodies in this area are associated with a number of difficulties.

After all, the scheme was implemented, funds and property were stolen, and finding traces of these assets can be quite difficult, if not impossible. It is also difficult to find the organizers of this financial pyramid.

Improvement of legislation will occur in the near future. At the autumn session of the State Duma, the government is expected to introduce a bill to suppress the activities of financial pyramids, which involves stopping activities even before causing damage to citizens.

— Your fund provides assistance and provides compensation victims m from activities financial organizations. Tell us about it.

— Our fund was created on the basis of a presidential decree and has a number of important functions. One of which will, indeed, be compensation for citizens who suffered in the financial market. The second is legal assistance to citizens, which is provided free of charge. And events in the field of financial education. Therefore, the fund has a whole network - about 100 - of authorized organizations throughout the Russian Federation.

The Foundation maintains a special register of organizations that have caused damage to citizens of the Russian Federation. There are investment funds, consumer credit cooperatives and simply legal entities. The range of such organizations is very wide, just as the legislation of the refinance market is extensive. The list of these organizations is on the official website of the fund.

A citizen can find an appropriate organization if he has an unfavorable relationship with it. And receive appropriate compensation. The fund pays compensation of 25,000 to all citizens of the Russian Federation and up to 100,000 rubles to participants in the Great Patriotic War. The fund, as part of its activities, has already paid compensation in the amount of two billion rubles. We provided assistance to one million eight hundred thousand citizens.

What is important to us is the fact of damage, which must be recorded. A citizen must declare violated rights and must go through a certain legal process. Obviously, bankruptcy procedures for this organization and enforcement proceedings must be implemented. And if a citizen has not received appropriate compensation, he has the right to claim payment of appropriate compensation within the framework of the invested funds on the terms of repayment of payment.

These are truly difficult times; citizens are concerned about effective investments of their savings. It all depends on what level of risk a citizen is willing to take. The level of risk is usually proportional to the level of return on his investment.

There are a number of tools that allow you to get fairly high returns. For example, at the beginning of 2015, we introduced individual investment accounts as part of the legislation on the financial market. This is a fairly well-known form of collective savings abroad.

Under this instrument, a citizen receives certain tax preferences. A truly positive future is associated with investment accounts. However, citizens should make financial decisions with some caution. After all, the responsibility for placing their own funds rests only with them.

Prepared for publication by Yuri Kondratyev

Nowadays, few people do not know what signs of a financial pyramid exist, because quite recently, some 20 years ago, a huge number of people suffered from such fraudulent schemes. Suffice it to recall the sad experience of MMM. And even now, there are still financial organizations that simply build their pyramid, not caring about actually securing their obligations.

Principle of operation

The pyramid is built only on the basis of a constant influx of money from new investors. The main attraction incentive is the obligation to pay a usually inflated percentage of income on deposits. The main feature of the pyramid is that all payments are made not from the profits received from financial activities, but from the influx of new deposits.

To put it another way, all cases in which the amount of payments on obligations exceeds the added value from the business are financial pyramids. Simply illegal fraud.

The name most likely originated only in the 90s of the last century after the collapse of MMM. The comparison with the pyramid turned out to be the most obvious in order to show that the well-being and the very activity of any such society rests entirely with the participants in the “lowest” floors of the system. The flow of funds is always directed from a large base to a certain group of people at the top, moreover, by increasing the amount of deposits or attracting investors. Everyone who is at the bottom tries to rise to the upper levels as quickly as possible.

Why financial pyramids collapse

The reason why they are not able to work for a long time is the simple lack of influx of new deposits. Payments are made only at their expense. When it is no longer possible to cover past obligations, and the first signs of collapse appear, the management of the financial pyramid either declares bankruptcy and falls under administrative liability, or manages to elude justice and its dissatisfied investors in other countries with accumulated funds.

The process of destruction of the next pyramid is quite easy to understand and detect. Securities issued by a financial organization initially soar in price and fall even more rapidly, ultimately depreciating completely.

Multi-level pyramids

The first type can be called multi-level schemes. They are currently the most widespread, sometimes even without hiding their essence, they are in some demand. The financial pyramid scheme is quite simple:

Upon joining the organization, the investor makes an initial contribution, which is distributed among all superior members who invited him.
The investor brings two or three new volunteers, and they accordingly make their contributions, which are distributed between existing members and the person who invited them directly.

To understand the characteristics and operation of such a pyramid, let’s give an example. Let’s say that upon joining you need to deposit 1000 conventional units. This amount will be distributed between the inviter and the higher-ranking members from whom he is a referent. Next, the newcomer brings two newcomers who contribute their funds, and part of them goes to the inviter. Let’s say the inviter retains 50%, and the members following him receive half as much with each step.

If the two people he invited invite two more each, then the profit will increase by another 100%, that is, by a thousand. Thus, having invested your funds, you can get at least 200% for only two levels of referents. If you attract three participants and so on, you can already count on 300% or more.

The problem that these types of financial pyramids face is the emergence of a banal lack of new participants. In order to have at least some benefit from participation, it is necessary to involve a larger number of participants with each level, which increases exponentially. In the short term, for such financial constructions, even the population of the entire planet will not be enough for new participants to have time to repay the initial payment.

Most often, participants at the lower levels do not bring newcomers at all. Thus, simply losing your money. Such losers often make up 80-90% of all participants.

Pyramid schemes based on the Ponzi principle

Actually, the notorious MMM also belongs to this type. Charlie Ponzi is the man who is credited with the very first pyramid of this type. He created it in the 20s of the last century. A sign of such options are management's promises to pay huge interest to its investors. Initially, the influx of new participants in the system is small, and interest on payments is covered at the expense of the organizer.

After the first investors of the pyramid successfully receive interest, information about such an effective earning mechanism spreads, and the number of participants increases like a snowball. It is at this moment that payments on old obligations are already carried out by attracting new funds.

Such a scheme can last long enough as long as the funds raised cover the increasing payments. As soon as signs appear that there is nothing to make payments from, the organizers of the pyramid simply disappear with the money, for example, they go abroad.

Reasons for the emergence of pyramids in the financial world

The reasons that lead to the possibility of the emergence of financial pyramids can be divided into categories depending on the prerequisites and characteristics:

History of financial relationships and financial fraud

In the history of Europe, as the most developed region of the planet in terms of economic and financial relations, there are many examples of financial pyramids and structures similar to them. The result in the end was always disastrous for the vast majority.

The European economy felt the most painful blows from the activities of various enterprises that emerged in the 17th-19th centuries against the backdrop of trade wars and the conquest of new trade markets around the world. A striking example is the South Sea Company, which was founded in Great Britain in 1711. It existed until 1721. During its existence and activity, it became the largest creditor of the state. The history of the formation and subsequent catastrophic fall of the company cost its shareholders and the state 9 million pounds sterling, which were exchanged for shares.

The company provided its shareholders with unique trading rights in South America, which at that time was under the control of the Spanish crown. The company's obligations stipulated the redemption of government debt subject to the completion of the War of the Spanish Heritage for the benefit of England. The principles of the financial pyramid were built on the inability to realize such obligations.

The company's shares, which initially cost £128, rose in price to £550 within five months, indicating an unprecedented rise in price. The buyers of the securities were many titled persons in England, and an advertising company was subsequently built on their behalf to further attract investors.

In order to completely secure monopoly influence in the securities market and trading permits, the company's management lobbied for a royal act, according to which a ban was actually introduced on the distribution of shares of other similar organizations. Subsequently, the actions of individual leaders to promote this act in parliament were declared illegal.

The share price eventually rose to its £1,000 ceiling. Almost everyone, from peasants to lords, bought them, which was the first sign of the end of the campaign. However, unable to meet its own obligations, the company declared itself bankrupt a few months later, which is natural for such a financial structure like a pyramid. The price of securities fell in a month to a critical low of £150.

A huge number of people from all segments of the population suffered from the company’s actions. Even such world-famous personalities as Isaac Newton and writer Jonathan Swift lost significant capital. However, the company cannot be called unsuccessful, because the majority of the organizers managed to leave England with huge sums of money, including its founder R. Harley, who was also the chief treasurer of Foggy Albion.

Financial pyramids in modern history

The story that happened just twenty years ago is perceived much more clearly. The emergence from scratch and the catastrophically fast promotion of MMM brought large profits to many of its investors at the beginning, and subsequently left a much larger number of people without any personal savings. At the beginning of the turbulent nineties, the financial pyramid built by Sergei Mavrodi was supported by people as a kind of salvation from the hyperinflation that reigned around and was almost the only option to get out of the current crisis.

In the end, everything turned out to be much more prosaic and deplorable. The result of mass fraud was the loss of 110 million rubles by investors, of whom, according to various estimates, there were 10-15 million. The worst thing is that after the final closure of MMM, 50 people committed suicide. Among the victims were ordinary workers, pensioners and students, ordinary people.

The beginning of such an enchanting rise of MMM was marked by a wave of unprecedented advertising in the media. For the Post-Soviet space these were still unfamiliar technologies, and they had a huge impact on the minds of viewers. After the first deposits and payments, people flocked to the company's cash desks with the desire to invest as much of their savings as possible. The pyramid share price started at 25 thousand rubles. and eventually reached 125 thousand rubles. This seemed like a miracle to many and only encouraged even more people to join the scam.

However, at the peak of activity, signs began to appear that the pyramid was no longer working. The limit on the number of active investors was reached, the inflow decreased in scale and the decline in share prices went much faster. A few days later, for one piece of paper from Mavrodi they gave only 1 thousand rubles.

The worst thing in this story is that the MMM pyramid was reborn from the ashes, as if nothing had happened, several more times. Time after time, new tickets were issued, and the old ones were frozen, and still there were people who wanted them. That is, people simply did not understand that they were being seriously deceived.

Financial pyramids and the Internet

The spread of the Internet and its development has allowed many scammers to develop their activities without being tied to any real pieces of paper or shares. In essence, it is not a product that is being sold, but only a subjective opportunity to make money. The distribution system is simplified. For example, the first investor purchases membership in an organization and receives a link to the company's resource. His task is to distribute his referral link on as many sites as possible so that people use it. For each new client, he receives a certain amount from his first-level purchase, which implements the basic principle of the pyramid.

The transition from level to level, where income from referents increases, is also paid. Moreover, each new level is more expensive than the previous one.

What are some examples of the most sensational and effective financial pyramids on the Internet?

Seven wallets. The system is simple. It is necessary to send a certain amount in equal shares to the electronic wallets of seven people according to the list provided by the system, and invite several more new participants in the system. But each new invitee is given a list of seven wallets, in which the first number is eliminated, and the inviter’s wallet is added to the end. It is believed that for every ruble invested you can get a profit of 13,950 rubles. But this is actually an unattainable goal because the number of participants is growing at a colossal pace. In addition, private fraud is possible when seven wallets on the list work for one person.
The NewPro program proposed another version of the financial pyramid, in which there seems to be more control over the distribution of funds and benefits. Entry price is only 90 rubles. This is how much a first level key costs. Subsequent ones are purchased from the funds received. The goal is to invite three more participants. The final goal is to get 30 million rubles by reaching level 28. The only problem is that to achieve this level, about 23 trillion will need to be introduced into the system. users, which is many orders of magnitude greater than the entire population of the planet. In addition, it turns out that keys can be generated not only by organizers, but also by users.
When creating the next system, MoneyTrain, the creators tried to get rid of such glaring errors of previous versions. The number of levels has been reduced to 18, and the total number of required invitees to 580 million. However, this is not realistic to achieve.

Identifying scammers

The problem of unambiguously identifying scammers against the background of completely legitimate business ideas is that not all schemes built on the pyramid principle are deliberately fraudulent. There are many examples where network marketing works in the same way that a pyramid scheme works, building on a broad base and condensing it into a single top.

Another option could simply be a mistake made by the entrepreneur in structuring his business. Or simply when unexpected expenses arise. To keep the business afloat, he is forced to turn to third-party investments or lending, but this may result in new loans being used only to cover obligations on old loans instead of growing the business.

To top it off, it is worth noting that even the pension system in our country is built like a financial pyramid. And as long as there are more pensioners working, it will be trouble-free.

What are the main features of a fraudulent structure, and how to recognize a financial pyramid? Here are three main indicators: