Russians panic as shares free-fall: Frantic selling at Russia's leading investment fund - Securities drop by 50% overnight

MOSCOW - Russians raced to sell shares in the country's best-known investment fund yesterday, crowding outside stock exchanges and company offices to dump securities which lost half of their value overnight. Officials from the MMM investment company accused the government of trying to drive them out of business and said the firm's estimated 10 million investors would not stand by if it were forced to close. But senior exchange officials said the panic-selling was a catastrophe waiting to happen.

'If our state is so weak that it can be frightened by an outcry by MMM shareholders, I can only feel sorry for it,' said Alexei Vlasov, President of the Russian Commodities and Raw Materials Exchange (RCME). 'The paper is hollow. There are no dividends, no investment projects . . . shares must be issued by a company using revenues and not the assets they have in circulation. In the West, any issue of shares like MMM would mean immediate imprisonment,' he added.

Traders on the crowded pavement outside the firm's Moscow headquarters offered as little as 30,000 roubles (dollars 15) for shares which fetched 110,000 roubles (dollars 55) before the company stopped buying shares at branch offices across Russia this week . The share fell to 55,000 roubles on the RCME, from 75,000 at the start of trade. MMM had promised rising buy-back prices in slick advertisements on Russian television. 'Hurry to buy. Don't hurry to sell,' said one slogan. But the sell option seemed to shrink this week when the firm stopped buying shares in most locations after a series of warnings about its financial health. It had 60 offices in Moscow and 76 in 49 Russian regions.

Officials at the Finance Ministry had likened MMM to a classic pyramid scheme, where cash from new share purchases is used to buy back old shares at rising prices. When new investment dries up, the cash to pay dividends or buy shares back at higher rates also dries up. Tax officials have accused the company of irregularities.

MMM has long been secretive about its investment activities. A spokesman, Sergei Taranov, said the company was a leading shareholder in Russia's AvtoVAZ, the makers of Lada cars and had also invested money in a hotel complex in the town of Suzdal. He declined to say how much the firm had invested in outside projects or how many shares it had.

'A lot of people buying our shares do not want their name to be written anywhere as a shareholder,' he said. 'That means we cannot count our shareholders. There are about 10 million of them.'

RCME's Mr Vlasov said several investors were still buying shares in the hope they could sell them back to the firm at higher rates.

'Traders can buy at 70,000 roubles on the exchange. If they have personal connections with the MMM office, they can sell them at 100,000 roubles in the evening there,' said Vlasov. The government might have to foot the bill for MMM losses. 'This is a brilliant example of how millions of people are duped by high-quality advertising into buying paper which is worth nothing,' he said.

(Photograph omitted)