MMM 'financial monster' devours Russian savings

PYOTR, a budding but inexperienced Moscow businessman, owes Gleb, another young Russian entrepreneur, dollars 2,000. Gleb has been pressing gently for the return of the money for some months, and Pyotr was supposed to pay up last week. But on Friday Pyotr came to Gleb and nervously asked his friend to wait a little longer. He said he had just lost the equivalent of dollars 7,000 in the collapse of the dodgy Russian investment fund MMM.

Gleb got angry, said friends who told me of the incident. 'You are not a child,' he shouted at Pyotr. 'How could you have believed those swindlers at MMM? You might as well have gone and thrown your money away on the horses.'

Now Gleb has, in the contemporary Russian expression, put Pyotr 'on the taxi meter'. This means that for every day Pyotr fails to pay his debt, a heavy rate of interest is clocked up. With the imposition of the 'taxi meter' goes the veiled threat that physical force may in the end be used to extract repayment of the debt.

The stereotypical victim of the crisis at MMM, which was running a pyramid scheme whereby dividends were paid to shareholders from the income of new share purchases, is of course the old-age pensioner, someone like Misha's Aunt Natalya. 'She saw the adverts on television and believed that this was a genuine form of saving,' he said. 'She's lost 2 million roubles ( pounds 1,500) and now she can't pay her rent. I shall have to look after her.'

But many young capitalists, who may or may not have gone into the gamble with their eyes open, have also come unstuck, and Moscow is likely to echo for some time to the grim sound of razborki (the settling of scores). The full repercussions of Russia's biggest financial scandal are not clear yet, but it is possible MMM will take other businesses down with it.

The investment company, headed by Sergei Mavrodi, Russia's fifth richest man, attracted 5 million investors with a television campaign promising instant wealth. President Boris Yeltsin himself complained that the ads were misleading, but the authorities could not move against MMM because there is no law here against pyramid schemes.

It was only a matter of time before the pyramid, built without any solid economic foundation, collapsed, and the slide started last week. By Friday MMM shares had fallen in value more than 100 times, to a mere 1,000 roubles (about 75p) and, although Mr Mavrodi said the fund would recover, experts said the game was over. Yesterday the company suspended all dealings in its shares.

Mr Yeltsin has reason to be worried for, far from blaming Mr Mavrodi, many victims of the MMM collapse have turned their wrath on the government for its inaction. Yesterday the press took up this theme. 'We have got what we wanted, a 'free market',' said Rossiskaya Gazeta. 'The Ministry of Finance, after a strangely long silence, has finally decided to dissociate itself from MMM.' Komsomolskaya Pravda, while castigating Mr Mavrodi, was equally critical of the government which, it said, had 'watched how the MMM financial monster was swelling'.

Yesterday thousands of investors continued to mill on the pavement outside MMM headquarters on Warsaw Avenue, in the vain hope of recovering their money. Police controlled the crowds, which have caused huge traffic jams.

There were signs that distress might be channelled into action, as some victims of the scheme announced they were forming a shareholders' union to press for compensation.