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Financial Pyramids: Negative Experience of the Past

29.03.2016 Cupidity is one of the deadly sins. However, religious dogmata do not stand on the way of various crooks who forget about decency in chase of profit. In the course of history numerous extortion methods were developed. There are no limits for fantasy of scoundrels.
 
Financial pyramids represent a rather new method. They became widespread in the territory of Russia after the fall of the Soviet Union. The government combats crimes of this kind with mixed success and occasionally amends legislation tightening control mechanisms and regulations.
 
Recently made amendments to the Criminal Code of the Russian Federation concerning liability for establishing pyramid schemes are indicative of the magnitude of problems in this sector. Increasing the term of deprivation up to 6 years and penalty up to 1.5 million rubles will unlikely resolve the problem but will hold in frauds to some extent. Financial self-will schemes have transferred to the Internet a long time ago and not easily accessible for law enforcement authorities.
 
One of such organizations has been closed down in Moscow recently. Company name was not disclosed for the benefit of investigation. Criminals implemented the classic scheme. They paid to old clients at the expense of new users.
 
A high profile resource, periodic promotions, “housing certificates” at a price of 80,000 rubles. In five years crooks attracted over 10,000 clients into their net. The company has even established its own virtual exchange market. Clients received bonds instead of money.
 
Insinuations on the subject of safe money-keeping became again relevant with the beginning of economic crisis and devaluation of ruble. Forgotten multi-level marketing again turned into a dangerous weapon in the hands of frauds. Criminals have improved extortion methods and begun making profit from problems of fellow citizens. Sometimes even professional investors become their victims.
  
A bit of history
Widely spread in the territory of Russia pioneer in this field is a notorious joint-stock company “MMM”. The brainchild of Sergey Mavrodi was of unprecedented scale. Number of investors reached 15 million people. The huckster has succeeded to earn 5 milliard rubles. It is a pity that this genius person (financier, prose-writer, poet and scriptwriter) has chosen the shady criminal path. His activity ran far beyond Russian boundaries, taking a global character. Residents of many countries (India, Indonesia, Malaysia, Hong Kong, Philippines and others) have become victims of the trickster who was convicted of large-scale fraud in 2003. A tempting thesis of winning over a faulty financial system through uniting funds and efforts is still popular.
 
With development of the Internet financial pyramids moved to the virtual space and offered making money almost from the air. People who made the first contribution find themselves on the junior grade of the hierarchy. They have to attract other participants to get back their investment together with dividend. Multi-level referral system increases profit of its creator. He is at the top of the pyramid.
 
Amount of the initial contribution can be different, monthly dividend rates may reach 20%. Principle of operation based on geometric progression is efficient in the beginning of the scheme development. Step-by-step the geometrical progression decreases and reaches zero level.
Transition to the virtual world has significantly reduced the efficiency of traditional pyramid-control methods. Criminals create analogues of social networks through which they attract people into criminal scheme. Lack of documentary evidence for money transactions is the main reason that doesn’t give a chance to get to frauds in point of law.
 
The common example is a well-known pyramid “Seven wallets”. There were numerous clones created as well. They differ in amount of the initial contribution and number of levels in referral systems. For instance, one of clones, NewPro, offers its users to make the initial contribution in the amount of only 99 rubles and draw in three people. Technically, every investor may draw in an unlimited number of referrals and earn mega profit, but to reach the top level (there are 28 levels) it is necessary to draw in 23 trillion people. Well, it is unreal because the population of the globe is only 8 milliard people.
 
Flourishing of pyramid schemes in 90-s could be explained with ignorance of former Soviet Union people. Tens of millions of people suffered losses.
 
Financial pyramids are well distributed in the real world where they are of local character. The number of ingenuous investors decreases yearly. Most of them are professional players who move from one resource to another hoping to leave the pyramid on time and earn maximum profit.
 
It is unlikely to resolve the financial pyramid problem in the nearest future. Despite the growth of financial literacy many Russians swallow the bait of online-swindlers. One in ten, seduced by promises, signs an agreement with frauds without looking through the wording of the contract. New pyramids and schemes will probably appear in the future.