Thirst for profit. How to recognize a financial pyramid and avoid fraud


The financial pyramid is firmly associated with deceit. Such projects are gaining momentum and becoming more diverse than in the 90s. The naivety of people leads to misunderstandings: not everyone can recognize the pyramid in time, and sometimes they confuse it with network marketing. What is a financial pyramid? An investment or financial pyramid is a way to generate income for those who invented it. The essence of the financial pyramid is to constantly attract money at the expense of new participants. The first investors receive income from the contributions of “fresh” investors. The principle of the financial pyramid is when the bottom ranks “feed” the top ones. The scheme is not always disclosed by the organizers, and the sources of income are hushed up. Instead, they name insignificant sources or even fictitious ones. The fact of concealment or substitution of data is considered fraud. Mathematicians and economists say that the redistribution of deposits between participants cannot work forever, so such a monetary scheme is collapsing. Members will not be in profit for long. Usually only the first members get more than they put in, the last get nothing. Repayment of obligations to each is impossible. The history of financial pyramids The first financial pyramids date back to the 17th-18th centuries. The economic history of many countries knows a lot of such examples. In 1717, John Law, a French businessman and prominent member of the royal court, issued 20,000 shares at a price of 500 livres. He said that the French fleet found gold in the Mississippi, where the locals would bestow their riches on all the French. Lo launched a powerful advertisement, and his status instilled confidence in investors. A few months later, the shares rose to 5,000 livres. But Lo’s company could not keep the price artificially for a long time, and six months later the bubble burst. This enterprise almost ruined France: a financial crisis began, goods disappeared from the shelves, and the dissatisfaction of depositors turned into a panic. Around the same time in England, Robert Harley opened the South Sea Company. She promised to give shareholders the exclusive right to trade with the Spanish part of South America. The only asset of the company was the public debt of England. Important people became investors, even Isaac Newton invested money there. Harley used their names to advertise, attracting new investors. As a result, the rights were not as complete as I thought to found. The organization was declared bankrupt. The largest financial pyramids “Portuguese pyramid” The emigrant Dona Branco opened her bank in 1970 and promised a profitability of 10% to depositors on deposits every month. For 14 years, the system worked, and Branco was nicknamed “the people’s banker.” When the pyramid collapsed, it became impossible to report on obligations, and the woman was sentenced to 10 years. Lou Perlman Stocks The founder of the musical group Backstreet Boys spent some time in prison for financial fraud. In 1981, he organized fictitious firms and placed shares on the stock exchange, publishing fake reports of their profits. The scheme lasted 20 years, the shares increased in price during this time, but then Lu received 25 years in prison and a million dollar fine. Shareholders lost $300 million even after part of the money was reimbursed. Pyramid of Syed Shah Pakistani teacher Syed Shah began telling his neighbors in 2005 that he had a secret program to make money on stock trading. Shah found 10 depositors, paid them interest and received dozens more who wished. For a year and a half, he gathered 300 thousand people who gave a total of $ 1 billion. At first, they wanted to make Shah the head of the region, but when the pyramid collapsed, he was convicted of fraud. Financial pyramids of the 90s. in Russia, MMM Sergey Mavrodi founded the largest pyramid of the 20th century, the number of participants in which exceeded 15 million. Since 1992, MMM OJSC has been accepting cash deposits in exchange for its shares. Promised income at 200% per month. In 1994, due to a tax conflict, the stock price fell, the company went bankrupt. The debt amounted to 5 billion rubles. Vlastilina In 1992, the Vlastilina enterprise appeared in the Moscow region. It was founded by Valentina Solovyova, who accepted deposits at high interest rates and sold cars and apartments at low prices. Solovyova made an offer to a new employee of the company. She asked to hand over 3 million 900 thousand rubles to her and in return promised a Moskvich car, which then cost 8 million rubles. Valentina fulfilled the agreements, and the fame of Vlastilin spread throughout the country. Even famous personalities invested there: Alla Pugacheva, Philip Kirkorov, Alexander Rosenbaum, Yuri Loza, Lolita and others. Disruptions in payments began in 1994, and Solovyova was sentenced in 1999. The amount of damage amounted to 537 billion non-denominated rubles and $ 2.5 million. country. The money was returned in the form of payments on deposits, they were attracted to open a network of supermarkets and travel companies. In 1996, the creators of the pyramid – Sergei Gruzin and Alexander Salomadin – were arrested. They received almost 3 trillion rubles from investors, spent a third on the maintenance of the company, and deceived 2.5 million people. Types and types of financial pyramids Multi-level Each new participant pays an entrance fee, which is distributed between those who invited him and a participant of a higher level. A beginner invites others and receives his income from them. The reason for the collapse is the lack of participants. When the number of users stops growing, the last participants suffer heavy losses. Usually such a pyramid is covered by trade or high-yield investment. One-level or Ponzi scheme The scheme was named after Charles Ponti (Ponzi), an Italian immigrant who made the first pyramid scheme in the United States. New members are not attracted by old ones. The first investors receive income from the personal money of the organizers and think that this will always be the case. They begin to confirm the financial strategy and recommend investing to friends. Signs of a financial pyramid 1. Payouts are not related to sales If they say that you will receive, for example, 5% of each shampoo sold by you and your neighbor, most likely this is network marketing. If no one says that the number of shares, vouchers or goods sold will affect the payout, then this looks like a scam where the income comes from the contributions of new depositors. 2. You are promised an easy and unrealistic income In the advertising of financial pyramids, the profitability figures are higher than the market average. The lack of risks, quick enrichment is mentioned, the specific amount of money that you will receive is called. For example, “Get guaranteed +100% yield every week without special knowledge and skills.” Such a percentage payment is not rational. It exceeds the offers of any financial institutions. Russian banks give a deposit rate of 7-8% per year. In addition, in the securities market it is forbidden by law to guarantee profitability and you need to warn the investor about the risk of losing money. 3. They demand enough money from you, but at the same time it is impossible to monitor the movement of funds. Usually, the entry fee in pyramid schemes is large, but affordable for people. This way you can cover the maximum of investors who will put up with the loss of funds in the event of a crash. At the same time, money constantly “travels”: you are told that the fund’s transactions are insured in one country, and the purchase and sale of shares in another. 4. Company executives think only about PR If during a presentation, on a website or in booklets they constantly tell how lucky shareholders are, but at the same time they do not provide accurate information (annual balance sheets, financial statements, list of assets), which can be verified in independent sources, it’s a pyramid. Such schemes are characterized by aggressive advertising in the media (for example, Robert Harley’s South Sea Company was supported by writers Dafoe and Swift for money). 5. In a conversation with the organizers, incomprehensible terms are used The organizers of financial pyramids constantly use “smart words”: trading, futures, forex, options. Such vocabulary should scare away, but in practice it intrigues and attracts new investors. 6. The organizers remain anonymous, and the company has a lot of secrets If the organization does not have an office, an accurate definition of activities and a charter, and most importantly, a license from the FCSM / FFMS of Russia or the Bank of Russia, it is better not to contact it. In addition, such companies usually do not have their own fixed assets and other capital assets. You may be told that the secrets of the work are not disclosed on purpose, because this is confidential and strategically important information. 7. Investment mechanisms are not transparent, and the company has no signs of economic activity For example, you were promised high interest rates when investing in high-yielding stock market instruments. You monitor and find out that the company is not listed on the stock exchange and is not involved in trading. Responsibility for the financial pyramid Pyramids are recognized as illegal in many countries, and in the United Arab Emirates and China, in general, you can get the death penalty for this. Some states did not introduce a separate article into criminal law, therefore they qualify financial pyramids as different crimes (for example, illegal business activities). Comparing pyramid schemes with fraud is not entirely correct. If an entrepreneur makes a mistake when creating a long-term project, the financial pyramid becomes just an unpleasant consequence, which is avoided by additional lending. But even with the deliberate possession of other people’s money, it is not always possible to punish the organizers – if they prove in court that the money went to interim payments, and was not fully appropriated. By and large, the only money that the organizers of the pyramids appropriate is the contributions of the first investors. But the trick is that the first investors did not suffer, because they got their money back (at the expense of the last and really deceived investors). Therefore, it is difficult to define such crimes as “fraud”. In our country, such cases until 2010 fell into the category of “pseudo-entrepreneurship” (before the liquidation of Article 173). Responsibility in Russia The financial pyramid and Russian legislation are linked by article 172.2 of the Criminal Code of the Russian Federation. For organizing it, you can be imprisoned for six years or less. At the same time, it is necessary to prove that there was no legal investment or entrepreneurial activity, and the money of new participants went to pay income to old participants. Can a financial pyramid victim receive compensation? It depends on what kind of pyramid you have become a victim of. Contact the Federal Public-State Fund for the Protection of the Rights of Shareholders and Depositors. If the pyramid is in their database, you will receive compensation, the maximum amount of which is 35,000 rubles (this is a refunded contribution, excluding interest and minus the profit you received). WWII veterans can receive up to 250,000 rubles. Where to report a financial pyramid If you have become a victim, filed a claim addressed to scammers and you have not received an answer, write a statement to the police or the prosecutor’s office of the Russian Federation. To do this, collect documents that confirm your money transfers. Team up with other victims to file a class action lawsuit. If any organization makes you suspicious, write to the Central Bank of Russia through the online reception. Where can I see the list of financial pyramids? Since 2014, a separate division of the Central Bank, the General Directorate for Combating Unfair Practices of Behavior on the Open Market, has been dealing with pyramid schemes. It analyzes information that comes through citizens’ appeals and appears in the media, and also helps law enforcement agencies. In 2018, the Central Bank launched an Internet robot that tracks financial pyramids in Russia. Information about the results is posted on the official website after the fact, i.e. when the pyramid has already been opened, and its work is stopped. On the website of the Federal Fund for the Protection of the Rights of Investors and Shareholders, you can study the “Register of legal entities and individual entrepreneurs whose depositors are compensated.” Read: “The richest man in Babylon” – the main theses and rules that will make money work for you

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