Two months ago, a friend sent me a message to google up ‘MMM Nigeria’ and share my thoughts. I quickly ran a search and here was my exact reply to him:
“It has the signs of a Ponzi scheme, abi na HYIP them dey call am. The signs are there from the website sef”
This friend told me some of his friends had been on it since last year. I had to explain to him the little I knew about Ponzi schemes and advised him to tread softly.
So was I right or wrong in my assessment?
Is MMM a scam or not?
Months and more readings later I have arrived at a conclusion I will share in this post.
But first, some history…
According to the Wikipedia page, MMM was started by three Russians; Sergei Mavrodi, Vyacheslav Mavrodi and Olga Melnikova in 1989. The page then went on to list the Ponzi-like operations of MMM, how Sergei Mavrodi got jailed (and subsequently released) for fraud plus other MMM exploits.
In 2011, Sergei launched MMM-2011 and expanded to more countries, chief examples of which were China, South Africa and recently, Nigeria. In the first two countries, the scheme was met with serious opposition. In South Africa, one bank froze investor bank accounts over red flags of fraud. The Chinese government warned her citizens of the illegality of MMM earlier this year.
How does MMM Nigeria work?
Generally, schemes like these promise a high return on investment (ROI) and encourage members to get more people to join. The pattern of operation is similar in most cases and goes thus;
- John invests in a ‘venture’ that has guaranteed high returns.
- Peter and Paul invest later in the same venture.
- Monies from Peter and Paul are used to pay John when it is John’s time to cash out.
- Peter and Paul can only cash out their investments (plus profit) when others invest in the program.
- Process continues
It is evident from the above that this type of system will collapse when new money stops coming in. This is why there are generous referral commissions to maintain continuous cash inflow.
According to the website, MMM is a platform where its members can help each other with funds when they need it. Participants are promised a 30% return after a month when they ‘provide help’ to other members. In addition to this, the scheme also promises referral bonuses, sign up bonuses and returns of up to 50% when using bitcoins.
There is no central bank account. Participants are not required to pool their money but to transfer it to one another when help is needed.
Let’s say a participant (James) is to provide help. What he does is;
- Log into his account,
- Click on ‘provide help’ and send it to whoever needs it.
Before then, James must have paid the money into his account. After the money has been sent, the receiver can go ahead to withdraw it.
The money James sent as help will now be converted to Mavro (the currency of the system). This money will increase over the next thirty days to an accumulative 30%.
At the end of this time frame, James can now request for help. Other members now send help to him, inclusive of the 30% accrued to James’ initial investment. Participants are only eligible to receive help after giving help.
Is MMM a Ponzi scheme?
It does share some similarities with a Ponzi scheme but it is not exactly one. A correct term for MMM is a pyramid scheme. In a pyramid scheme, investors bring in other investors who in turn bring in more investors and the loop goes on. Typically, referral and other bonuses are paid to members for bringing others to the system.
A pyramid is slightly different from Multi-Level Marketing or MLM (like GNLD in Nigeria). Usually, In MLM, there is a something being sold such as beauty or pharmaceutical products.
In MMM, there is no product on sale, just money exchanging hands.
Disclaimers and dangers
The MMM Nigeria website has a boldly written disclaimer on its warning page. Here, participants are told in very clear terms that there is the possibility of losing all their money. They are then encouraged to only use their spare money or not join at all. Below is the warning buried deep within the website.
The system, also, puts certain checks in place to stop multiple registrations and dishonest users. Transactions are monitored to ensure authenticity through POP (proof of payment).This gives it a more credible look.
From discussions with friends and what I’ve read on forums, my conclusion is that the system can still be rigged. This can be done in any of these two ways;
- While there are no central accounts, it is hard to tell if there are MMM agents having accounts in the system. These agents can decide to request help together and vanish. They created the system, they can manipulate it. In the case of China, the website just stopped working leaving investors unable to withdraw their money.
- The bitcoin system (which looks more enticing offering 50% ROI) can be exploited like in this example.
Of course, there could be a number of other ways to beat the system, hypothetically.
MMM operates on a model that is only sustainable with greater inflow than outflow of money. Once inflow is lower than outflow, issues are bound to arise.
Also, since there are no products sold, it might be difficult sustaining the 30% ROI and numerous other rewards. Hence, there’s no denying the high probability of it going bust in the future.
Be rest assured, if (or is it when?) it goes bust, there will be winners and losers. Regardless of that, a simple fact about MMM is: it is a pyramid scheme.
So is MMM a scam?
I’ll leave you to be the judge of that.
What do you think of MMM? I’ll love to read your thoughts in the comments below.