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Essay / History of Mmm
Table of ContentsHow MMM WorksWhy it crashedWas it a scam?Government interventionPopularly called Mavrodi Mundial Moneybox, MMM was founded in 1989 by three Russians: Sergei Mavrodi, his brother, Vyacheslav Mavrodi, and Olga Melnikova. The company reportedly started as a network of computer import cooperatives. (Womack, 1994) However, he collapsed in January 1992 after a charge of tax evasion was brought against him by the tax police. Sergei Mavrodi found a way out by launching the MMM Ponzi scheme in February 1994, which promised a monthly return of up to 250% and an annual return of up to 3,000%. Finding nothing else to use against the company, the government discovered a massive tax evasion against MMM and took advantage of it. By December 1997, MMM was bankrupt, leading Mavrodi to go into hiding until 2003, when he was arrested and sentenced to four and a half years in prison. In January 2011, Mavrodi launched another pyramid scheme called MMM-2011 which later found root in other countries like China, India, Philippines, South Africa, Zimbabwe, Nigeria and to name just a few. Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”? Get an original essay How MMM works The working principle of MMM is based on a pyramid model as well as a social financial cooperative where members give and receive a financial assistance. New entrants are required to contribute a certain amount of money (minimum $10) to the system. This is called giving help. This money is paid to other existing members. After 30 days, the money paid increases and generates 30% interest that the person can cash out by requesting assistance. This time, the system will connect other members who want to help him and he will receive the amount corresponding to 130% of what he initially invested. So it's like moving money around the system since each member is expected to help at least once a month. Everyone gets a piece of the pie with 30% interest after 30 days. Additionally, members who attract new members to the system are rewarded with a referral bonus equivalent to 10% of the new member's first contribution for the first generation. Guides can earn up to the third generation - 5% for the second generation and 2.5% for the third generation in the pyramid. Why it crashed The system was doomed to failure due to its unsustainability. Money was simply exchanged monthly between members. And since the organization didn't actually invest any money, all interest and rewards given to members came from new members' contributions. An inevitable point will always be reached where there will be saturation within the system. It's the rate of people entering the system that is decreasing, resulting in an exponential decrease in money coming in relative to the money needed by existing members. In other words, when the help given is less than the help requested, the system breaks down. The water-in-the-bucket model can give us a better understanding of how this works. Let's imagine a bucket filled by a pipe connected to a tap. At the same time, water leaves the bucket through three holes in the body. There are three scenarios regarding the water problem. If the volume of water coming in is equal to the volume coming out, the water level in the bucket will remain the same. If the volume of water entering the bucket is greater than the volume leaving, the water level will gradually increase until the bucket is full. If the volume of water entering is less than the volume leaving, the water level in the.