What you need to know:
- A Citibank research that revealed that bitcoin holdings in Kenya are about 2.3 per cent of the Gross Domestic Product.
- The CBK Governor, Dr Patrick Njoroge, has warned those trading in cryptocurrencies that the bubble might soon bust on them.
Kenyans are gullible.
Over a year ago, some of those ensnarled by a Russian Ponzi scheme, which is blamed for the huge investments in Bitcoin, wrote tens of threatening letters to me after exposing the fraud.
I am back for the last time and with a reason.
Sergey Mavrodi’s MMM has grown beyond anyone’s imagination in Kenya and trades in bitcoins and a cryptocurrency he calls Mavron.
How such a fraud continues with no one raising a finger — or warning gullible Kenyans is beyond believing.
The Central Bank of Kenya governor, Dr Patrick Njoroge, has warned those trading in cryptocurrencies, such as Bitcoin, and the Russian fraudster Sergey Mavrodi’s MMM’s Mavron that the bubble might soon bust on them.
The most scaring revelation was however by a Citibank research that revealed that bitcoin holdings in Kenya are about 2.3 per cent of the Gross Domestic Product, which means that we have put about Sh163.3 billion into cryptocurrencies.
Dear Kenyans, pleaded Dr Njoroge: “If you want to invest in those kind of things it is a bubble of a kind; be ready to lose all your money in that whole operation.”
First we had the pyramid schemes in which some gullible investors — who ostensibly wanted to double their money — lost Sh8 billion to various fly-by-night companies.
The most prominent of these was Deci, founded by George Odinga Donde and Mary Odinga, and which took off with Sh2.4 billion from its 93,485 members.
The next was Pastor Peter Alfred Ndakwe’s Clip Investment Sacco Ltd, which left about 5,846 victims minus more than Sh1.9 billion.
It was only after hackers got into the files of a Panama law firm, Mossack Fonseca, that it became clear that Mr Ndakwe, for instance, had been helped by a Nairobi law firm to register offshore companies where he not only hid his loot but also had his now two foreign-registered companies — Petkinson, SA and Sun Jopkins SA, which had pseudo-foreign directors purchase properties locally.
Nobody would have linked the properties to Mr Ndakwe, who is still enjoying his loot since they are in the name of a foreign-owned company.
There were many others that came after that: The brazen quail business, Manilla Farm cow import fraud, and now still running is the Russian Ponzi scheme by the name MMM Global and its local franchise MMM Kenya.
Fronted by Sergey Mavrodi, a Russian con artist and former Duma deputy (the equivalent of an MP), this scheme got its name from its founders: Sergei Mavrodi, his brother Vyacheslav Mavrodi and Olga Melnikova.
What we know of this once-convicted fraudster is that his main business was initially in importing computers and office furniture but, together with his brother, they found that they could not get the required capital.
That is when they mooted the idea of getting private investors to buy shares in their MMM enterprise.
They then started manipulating the share prices and more investors poured in to cash in on the rising shares.
“No one questioned the fact that the share price was calculated by the very person who stood to benefit from its increase the most.
"There was no independent stock exchange to value the shares. Nor was the share price quoted by a third party,” Collin Cross, the author of Anatomy of a Ponzi Scheme, wrote.
And since investors did not question where the amount of money they were getting came from, or what stock had been sold, Mr Mavrodi in 1994 declared a dividend of 1,000 per cent.
That is when he decided to roll out a huge scheme to defraud more people.
It is reported that he started an advertising blitz and picked a street ruffian nicknamed Lyonya Golubkov who was used to lure millions into riches through the MMM scheme.
The only problem was that Golubkov was an actor in the TV commercial.
In 1994, when Mavrodi’s first scheme collapsed, The Washington Post described Golubkov as the “sad symbol of naivete, greed and desperation that have stained Russia’s turn to (liberal) market”.
In the television commercial, the “vodka-swilling, plain-talking Golubkov” managed to lure millions of Russians into MMM where they bought shares and followed his escapades into San Francisco and becoming a TV national hero endowed with riches, hubris, and good-judgment.
Mavrodi managed to turn the mysterious Golubkov into a “Russian Horatio Alger hero, a mythic rags-to-riches figure who seized the imagination of a nation and helped define the era” as The Washington Post correctly summarised the entire episode.
Styling himself as the President of MMM, it was Mavrodi who usually set the price of MMM shares and before they collapsed they shot to an all-time high of $60 before crashing to 46 cents within a few days. The end had come.
When that happened and as one writer aptly put it, “the MMM miracle had vanished into thin air, and millions of Russians had lost their shirts”.
It was Russia’s classic pyramid scheme, they call it Vlastlelina, and somehow — and perhaps the reason those ensnarled by this Ponzi scheme don’t like me — those who have bought into this lie never blame Mavrodi for their losses.
By taking advantage of an unregulated market, Mavrodi promised good returns and in a day, his company could rake in more than $11 million through word of mouth and aggressive campaigns.
In total Mavrodi took at least 1.5 billion dollars within five years from at least two million people.
In order to escape arrest, since parliamentarians in Russia are immune to prosecution, Mr Mavrodi decided to run for a Duma seat of Mytishchi constituency in Moscow.
Coming at a time he was facing serious fraud charges, Mr Mavrodi is reported to have dished out money and goods to voters, and he blamed the ministry of Finance for his problems and promised voters that he would set up a new scheme that would be four times bigger than the collapsed MMM.
The voters bought into his lie and he won the seat thus securing immunity.
But this was short-lived and an embarrassed parliament voted 303-0 and with only one abstention to have him stripped his seat — the first in the history of Russia.
By then, more than 50 of his victims had committed suicide.
After his election, Mavrodi took off to the US where he started an internet-based pyramid known as Stock Generation, which he disguised as internet gambling and which was ran from the Caribbean country of Dominica.
Hundreds of thousands of people in Canada, USA and Britain again poured money into this pit before the US Security Exchange Commission (SEC) closed it down.
In this scheme, the investors were ostensibly buying shares in “virtual companies” and Mavrodi had structured the company as a gambling agent in order to be outside the inspection of SEC.
But by the time SEC closed it down, he had collected another $5.5 million from thousands of investors and returned home to an apartment near the Frunzenskaya metro station – famous because it was the last built by Stalin.
His arrest in 2003 was thought to mark the end of the man who had defrauded millions of people.
In prison, after he was jailed for four and a half years for fraud, he started writing a book Lucifer’s Son introducing his readers into the world of angels and devils, according to one review.
But as soon as he left prison, Mavrodi started the new Bitcoin-based Ponzi scheme known as MMM.
The Russian version MMM-2011 was closed down in May 2012 while others were launched in Lithuania, Ukraine and Belarus.
It is this new version that has been launched and operates in Kenya, Nigeria, Zambia and several other countries.
His agents promise contributors a return of the amount invested in two weeks and additional bonus as they keep on enticing more people.
There are several levels of managing the scheme with each group supervised by “guiders”.
The members are usually asked to donate money using bitcoins.
On his website, Mavrodi tells his followers that MMM is neither a pyramid scheme nor an online business.
Last year, he closed down what he called Republic of Bitcoin terming it a “failed experiment”.
On their last Facebook entry on MMM Global they said: “We turned out not to be able to pay 100 per cent per month.”
On his website, mmmglobal.org, Mr Mavrodi says his is “a community of ordinary people, selflessly helping each other, a kind of the Global Fund of mutual aid.
"This is the first sprout of something new in the modern soulless and ruthless world of greed and hard cash.
"The goal here is not the money. The goal is to destroy the world’s unjust financial system.”
To get enlisted you contribute a minimum of $10 (Sh1,000) and you earn Mavro points into your account.
Only Mr Mavrodi knows how far this scheme can run and at what points he will close down his website.
With what we know about him, chances are that Kenyans are participating in a huge Russian gamble — and soon they will be on the streets asking the government to help.