As the largest financial scandal in post-Soviet Russia unravels, government officials, security market professionals and average Russians are groping to place blame for the MMM debacle.


The charitable view is that such swindles are inevitable in a country that has so recently transformed itself from communism to capitalism. The Russian government lacked the laws, expertise and authority to put an end to what it now calls a massive fraud.


While all that may be true, the revelations of the last few days show a pattern of bureaucratic ineptitude and inaction that seems to challenge official claims of innocence and justifiable naivete.


First, the government now says it knew as far back as March that MMM was breaking its most basic securities laws: the company was not licensed to issue, buy or sell most of its shares, officials said. Yet, the government took no action.


Second, the government has previously acknowledged that MMM has been breaking tax regulations for about as long.


And third, in acknowledging that MMM was breaking the law, the government is contradicting its own claims that adequate regulations did not exist to control the company.


"It is possible to blame the federal ministries that were responsible for the control in this sphere," wrote Rossisskye Vesti analyst Dmitry Lvov in Friday's issue. "If they saw the violations in MMM activities ... why didn't they take any measures before? Why did they let the problem develop?"


A Finance Ministry official, who asked not to be named, acknowledged that the ministry sent letters to both MMM and the Public Prosecutor's office about illegalities at the investment company as far back as March.


But she added that the ministry was powerless to act because it lacked the authority to freeze bank accounts or shut down companies.


In April, tax officials demanded MMM's records but backed down after the company's president published a letter in the Segodnaya daily newspaper warning officials that the investigation would spread panic among the company's millions of investors.


Yet in May, Bella Zlatkis, who heads the Department of Securities and Financial Markets at the Finance Ministry, said in an interview that while the company was a risky bet for investors, she saw nothing illegal about its investments. "They hold on so far, and they keep their promises to investors," said Zlatkis, the top securities official in the country. "They must be working really hard with their securities and the money every day to manage it."


Some brokers accused officials in the Finance Ministry, which has primary responsibility for licensing share issues, of simply dropping the ball.


"Every bureaucrat from the Ministry of Finance is watching television and sees the advertisements and no one thought to check," said Alexander Barmin, a private attorney.


Tax officials, in fact, closed down the company's operations three times, only to drop charges after finding no wrongdoing.


In the United States, the sale of a security triggers a series of disclosure laws and investment regulations that generally make it clear to investors where their money is going, said Richard Bernard, partner in charge of the Moscow office of the U.S. firm Milbank Tweed Hadley & McCloy.


At the same time, pyramid schemes and boiler-room operations periodically grip even well-regulated markets.


"The fertile imagination of people trying to make money is always going to outrun the imagination of somebody trying to keep them honest," Bernard said.


In Russia, he said, the race is not even close because the laws are so vague. But for years, warning signals that such scandals were endemic to newly capitalist countries were being beamed Russia's way from Eastern Europe and, more recently, from inside the country itself.


Still, the government failed to respond. The Duma, meanwhile, has adjourned for the summer without passing a securities law that would have required greater disclosure by investment companies and beefed up enforcement.


"The laws must be produced by our parliament," said Sergei Shaykov director of the stock department at the investment company C.A. & Co. "But our parliament doesn't work at all."


In one investment scandal after another this year, financially victimized Russians have repeatedly taken to the streets to demand government action.