The Rapid Rise And Collapse Of MMM

It has been a long time since so many people in Russia followed an event with such passion as they are now watching the unfolding financial crisis of MMM. This company, the best-known in Russia, had not only its shareholders, but the Russian government and most newspapers around the world, talking about little else last week.


One has to acknowledge the creative genius of the company's founder and president, Sergei Mavrodi. Nothing is known for certain about him, but they say that he began his commercial activity with a cooperative that dealt in computers. He tried to monopolize the computer market, or at least to control a significant part of it. But either he was too weak and his competitors did not allow him to expand or he simply lost interest in the idea -- one way or another, he soon left the computer business. In short, he was little different from many other small entrepreneurs.


Mavrodi first discovered his exceptional talent in the fall of 1991. At that time, he realized an extravagent advertising project, after which virtually everyone had heard of MMM. He bought the Moscow metro for a day: That is, he paid the administration a day's income and announced that for one day everyone could ride for free on him.


Such relatively small expenditures (at that time, the metro still cost only five kopecks) served MMM the same way that a major advertising campaign would and sharply distinguished MMM from other ordinary trading firms.


By the beginning of this year, he had created a large family of related MMM companies: Some experts say there are nearly 30 now. Then in February, Mavrodi began his spectacular advertising blitzkrieg.


The entire past week passed by under the banner of the "bulls vs. the bears," and the entire country watched intently. The "bulls" from MMM, as bulls are supposed to in stock-market games, played with raising the course of their shares, continuing to raise their quotations despite threatening statements from the government. The role of "bear" was played by the bureaucrats from the tax service, the Antimonoply Committee, and the Finance Ministry, all of whom were foretelling the imminent collapse of MMM.


The first signs of panic began: In Moscow, the company began buying back its shares at only one of its 20 distribution points. Many of the company's employees were able to pick up millions of rubles by helping "their" clients get rid of their shares at a percentage of the announced course.


After the company's shares collapsed last Friday, Mavrodi announced that they were to be devalued to less than 1 percent of their previous value. In doing so, Mavrodi achieved a sharp reduction in the volume of trading of MMM shares, since shareholders naturally were unwilling to agree to such losses. Marina Astakhova, director of the Atlantic Division of the Commodities and Raw Materials Exchange, said that last Friday deals concerning MMM shares at the exchange were worth 4 million rubles. In its heyday, MMM's volume was as much as 4 billion rubles a day.


This whole story may well have wide-ranging consequences. People will stop having confidence in any -- even reliable -- securities. Also, the crisis may push the government to the other extreme of creating a system of prohibitive regulations concerning securities that could, in the end, either completely freeze or even kill Russia's securities market.