Finally, Yeltsin Moves to Shield Small Investors

President Yeltsin recently signed a new decree entitled "On Protecting the Interests of Investors." This decree directly affects nearly every adult in the country and, unlike most of the other recent decrees, this one could have direct economic consequences in the very near future.The sale of securities that are insufficiently backed financially has reached incredible levels. Likewise, the number of scandals involving finance and investment companies is also likely to reach such levels.The voucher investment fund Neft-Almaz-Invest was able to attract 876,000 investors, using the words "oil" and "diamonds" in its name, even though it had nothing to do with these resources. According to a special commission of the State Property Committee that looked into the fund's activities, the managers of Neft-Almaz-Invest had cheated their shareholders out of 7 billion rubles, nearly $3.6 million. Until now, any company that wanted to collect money from Russia's naive citizenry simply had to organize an attractive advertising campaign. A number of these companies did not own anything except apartments made over to look like offices. But this turned out to be enough for instant financial success. Nezavisimy Neftyanoi Kontsern, which promised annual returns of 1050 percent, turned out to be nothing more than a married couple with no resources except their false passports. Nonetheless, the "concern" was able to gather investments for three months and then disappear.It is likely that the new decree will significantly reduce advertising profits for the Russian media. According Russian Television, investment funds buy far the most advertising time. For the period from March through May this year, MMM showed its advertisments 2666 times (an average of 30 times a day!), Khopyor-Invest advertised 1010 times, and Olbi ads appeared 895 times.Moreover, even if some newspaper decided to go against its own interests and refuse a suspicious advertisement, it would have found itself in a difficult legal position. Izvestia, for example, recently decided not to print the advertisements of two companies promising unrealistic returns. The advertising managers of these companies appealed to the editorial board. And, as consumers, they were right: Izvestia sells advertising space and it does not have the right to discriminate according to its own preferences. The new decree, however, prohibits companies from advertising until after they have registered their project for issuing shares, and the media is required to verify that this has been done.Also, a seller of ordinary shares does not have the right to promise a specific amount of return or to predict the rate at which the value of its shares will increase. This is how MMM, the nation's advertising leader, has built its entire advertising campaign,attracting more than 5 million investors.The only thing that there is to regret now is that millions of people have already managed to invest in doubtful companies that have been able to freely use the mass media to deceive ordinary citizens.