Russia's largest investment company admitted its virtual collapse this past week, telling investors it has nearly run out of cash and offering to buy back their shares for less than one-hundredth their recent worth.
"The situation has gotten out of control, and it won't be possible to stop the panic in the near future," said a statement posted outside the MMM fund offices. "This situation will only get worse."A crowd of about 12,000 people converged on Moscow's main commodities exchange, many hoping to sell their MMM shares for any price.
Thousands of jittery investors have clamored outside the company's headquarters every day this week, hoping to reclaim their savings. MMM built a huge following in Russia with aggressive television advertisements and claimed to have 10 million shareholders.
Its fall has been post-Soviet Russia's worst private financial crisis.
"MMM's collapse will certainly undermine people's confidence in the market economy in general," said Stanislav Shatalin, a prominent Russian economic expert. "The government also will suffer from this crisis, despite all its warnings it had nothing to do with it."
Authorities have said MMM is a pyramid scheme in which early investors are paid with money from newer investors, and that it was bound to crash. MMM insists it has legitimate investments in stocks and other interests and accuses the government of trying to drive it out of business.
"It's the government's fault," said Olga Lvova, a Moscow housewife who stood outside a closed MMM office today. "Someone's green with envy that people were making money."
MMM President Sergei Mavrodi on Thursday threatened to organize a political revolt against the government if it cracked down on suspected fraud.
Russian officials, however, ordered an audit of the MMM fund and announced they would start regulating Russia's rollercoaster securities market.
In recent months MMM share prices skyrocketed, from 1,600 rubles in February to more than 100,000 rubles last week ($50).
Share prices plummeted last Friday amid panic selling following a government warning that it would not guarantee investments in MMM or similar unregulated companies.
By Tuesday, MMM had closed all but its offices but its Moscow headquarters, prompting thousands to converge there. Few customers were allowed inside, however.
The MMM announcement posted today offered to buy back investors' shares for 950 rubles, or less than 50 cents. At one MMM office where the notice was posted, the door was closed and about 150 people stood outside. Security guards were posted inside and outside.
The statement, signed by Mavrodi, said the company could not continue buying back shares at previous levels.
"It's senseless and will only lead to the company's bankruptcy," the statement said.
MMM expressed hope that the crisis could be overcome within two or three months.
"We are simply taking economic measures to eliminate the panic," the statement said.