A Moscow investment company, which in widely broadcast advertisements promised 500 percent annual returns to its investors, closed Thursday in the shaky and scandal-plagued Russian securities market.
The shutdown of the Tibet investment firm comes on the heels of the MMM debacle, when Russia's largest investment fund closed, leaving millions of investors holding worthless shares.A sign at one locked up Tibet investment office said government interference forced the firm to close, but talk among fearful shareholders was that company bosses had taken the money and run.
The closure also may have been triggered because investors held more shares than the company could make good on, said Vladimir Gusakov, an official from the Ministry of Finance securities department, a problem in classic pyramid schemes which some of Russia's so-called investment companies are turning out to be.
But Tibet may also have shut down to obtain a banking license to comply with the law, according to the Interfax news agency, since the company was one of 23 named this week by the Russian Central Bank as operating without proper licenses for investments.
Hundreds of investors gathered at Tibet offices to discuss forming a shareholder's union while riot police stood by.
In Russia's slow transition to a market economy, securities regulations either don't exist or are inadequate. There are no laws requiring investment companies to register stock transactions, issue investors a prospectus or provide information about a company's finances.
MMM was by all appearances a pyramid scheme with no true holdings. It had also become a capitalist symbol in Russia, hourly bombarding television viewers with rags-to-riches stories of its ordinary Russian investors.
However, Russia's regulations are so ineffective that running a pyramid may be legal, though the company appeared to skirt securities laws. The Russian Finance Ministry supposedly knew about MMM's dealings for months, but only acted on the grounds that its president Sergei Mavrodi was avoiding taxes.
He was arrested for tax evasion and the company closed, dropping the value of its shares from 115,000 rubles ($56) to 1,000 rubles (50 cents) overnight.
Some politicians are sounding the alarm that criminals run Russia's securities markets and disaster awaits unless the government regulates the markets.
"One and a half trillion rubles ($750 million) grabbed by the MMM, and four more trillion ($2 billion) grabbed by other bandit companies which have not yet collapsed, all of whom were trading cutout paper which they respectfully called stocks, is only a meager sum . . . compared to what we are to expect in the near future," said Konstantin Borovoi, founder of the Russian Commodities and Raw Materials Exchange.
MMM resumed share trading this week at rock-bottom prices, with its president calling the shots from a prison cell, promising investors they would recover their losses.