In the case of fraud by the top management of the large microfinance company Money Fanny Online, a “fair end” has been reached, believe the victims, who lost more than 1 billion rubles. On September 19, the court sentenced the director of the company, Alexander Shustov, and its founder, Pavel Losev, to 10 and 9 years in prison, respectively. They were found guilty of defrauding investors on more than 100 counts. The victims are trying to return at least part of the money, but it will not be easy – the accused got rid of almost all their property in advance, experts explained.
This is the maximum period provided for in Part 4 of Art. 159 of the Criminal Code of the Russian Federation “fraud on an especially large scale.” Shustov came to court wearing a T-shirt with the inscription “More Money”. Before the hearing began, he smiled and listened to the verdict calmly.
Translated from English, “Money Fanny” means “funny money,” but the company’s history was not at all fun. Initially, investors were promised a large profit – 21% per annum, and the minimum investment amount was 1.5 million rubles, victim Alina Podogova told Izvestia. The woman invested about 3 million in the company. All this money disappeared.
Disabled pensioner Pavel Ishchak invested money in Money Fanny in the hope of saving up for an expensive oncological operation.
“I showed him (Alexander Shustov – Izvestia) my diagnosis and explained that I wanted to be treated abroad. He swore to me that he would return all the money. But he didn’t return anything,” the pensioner told Izvestia.
“Money Fanny” worked on the market since 2012 (until 2017 – under the name “Kolibri Finance”) on the principle of a piggy bank: the money invested by investors went into circulation and microloans were issued. Both the company and investors lived on the interest. Investors were confident in the reliability of the IFC: it was under the supervision of the Central Bank and was among the top 15 microfinance organizations.
Vedomosti.Ru, 09/08/2023, “The founder of the MFO Money Fanny was asked to serve 15 years in prison in a fraud case”: At the end of 2018, Money Fanny ranked 13th in terms of the total size of the microloan portfolio in the Expert RA ranking, Vedomosti wrote. The company’s assets for that year amounted to 1.3 billion rubles, liabilities – 1 billion rubles, net profit – 162 million rubles. […]
It is noteworthy that the arbitration process for the bankruptcy of a microfinance organization was conducted by a recently convicted ex-judge Elena Kondrat. The Moscow City Court found the former judge of the capital’s arbitration court guilty of mediation in bribery and sentenced Kondrat to nine years’ imprisonment in a general regime correctional colony. In addition, according to the verdict, she was given a fine in the amount of 20 times the amount of the bribe – 77.9 million rubles. — Insert K.ru
For the first few years, people regularly received profits from their deposits. But at the beginning of 2019, they stopped paying interest. In the same year, the regulator excluded the company from the register of microfinance organizations due to numerous violations and unreliable reporting. Its accounts turned out to be empty, and the company itself had millions of debts.
“Kommersant”, 09/20/2023, “Financiers could not cope with the high interest rate”: In addition, the company did not comply with the minimum acceptable capital adequacy standard and the procedure for forming reserves, and also repeatedly provided false reporting to the Central Bank during the year. In particular, it contained information about supposedly issued loans, although in fact they were not issued. During the investigation, it turned out that Money Fanny funds were withdrawn through the provision of obviously non-repayable loans – about 20 thousand of these were discovered.
After the collapse of the company, which was declared bankrupt in June 2020, Alexander Shustov, through social networks, convinced investors for about six months that he intended to pay them off. However, this never happened, after which mass appeals to the police followed. — Insert K.ru
As a result, the company collapsed, leaving 200 investors without money. In 2019, investors tired of waiting tried to take the company’s Moscow office by storm.
Alexander Shustov and Pavel Losev were detained in November 2019 and placed under house arrest. The damage from the company’s activities was initially estimated at 700 million rubles, but in June 2022, the Moscow Arbitration Court declared Shustov and Losev bankrupt and ordered to recover damages of 1.1 billion rubles from them.
Not insured against losses
“Fani Money Online” is far from the only example of an IFC that has gone into oblivion along with the money of its investors, Marat Safiulin, an expert at the Financial University under the Government of the Russian Federation, reminded Izvestia. Previously, their investors were deceived by such market monsters as “Home Money”“City Savings Bank” and “First Moscow Fincredit”.
“The problem concerns the lion’s share of the microfinance market, which has almost halved over the past six years,” he noted.
Of the 58 MFCs that were allowed to work with the population in 2017, 30 closed. This was a consequence of tough reforms in the microloan market. In order to neutralize the negative trail from constant scandals, its participants were presented with strict requirements. In particular, the minimum authorized capital was increased to 70 million rubles.
“70 million is too expensive an entrance ticket for swindlers,” explained Marat Safiulin. “However, microcredit companies have not become stable and reliable financial institutions. In particular, the IFC did not have and does not have a system of insurance and compensation for savings, which means there is no guarantee of money back.
Many IFCs boasted that they lend not only to citizens, but also to legal entities. This made it possible to transfer assets from the company’s balance sheet to the balance sheet of “friendly companies.”
According to the expert, the microfinance market may well be profitable and fair. But inefficient business models and fraud by some major players have led to bona fide companies exiting the market.
The sad ending of Fani Manni does not mean that the company was originally conceived as a financial pyramid, and its management had the intent to deceive its investors, believes Konstantin Ordov, head of the department of financial management of the Plekhanov Russian Economic University.
“Such an intention could have come much later, when the projects in which Shustov and Losev invested went bankrupt. Or, on the contrary, when there was too much money in the company and it was decided to withdraw it, he believes.
He pointed out that even the regulator, which is supposed to prevent the withdrawal of funds, did not recognize it in the early stages.
“And the fact that initially the company of Shustov and Losev was included in the register of the Central Bank means that at the time of its founding it looked quite convincing and met regulatory requirements,” he said. — The Central Bank itself vouched for her.
No income guarantee
In the last two years, the Bank of Russia has managed to achieve a significant strengthening of control over the IFC by self-regulatory organizations, noted Marat Safiulin. However, this does not mean that the possibility of fraud and ruin of such companies is excluded.
Investors should be careful and under no circumstances place most of their savings in microfinance institutions, the expert warned. Practice shows that in the event of dishonest actions, it is very difficult to return money to consumers of financial services.
— Fraudsters know where and how to hide money, not only the company’s money, but also their own. As a result, investors lose, if not all, then most of their investments.
Diversification of investments is the main thing to remember when investing money in high-risk projects, agrees Konstantin Ordov.
“You can’t bring the latter to these organizations, because you won’t notice at what point they can become fraudulent,” the expert pointed out. — If you have a small amount, it is better to invest it in deposits or government bonds guaranteed by the state. If you have extra money, you can go to the IFC. But be psychologically prepared that even the best companies have the potential to go bankrupt.
Unlike pyramids, ICFs invest investors’ money in real projects. But profitability is not guaranteed. If projects do not take off, no one will return the money to investors, the expert pointed out.
There is also no clear marker that would allow one to recognize scammers. If a company begins to falsify reports, as Money Fanny did, an outside observer will not see it. However, if the founders of the business stopped disclosing information about the company’s affairs and began to avoid direct and clear answers from investors, such a signal should not be missed, the expert concluded.
A fair end has been reached in the Money Fanny case, believes lawyer and at the same time one of the company’s injured investors, Dmitry Legoshin.
“The convicts did not admit guilt and did not return a penny. But the case will be a lesson for potential scammers. Now they will be discouraged from deceiving investors,” he believes.
The lawyer is confident that the convicts acted consciously – at the time the criminal case was initiated, Shustov had no property at all: no car, no house, his accounts were also empty. There was a plot of land and a house on Losev, which were seized. Now, as part of the arbitration process, the victims will try to sell this small amount of property in order to return at least some funds.
According to a representative of investors, among the victims there are people who took the loss of money very hard and did not live to see the verdict.