Home » Ivan Rykov’s Bank — First Ponzi Scheme in Russia

Ivan Rykov’s Bank — First Ponzi Scheme in Russia

the-greatest-scams - Ivan Rykov’s Bank — First Ponzi Scheme in Russia

There is a common but mistaken opinion that MMM Ponzi scheme, one of the world’s largest financial scam of all time, was also the first Russian Ponzi scheme. That is not the case. The first Ponzi scheme Russia was designed by the landowner Ivan Rykov, who was successfully fooling citizens in the 70’s of the 19th century.

the-greatest-scams - Ivan Rykov’s Bank — First Ponzi Scheme in Russia

Ivan Rykov was born in 1833 in the family of a poor landowner Ovodov. The parents died early, and the orphaned boy was adopted by a relative — a rich merchant Andrei Fedorovich Rykov, who gave him his name.

the-greatest-scams - Ivan Rykov’s Bank — First Ponzi Scheme in Russia

Photo of Ivan Rykov. Picture of Skopin dated 1852-1885.

The boy was 15 years old when his benefactor died and left him a solid fortune — 200 thousand rubles. By the age of thirty the young man had squandered all his money and went to work in the local municipal government.

How it all began

Soon he was able to obtain a position of the mayor. He widely donated for the improvement of his native city, built a church in the town cemetery at his own expense, and thus conquered the local community, who invited him to become the bank director. At the meeting of the bank board it was decided that the third of the income from the banking business went to the needs of the city, another third — for charity and the other third — to the increase of capital.

In a short time Rykov contributed to the bank getting millions of turnovers. Then Russia did not have a single land bank and “Skopin public bank” began to give loans secured by property. The young banker was eager to embark on a risky venture, but he was hindered by the mayor – an honest merchant Mikhail Leonov.

Then Rykov announced his candidacy for the post of the mayor in the next election, and easily beat the old merchant Leonov. But because it was impossible to combine two responsible positions he gave the position of the mayor to another merchant, who owed the bank a huge sum and therefore was not dangerous for Rykov’s bank fraud.

So the advertisement of “Skopin public bank” was published in the metropolitan and provincial newspapers, which promised high interest on deposits — up to 7.5% instead of the usual 3-5%. The people brought their savings to Skopin bank. And at first the interest was paid accurately. From a small nondescript town Skopin quickly began to turn into a big city. There appeared the railroad, a series of educational and charitable institutions were opened.

To attract new depositors Rykov issued interest securities on deposits that were not provided with the bank’s capital and had no government guarantee. But that time no one cared. All believed Ivan Rykov, admiring and idolizing him. Even Ryazan governor and vice-governor used Skopin credits. Ivan Rykov became a real owner of the city. He maintained his authority, i.e. disbursed it — all the newspapers, telegraph, bailiffs, police department officials and other officials received additional monthly fees from the bank. Those who became objectionable or those who, for whatever reason, proved guilty, were sent off from the city or a criminal case was initiated.

Collapse of coal scam

Rykov’s Empire began to collapse from the moment when at his initiative exploration of coal deposits was held and coal was discovered in three villages of the Skopin district. But there was not enough coal for industrial development. But only the owner of the city Ivan Rykov knew about it. He immediately founded and headed Joint Stock Company “Skopin coal mines”.


the-greatest-scams - Ivan Rykov’s Bank — First Ponzi Scheme in Russia
Vladimir Makovsky’s picture ‘The Collapse of the Bank’, 1881.

Except Rykov the founders of the company became landlords, merchants and tradesmen, whose estates and houses were pledged in Rykov’s bank, so these people kept silence too. Rykov issued shares. the newspapers that he controlled began to write about the coal joint-stock company, but the shares were bought badly. And then Rykov made an adventurous trick – he sent his agents to Moscow and St. Petersburg Exchanges to imitate trading. For a whole year, Rykov’s people bought and sold from each other shares of the coal company, declaring transactions to stockbrokers.

While his people were playing on the stock exchange, Rykov received permission from Reitern, the Minister of Finance to accept his coal stocks as collateral for excise stamps for alcohol at the rate of 75 rubles per 100. That is, he would receive 75 real rubles for his phony unsecured shares with the nominal value of 100 rubles. If Rykov succeeded, he could sell securities of non-existent coal mines without any problems and receive one million rubles, and the Treasury would lose a lot of money. But this grandiose plan was spoiled by a minor official – senior auditor of the Ryazan Excise, who was not too lazy to go to the place of coal mining. There he just found the mines covered with earth. Through his contacts in the capital Rykov managed to hush up this scam.

Bubble burst

It was getting increasingly difficult for Rykov to attract new investors to the bank to pay off interest. In addition, he used depositors’ money which was disappearing very fast. once a newspaper published an article which informed that 12 million rubles of deposits in Skopin bank was secured by just one million invested in unreliable securities. Having heard about this, alarmed investors came to Skopin and demanded a refund. Soon the bank ran out of money and was declared insolvent. Ivan Rykov and other 26 people were taken into custody. Investigators were surprised by the scale of the banking fraud: the bank, which didn’t have the authorized capital but paid high interest rates giving millions of credits – all at the expense of those who deposited money in the bank, tempted by large profits.

The investigation into the cause of the Skopin bank collapse lasted two years and in the end Ivan Rykov and several other people were sent to Siberia. Nothing else has been ever heard about the Russian fraudster.

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