COLUMN ONE : It’s Risky Business in Russia : Virtually unregulated, wild rags-to-rubles schemes are flourishing. Many naive investors are paying the price--with their life savings.

Hey, friend, looking for a good hedge against inflation? How about 30,000% interest--you heard right, 30,000%--in five years on the rubles you invest today?

Or wait, you’ve got dollars, you say? We can give 120% a year! Guaranteed. Insured. You bet.

Or how about this: You buy a car from us at a slightly inflated price, and in a year we’ll give you back the entire ruble sum you paid. How’s that?

Sound good? Such a deal sounded good to Valentina Belova too.

The retired laboratory aide took the money she and her husband, a plumber, had saved over the years by working overtime and invested it last January in the solid-sounding Independent Oil Concern for three months at a promised 223% interest.

She never got the interest.

She also never got her money back, and probably never will because the firm’s director has reportedly disappeared.

What she got was an arrest record and a fine for blocking Moscow’s central thoroughfare, Tverskaya Street, in a protest with hundreds of similar dupes.

“The investment came to nothing,” she said with a sigh while standing amid a crowd of bilked comrades who meet every Monday evening across from the mayor’s office to discuss their plight. “We’ll never see our money again.”

“Where’s the KGB when you need them?” asked fellow victim Galina Karamysheva, who lost her laid-off husband’s severance pay even though the couple had carefully checked the firm’s credentials.

“There are financial inspectors. Where are they?” she wondered aloud. “Someone should be controlling this. We’ve just been thrown out into a sea of lawlessness and abandoned.”

Post-Communist Russia is anarchic in many ways, but among its wild institutions, one of the wildest is its fledgling financial market.

Virtually unregulated, new investment funds, quasi-banks and joint-stock companies promising fabulous returns on every ruble are multiplying furiously, filling the airwaves and advertising pages with promises.

Even the phone service that gives the correct time has added a paid pitch for a financial company.

And the public, inexperienced, already impoverished by reforms and fighting inflation that runs at 10% a month, is buying.

The longest lines in Moscow these days are to purchase shares, deposit money or collect dividends at investment funds with catchy, one-word names such as Tibet and Chara or at the 30 offices of a giant conglomerate called MMM, which claims 5 million shareholders.

Demand for MMM shares rose so high that a Soviet-style secondary market developed--people started selling their places in the line to buy shares for almost as much as the price of a share itself.

Many of the new funds are legitimate, authorities say, and--so far, at least--have been making good on their pledges. But because Russia lacks both an equivalent of the Securities and Exchange Commission and a truth-in-advertising law, it is hard to tell what is a scam and what is not.

The problem of proliferating financial companies, among them dishonest ones, “is getting out of control,” said Bella Zlatkis, head of the Russian Finance Ministry’s Securities Department. “It’s coming down on our heads like an avalanche.”

The funds are so new--most having been founded within the last year--that there are no definite figures on how many exist and how many have collapsed.

But there are clearly scores of them, and officials estimate the number of their victims to be in the hundreds of thousands, with losses running to tens of millions of dollars at least.

The Moscow City Council, which has formed a special panel on the problem, believes that perhaps 300,000 investors have already lost their money here alone--and that is only the beginning. Eleven criminal investigations are reportedly under way, and well over a dozen shady financial firms have folded.

“It was reaching the point that it was becoming politically explosive, so we had to get involved,” said Moscow Council Deputy Vladimir Platonov, who is working to find ways to get investors back at least some of their money from banks, where what assets could be found have been frozen. “Crowds can become unpredictable. . . .”

Police are equally worried.

Maj. Alexander Shcheglov, a Russian Interior Ministry specialist in economic crimes, foresees a growing wave of collapses by fraudulent companies.

“What they’re working on here is the pyramid principle,” he said. “Those that offer the highest interest rates will almost certainly end up folding.”

The government, aware that the collapsing funds could prove destabilizing and serve as powerful weapons for the opposition, has appeared lately to be trying a bit harder to crack down on the bigger firms. Tax inspectors last month demanded about $3 million in back taxes from Chara and are accusing MMM of a variety of violations.

But things appear to already be out of control.

MMM’s president has responded to attempts to clamp down with a counterattack that caused a brief panic among shareholders: If the government presses too hard, he may have to close down his operation, he warned, and he cannot answer for the possible reaction by 5 million disappointed investors.

The teetering financial market is already the source of growing anti-government sentiment.

Among the crowd of deceived investors in the Independent Oil Concern were many pensioners who complained that the state had robbed them twice--once when it allowed inflation to shoot so high in 1992 that all their life savings became worthless, and again by allowing dishonest funds to flourish.

Retiree Maria Kolbeneva said she had saved 20,000 rubles--once enough to buy three or four cars and now only the price of a couple of pounds of sausage. Her savings worthless, she resorted to renting out her apartment. Living at her daughter’s, she amassed 1 million rubles, which she invested--and then lost--in the Independent Oil Concern.

“You have to really hate your own people to allow something like this,” she said.

“Of course the government is guilty of this--it forced us to it by not defending us from inflation,” said Yelena Menenkova, a single mother.

She also blamed her own habits: “We were raised this way our whole lives--if TV or the newspapers tell you something, it’s true. Of course, we’re guilty for believing, but we’re also not guilty because that’s how we were raised.”

Among suggestions on how to stem the spread of phony firms, the loudest and most likely to be acted upon soon is the call to regulate advertising.

On a typical page of ads in the May 28 issue of Moskovsky Komsomolets, Moscow’s most popular newspaper, the First Financial-Construction Co. offers “Up to 1,600% a year in rubles”--this when a typical bank interest rate is about 200%.

The ALD Trust promises to put your money into Moscow real estate, returning up to 60% annual interest on dollars or 500% on rubles--and swears that insurance “reduces your risk to zero.”

In a Moscow all-ads paper called Extra-M, the Mosimportbank offered 30,000% interest on five-year ruble deposits. It took the solid Sevodnya newspaper to disclose that the ad was largely an arithmetic trick playing on the difference between simple and compound interest. The interest actually amounted to less than 13% a month, not bad but not much more than inflation.

Television come-ons are just as seductive. Lyonya Golubkov, a fictional schlemiel who managed to afford shoes for his wife by investing in MMM, has now made so many prime-time appearances that his name is a household word.

So has “Marina Sergeyevna, the single woman,” who uses her MMM profits to improve her fading looks--and, after weeks on TV, attract a boyfriend.

It is hard to blame the duped investors for falling for the get-rich-quick promises.

No one ever warned them what happens to innocents in the market. They did not grow up with cautionary tales of underwater real estate.

“We have the most unprepared investor in the world,” Zlatkis said. “For 70 years our people did not know any kind of investment except for putting money in the (state-owned) savings bank.”

The financial array they now face is almost as diverse as in Western markets, including an unfamiliar kaleidoscope of commercial banks--more than 2,000 of which have appeared in the last five years--as well as stocks, bonds, mutual funds, privatization vouchers and more.

It is all new and growing almost too fast to keep track of, even for the government.

“From the point of view of the Russian government, there are far too many funds than they can realistically regulate, and there isn’t a securities law that would allow them to do this,” said Tim Frost, an American financier who consults for the Russian Finance Ministry.

Why the Kremlin made financial service companies legal before laying down the laws regulating them remains a typical mystery of the post-Soviet period.

But it is clearly too late to reverse course, and neither the government nor experts are calling for them to be outlawed.

“There will always be a financial product offered to the market. We cannot ban this process,” Zlatkis said.

Instead, officials and consumer advocates are trying to spread the word about dubious funds, right up to an official Finance Ministry warning, carried by the Itar-Tass news agency, telling investors: “Remember: investing in any non-government securities is almost always accompanied by risk.”

The Finance Ministry is working on putting out more and better government bonds to soak up demand for inflation-beating securities. And a new Service for the Defense of Consumers’ Rights in the Financial Sphere runs a hot line for investors and advocates new laws requiring greater financial disclosure by funds.

Most of the funds do not even specify how they make their money, except vaguely referring to short-term loans, real estate and import-export deals. One top money-collector is actually registered as a grocery store, officials said.

They also questioned many funds’ claims that they insure their investments, pointing out that when funds fold, the insurer could disappear as well or slip through a loophole in the policy.

Shcheglov, the Interior Ministry specialist in economic crimes, has proposed another solution. Companies should be required to have far greater starting capital than the current minimum of a couple of thousand dollars, and in cash or real estate, not just on paper. Then the money could be used to cover investors’ losses if the firm goes under, he said.

In the meantime, said Rostislav Kokorev, head of the consumer rights service, Russia’s financial market remains one of the wildest in the world. And the next scam on the horizon looks even nastier: the wave of pension funds that have begun collecting money from elderly people and promising them hefty pensions five or 10 years down the road.

“That will be a serious problem in a few years,” Kokorev said. “For the category of people who are going to retire and who under-eat now in order to amass some money for their pension--when the pension fund disappears, it will be a real tragedy.”