Shock announcement in multi-billion Mirror Trading International bitcoin scheme
Every member of Mirror Trading International (MTI) who withdrew money from the scheme will have to pay the money back to liquidators, FSCA head of investigations and enforcement Brandon Topham has said.
MTI was a scheme that claimed to offer automated forex and later cryptocurrency trading services.
The company and its leadership claimed that MTI had a magical automated trading program – a “bot” powered by artificial intelligence – that could yield growth of 0.5% to 1.5% per day.
Many people warned that the promised returns were too good to be true and that MTI was a scheme that will ultimately cost you money.
The Financial Sector Conduct Authority (FSCA) even issued a warning in August last year that people should withdraw their money from the scheme.
In late 2020 the scheme collapsed, as warned, with the MTI leadership blaming the company’s CEO, Johann Steynberg, who disappeared in December.
A group of members acted quickly and instituted liquidation proceedings against MTI within days of the announcement that Steynberg had gone missing.
The Cape Town High Court granted a provisional liquidation on 29 December 2020.
Members of the scheme may be in for a shock. Topham has stated that all MTI investors – even if they didn’t make a profit from MTI – will be required to hand over any money they took out, including their original deposit.
How exactly these repayments will work and when they will be demanded is up to the liquidators that have been appointed to the case. It is understood that repayments may be limited to funds that were withdrawn within a specific period of the scheme’s operation.
The provisional liquidators of MTI – AW van Rooyen, H Bester, Jacolien Frieda Barnard, and Deidre Basson – were appointed by the court on 12 January 2021.
The provisional liquidators have now applied to the court to have their powers extended.
Among other things, the liquidators are asking for the ability to subpoena people to answer questions in court where necessary.
The provisional liquidation order will be made permanent on 1 March if it remains unopposed.
Krion fiasco – doomed to repeat history?
The collapse of Mirror Trading International has evoked comparisons to the botched handling of Krion, a saga which played out over the better part of seventeen years.
Krion was declared a Ponzi-type scheme by the High Court of South Africa in 2002. Around 14,000 investors and R1.5 billion were involved in the scheme.
Police arrested the mastermind behind Krion, Marietjie Prinsloo, on 23 July 2002 along with her family who were accused of perpetrating the scheme with her.
While Krion was liquidated on 4 June 2002, it took 11 years before the liquidators filed their first liquidation and distribution account.
The criminal case against Prinsloo and her co-conspirators was only finalised in 2015.
Business Day reported in 2013 that liquidators and other collectors had taken R84 million from the Krion estate over the course of 11 years, while only recovering around R100 million.
After paying the South African Revenue Service and other expenses, less than R10 million remained to repay investors the money they had lost in the scheme.
Citizen reported that liquidators also sued people who had invested in Krion to pay back any money they had received from the scheme, even if they hadn’t actually made a profit.
It provided the example of one investor who had deposited R400,000 into Krion and received R220,000 from the scheme in “profits”. She was sued for the R220,000 even though she had suffered a net loss.
The collapse of Mirror Trading International
Members bought into MTI with a minimum of $100 worth of bitcoin, or a minimum of $200 if they wanted to qualify for bonuses under the company’s multilevel marketing system.
In August 2020, the Financial Services Conduct Authority of South Africa (FSCA) said that it was investigating MTI and warned investors that they should withdraw their funds.
Prior to that, the Texas State Securities Board issued an emergency cease-and-desist order against MTI and accused it of perpetrating fraud through an illegal international multilevel marketing programme.
Canada’s Autorité des Marchés Financiers (AMF) also placed MTI on its list of illegal online platforms, issuing a warning that MTI illegally solicits investors.
In September, MyBroadband reported on a group calling itself Anonymous ZA which leaked an anonymised copy of MTI’s entire database — including account names, e-mail addresses and bitcoin balances. They called it the MTILeaks.
The MTILeaks showed that as of 14 September 2020, MTI had received 22,984 bitcoin in deposits.
Before the surge in the price of bitcoin towards the end of 2020, this was worth around R6.4 billion. At current exchange rates this amount of bitcoin is worth around R13 billion.
Looking at the information from the MTILeaks and official “trading pool” data from MTI itself, it stands to reason that the capital taken in by the scheme stood at well over 23,000 bitcoin before deposits were shut down in December.
On 26 October the FSCA raided the offices and homes of MTI leaders, seizing electronic and telephonic records from cell phones, notebooks, and PCs at the three locations.
On 12 November the FSCA filed criminal fraud charges against MTI with the South African Police Service in Stellenbosch.
On 7 December, MTI conducted what would turn out to be its final Q&A with its CEO, Johann Steynberg. During the Zoom call Steynberg stated that he is “on vacation”. The call also ignited speculation, later backed up by photos of plane tickets, that Steynberg was in São Paulo, Brazil.
Brandon Topham of the FSCA has since stated that they uncovered evidence suggesting that Steynberg’s destination was Panama.
On 18 December the FSCA issued a statement with some of its preliminary findings. This included the revelation that the “unregulated broker” that MTI claimed to be using for its bot— Trade300 — was just a website set up by Steynberg.
On 19 December, MTI management informed members that Steynberg went missing while travelling abroad. They also informed members that they received an automated emergency email stating that Steynberg had not logged into the MTI system for 12 hours.
“This security protocol email provided critical info for the team to start the process of working without Johann. (Up till that point Johann was the only one with authority to deal with the broker & technical team),” the notice to members stated.
On 22 December the MTI leadership and management issued a statement which said that they do not know whether members’ investments are safe.
They also claimed that they were unable to get members’ bitcoin from their “unregulated broker” with which to pay withdrawals.
On 23 December, two applications for the provisional liquidation of MTI were filed in the Western Cape Hight Court. The first application, led by Advocate Vaughn Victor and Vezi & De Beer Inc., was granted on 29 December.
In January 2021 a video call of an emergency meeting between MTI leaders and management was leaked on YouTube.
Based on the content of the call, it was held to discuss the statement that was issued on 22 December. MTI’s leadership also discussed a plot to trick Steynberg’s wife into selling silver holdings worth between a million and two million rand to pay an “extraction team” to locate Steynberg in Brazil and bring him back to South Africa.
The many problems with Mirror Trading International
Like many similar cryptocurrency “investment” scams, there were multiple red flags that should have scared investors away from Mirror Trading International.
If its contrived multilevel marketing bonus structure wasn’t enough of a warning, its too-good-to-be-true growth rates should have been.
When something offers the equivalent of over 500% interest per annum, it’s not only too good to be true, it also violates the Consumer Protection Act’s prohibition on multiplication schemes.
Another important thing to understand when doing a basic rationality check on MTI’s claims and sustainability is that only 21 million bitcoins will ever be created. To-date, around 18.6 million have been mined.
If MTI continued to grow at the rapid rate it was growing, it would eventually own every bitcoin in existence (or at least every bitcoin in circulation).
Taking the 23,000 bitcoin that was in MTI’s “trading pool” at its height, along with its 0.5% daily growth rate, it is possible to calculate (using the logarithm function) how long it would take for MTI to hit 21 million bitcoin – 3.7 years.
It’s important to note that this calculation assumes MTI members stopped putting more money into the scheme than would be withdrawn after 23,000 bitcoin.
As more money gets deposited, or the dubious “AI trading bot” earns more than 0.5% per day, the amount of time it takes to get to 21 million bitcoin decreases. At the rate it claimed to be growing, MTI would have consumed every bitcoin in existence in as little as two years.
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