South Africa’s finance-industry regulator wants more power to prosecute perpetrators of fraud and oversee dealing in cryptocurrencies after the collapse of a Bitcoin trader, alleged to be the country’s largest Ponzi scheme.
The Financial Sector Conduct Authority is making proposals to regulate trading in cryptocurrencies such as Ethereum, XRP and Litecoin, the watchdog’s head of enforcement, Brandon Topham, said by phone.
The FSCA has handed details of its probe into the failure of Mirror Trading International Ltd. to a top police unit after uncovering alleged fraud.
“At the point something becomes a Ponzi scheme, we have lost our jurisdiction,” he said. “We need the police and the prosecuting authority to work fast and put people in jail.”
MTI — which in November claimed it had 260,000 members and 23,000 Bitcoin now worth about $740 million — was placed in provisional liquidation last month after clients battled to withdraw funds.
On Dec. 22, the firm’s management said in a letter posted on Telegram that they were misled and that the company’s Chief Executive Officer Johann Steynberg may have fled to Brazil.
Four temporary overseers must now begin tracing MTI’s investors to recover the firm’s assets, including money allegedly paid to some early players that runs into millions of rands.
The FSCA investigation found that the company kept neither accounting records nor a comprehensive register of participants, apart from 170,000 unique email addresses found during an October raid.
The FSCA investigations hadn’t concluded MTI to be a Ponzi scheme and the regulator only noted it was trading without a license, Clynton and Cheri Marks, who joined the firm in August as head of the referral program and head of communications respectively, said in an email sent by their lawyer, Henry Selzer.
“MTI set out to see what requirements are necessary to obtain a license,” they said. “When it became apparent that such a license would be impossible to obtain, Johann Steynberg moved MTI to crypto-trading for which apparently no license was required.
The live trades were demonstrated to the FSCA during 2020 and MTI cooperated with every request from the FSCA.”
A quadrupling in the price of the world’s best-known digital token toward the end of last year has been accompanied by convictions abroad in scams tied to digital platforms and speculation that authorities globally will seek tighter controls.
While the Marks have had no contact with Steynberg, or knowledge of his whereabouts since the matter came to light, they are sure he “will repay to members their Bitcoin investments as that is the character of the Johann Steynberg they came to know,” their lawyer said.
The couple denied any negligence. Regulators and liquidators were unable to supply contact details for Steynberg.
MTI’s membership base stretched across the globe. The Texas State Securities Board in July issued a cease-and-desist order against it.
At present, the FSCA hasn’t received formal requests to assist law-enforcement agencies abroad but is expecting queries, Topham said.
‘Get in Quick’
“It’s going to take a serious investigation to ascertain how much was involved,” Topham said. The FSCA is also looking into what transpired at two other firms believed to have a relationship with MTI, he said.
Investors are drawn into potential scams because of South Africa’s persistently sluggish economic growth and greed, Topham said. The testimonials of sport-stars or other prominent figures are also a lure.
Another alleged South African Ponzi scheme in 2009 snared about 800 investors across eight countries, including Qatar’s Barwa Real Estate Co.
Barry Tannenbaum, who was accused of running the alleged 12.5 billion rand ($820 million) scam, moved to Australia and at the time said that some of the allegations against him are “drivel.”
“I have been on radio shows where people say, ‘I am a professional Ponzi investor. You get in quick and get out and like with any business you have to risk money to make money’,” Topham said.
“We need to make an example of MTI so that people understand that investing in a Ponzi is never a good idea.”