The 2021 Crypto Crime Report, compiled by Chainalysis, revealed that South African based Mirror Trading International (MTI) was by far the biggest Bitcoin scam in the world in 2020.
MTI presented itself as a passive income source, promising investors consistent daily returns of 0.5% which translates to yearly gains of 500%.
To achieve such phenomenal returns, the MTI leadership claimed to have a “trading bot” powered by artificial intelligence. This was, of course, not true.
One of the driving forces behind MTI was its multilevel marketing referral system which encouraged investors to recruit other people for the scheme.
From the outset, many authorities warned that it was a scam which would ultimately lead to investors losing their money.
The Texas State Securities Board, Canada’s Autorité des Marchés Financiers, and South Africa’s Financial Sector Conduct Authority (FSCA) all warned against MTI.
The FSCA recommended in August 2020 that people withdraw their money from MTI as soon as possible.
These warnings fell on deaf ears and people continued to dump their money into MTI with the hope of unrealistic returns.
According to the 2021 Crypto Crime Report, MTI Club has received $588 million (R8.5 billion) worth of Bitcoin across more than 470,000 transactions, primarily from exchanges, but also from self-hosted wallets.
MTI has sent and received significant funds to and from a popular, Bitcoin-friendly FX trading platform.
“Perhaps most interesting is MTI Club’s apparent usage of a popular cryptocurrency gambling service as a money laundering and cash out mechanism,” the report states.
“The platform is the biggest risky destination of MTI funds by volume, having received $39 million worth of cryptocurrency from the scam in 2020.”
Cryptocurrency observer and venture capitalist Dovey Wan that this is becoming a common money laundering technique for many cybercriminals who use cryptocurrency, as gambling platforms can be used similarly to mixers to obscure the origins and flows of illicitly-obtained funds.
As predicted, the scheme collapsed in late 2020 after MTI founder and CEO Johann Steynberg disappeared.
Steynberg was essentially the fall guy for the scam, and all other management pleaded ignorance of what was really happening behind the scenes.
On 18 December 2020, the FSCA filed charges against MTI after its investigation found the company falsified trade statements, didn’t declare losses and committed other acts of fraud to deceive the market.
The investigation also found that MTI had over 16,000 Bitcoin of claimed customer investment funds unaccounted for.
MTI claimed to have transferred those funds to a new FX trading platform after its old platform banned MTI due to its scamming reputation, but the new platform says these funds were never deposited.
A group of MTI members 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 and provisional liquidators were appointed on 12 January 2021.
“Mirror Trading International is another example of why the industry must spread the word that algorithmic trading platforms promising unrealistically high returns are nearly always scams,” Chainalysis said.
“When cryptocurrency exchanges and other services learn of these scams and receive their cryptocurrency addresses, they should discourage users from sending funds to those addresses or at least warn them that financial losses are highly likely.”