The Western Cape High Court has postponed the hearing for the final liquidation of Mirror Trading International (MTI) until 31 May 2021.
MTI was a South African network marketing scam that claimed to offer automated trading services — initially in forex and later in cryptocurrency derivatives. It accumulated billions of rand worth of bitcoin during 2019 and 2020.
Chainalysis named MTI the biggest cryptocurrency scam of 2020 in the most recent edition of its Crypto Crime Report.
The final hearing for the liquidation was set to happen in the Western Cape High Court earlier today, giving interested parties an opportunity to appear and show any cause why a final liquidation order should not be granted.
This comes after the High Court granted a provisional liquidation order against the company on 29 December 2020, following the alleged disappearance of its CEO, Johann Steynberg.
It is understood that three groups are opposing the liquidation of MTI, asking instead that the company be placed in business rescue, or that it undertake a Section 155 compromise.
Section 155 of the Companies Act of South Africa offers a less stringent mechanism for a company to restructure its debts, the director in Cliffe Dekker Hofmeyr’s dispute resolution practice, Lucinde Rhoodie, wrote in 2017.
“The consequences of a compromise are not too different from that of the adoption of a business rescue plan, being that creditors in both instances if they vote in favour of the compromise or business rescue plan, will compromise their claims against the debtor company and will have no further claims against the debtor company in terms of that specific debt,” Rhoodie explained.
“One major disadvantage of a compromise is the loss of a creditor’s right to hold officers and directors liable for any contravention of the Act. A compromise is, however, in one instance more beneficial than business rescue: the Act makes provision for a creditor to retain its right to go against the surety of the debtor company.”
According to Chainalysis, MTI received $588 million (R8.8 billion) worth of bitcoin across more than 470,000 transactions, primarily from exchanges, but also from self-hosted wallets.
Data from the MTILeaks, released in September 2020 by a group calling themselves Anonymous ZA, showed that as at 14 September 2020 nearly 23,000 bitcoin had been deposited into the scheme.
At the time, 23,000 bitcoin was worth roughly R4 billion. At today’s exchange rates it amounts to over R16 billion.
Regulator warnings ignored
MTI went through a few iterations, but its surge in growth came after it adopted a multilevel marketing referral system and switched away from more conventional “copy trading” to purportedly using an automated trading program, or “bot”.
MTI and its leadership claimed that this magical “bot” was powered by artificial intelligence and was yielding growth in members’ bitcoin 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 scam.
In its warning from August last year, the FSCA recommended that people withdraw their money from MTI as soon as possible.
MTI collapsed in late 2020, as warned, with the scheme’s leadership blaming Johann Steynberg, who allegedly disappeared in Brazil on 15 December.
Steynberg was essentially the fall guy for the scam, and all the other leaders and management pleaded ignorance to what was really happening behind the scenes.
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 and provisional liquidators were appointed on 12 January 2021.
Suspicious “laundering” of MTI bitcoin
Chainalysis’ investigation into the operations of MTI found that the company used various tricks to try and obscure the flow of money out of the scheme, making it difficult to track to whom it transferred funds.
“Perhaps most interesting is MTI Club’s apparent usage of a popular cryptocurrency gambling service as a money laundering and cash-out mechanism,” Chainalysis stated.
“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 said 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.
“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.”