The Financial Sector Conduct Authority (FSCA) has issued a warning to the leadership of Mirror Trading International that it plans to levy a fine of R100 million against the scheme for violating South Africa’s financial regulations.
Mirror Trading International (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.
Court documents, which MyBroadband has seen, gave the last estimate of the funds that flowed through MTI as 29,421.03379 bitcoin — close to R15 billion at current local exchange rates.
Acting Justice Alma de Wet granted a final liquidation order against MTI at the end of June.
In a letter signed by Brandon Topham, divisional executive of investigations and enforcement at the FSCA, the sector regulator stated that MTI violated several different laws in three distinct periods of its existence.
These periods are:
- April 2019 – July 2019 — MTI’s member trading accounts were reportedly linked to a professional trader appointed by MTI through a multi-account manager arrangement linked to Meta Trader 4. Trading was conducted in derivative instruments based on forex pairs through a platform broker named FXChoice. After substantial losses were incurred, MTI requested its members to delink their respective FXChoice accounts from the multi-account manager account and move their bitcoin to a pooled account.
- August 2019 – October 2020 — According to Topham, MTI CEO Johann Steynberg claimed that MTI employed an automated trading program, or “bot”, together with a head trader and trading team to make all its trading decisions.
- October 2020 – December 2020 — MTI claimed that it changed its trading activities to trade in derivative instruments based on Bitcoin to no longer require an FSP licence. However, Topham said that this assumption was not correct as Steynberg’s explanation revealed that MTI apparently traded the crypto assets in the form of a derivative product, which means MTI still required a licence from the FSCA.
The following table summarises the offences the FSCA said that MTI committed during the three different periods.
|Period||Alleged offences committed|
|Period 1: Apr 2019–Jul 2019||During this period, MTI was conducting unregistered financial services in financial derivatives in contravention of section 7(1) of the FAIS Act. As this was done without a license, MTI was also in contravention of section 111 of the Financial Sector Regulation Act 9 of 2017 (“FSR Act”).|
|Period 2: Aug 2019–Oct 2020||Unregistered financial services business in contravention of section 7(1) of the FAIS Act.|
|Period 3: Oct 2020–Dec 2020||MTI and its senior management were still contravening section 7(1) of the FAIS Act.|
“MTI, through the activities of Steynberg and Cheri Marks, and with the assistance of Clynton Marks and others, conducted illegal financial services in contravention of section 7(1) of the FAIS Act for a period of at least 2 years,” Topham stated in the letter.
He said that the activities also constitute a contravention of Section 2 of the Regulations to the Financial Markets Act and Section 111 of the Financial Sector Regulation Act.
“The same persons made material misrepresentations to their clients over an extensive period of time; and clients were misled in the process,” said Topham.
The FSCA afforded the management team of MTI until 6 August 2021 to make submissions on the FSCA’s investigation report.
If no response is received by then, Topham said that the FSCA might proceed with the proposed enforcement and regulatory action.
Contacted for comment, Cheri Marks said that the document is interesting in that it names them personally when the fine being contemplated is against MTI as a jurisdiction person.
“I’m assuming this is in line with the FSCA agenda to continue putting us in the firing line when they themselves have admitted that we had no hand in Johann’s disappearance or members’ bitcoin,” Marks stated.
She also said it’s curious that the FSCA has jurisdiction over MTI, but with other companies currently in the news of a similar nature, they claim to have no jurisdiction.
Marks also questioned how the FSCA could previously say that MTI never traded and was a Ponzi scheme, and now claim that Steynberg did trade, but without a licence.
“Which is it? Very confusing,” Marks said.
MyBroadband contacted Johann Steynberg, but he did not respond to a request for comment.
Updated with comment from Cheri and Clynton Marks.