The South African Revenue Service (SARS) is lodging a claim for R931,121,989.35 against the estate of disgraced bitcoin-based network marketing scheme Mirror Trading International.
If collected, the tax would consume nearly all of the money the scheme’s liquidators have recovered to date.
The taxman says that the company’s appointed liquidators failed to file its tax returns like they were supposed to and slapped them with a R580,441,463.28 penalty.
It also levied interest to the tune of R1,016,997.99.
Crucially, SARS said in a letter to the liquidators that they must pay the full amount immediately and may dispute it later.
This is because the company is in final liquidation, and there are reasonable grounds to believe it will not pay the entire tax amount. It also said that recovering the tax the scheme owes may become difficult in future.
SARS warned that objections and appeals do not suspend the collectability of the amounts and that it would continue to charge interest.
Chainalysis named Mirror Trading International the biggest cryptocurrency scam of 2020.
Mirror Trading International (MTI) made headlines in September 2020 when a group calling itself Anonymous ZA exploited vulnerabilities in its poorly-coded website.
Together with a MyBroadband journalist and community members, the group exposed the inner workings of MTI.
Following the reports, South Africa’s Financial Sector Conduct Authority executed a simultaneous dawn raid on three MTI-linked locations on 26 October 2020.
By November 2020, members started reporting that they were struggling to get their money out of the scheme.
In mid-December, MTI CEO Johann Steynberg disappeared while travelling in Brazil.
All earnings on deposits stopped, members could not withdraw their money, and liquidation proceedings began shortly after that.
In March 2021, the liquidators recovered 1,281 bitcoin frozen by MTI’s former brokerage in Belize, FXChoice.
The liquidators immediately sold the bitcoin and received a relatively favourable rate, getting close to R1.1 billion for the assets.
If SARS’ claim is successful, that leaves between R69 million and R169 million in the failed scheme’s estate — a sizeable chunk of which has likely been spent on legal fees.
By SARS’s own calculations, that would leave precious little for the victims of MTI’s masterminds and promoters.
The tax collector disclosed that it obtained MTI’s back office data from the liquidators on 12 November 2021.
It complained about the delay in getting the information, as it requested the data on 22 July 2021.
Using MTI’s database, it calculated that members transferred 35,504.69763 bitcoin valued at R6,852,454,358.60 into MTI’s bitcoin wallets between August 2019 and December 2020.
“Mr Steynberg, in his representative capacity director of MTI, was placed in full control of these bitcoins,” SARS stated.
In its notes on deductible expenses, SARS stated that MTI’s senior management embezzled bitcoin worth R3,367,763.12 in the 2020 tax year, and R132,502,972.71 in 2021.
SARS is appearing at a special meeting of creditors on Friday, 22 July, to make its case before the Master of the Court.
With less than R170 million left to repay a potential R6.9 billion in claims, victims’ hopes of getting their money back hinges on the liquidators’ ability to claw back funds from the scheme’s alleged “masterminds”.
In May 2022, the liquidators issued a joint summons against eighteen individuals to pay R4,666,077,528 to cover the scheme’s debts — with 7% interest.
However, SARS is not the only external party laying claim to the proceeds of the MTI estate.
At the end of June 2022, the United States Commodity Futures Trading Commission (CFTC) filed a civil enforcement action charging Steynberg with fraud.
According to the CFTC’s complaint, MTI and Steynberg as its principal agent accepted at least 29,421 Bitcoin from at least 23,000 individuals from the United States.
The regulator has laid claim to the assets, further arguing that over the relevant period, the bitcoin’s value came to $1,733,838,372 (R29.6 billion).
It is interesting to note that the CFTC uses an average price of $58,932 per Bitcoin.
When MTI collapsed on 22 December 2020, bitcoin had set a new all-time high price of around $24,000.
However, the CFTC complaint asserts that Steynberg’s activities continued beyond MTI’s apparent collapse to end-March 2021, when the bitcoin price hit over $61,000.
In addition, SARS’ claim contains the nugget that the 1,281 bitcoin recovered from FXChoice was actually in an account under Steynberg’s name.
MyBroadband has learned from a source with knowledge of the matter that Steynberg’s liquidated estate plans to lodge its own claim against MTI for the proceeds of the bitcoin recovered from FXChoice.
Therefore, at least four parties are vying for their slice of the R1.1 billion pie — MTI’s liquidators, Steynberg’s liquidators, the CFTC in the US, and now SARS.
Sadly, very few of these parties seem concerned about the victims — the people MTI’s masterminds and promoters took advantage of to enrich themselves.
MyBroadband contacted the MTI’s liquidators for comment. They promised to provide feedback after a special meeting of creditors on Friday, where SARS will present its claim to the Master of the Court.