High court grants huge provisional order in Mirror Trading International case

The Cape Town High Court has granted a provisional declaratory order stipulating how liquidators in the Mirror Trading International (MTI) case must treat bitcoin, and which members to recover money from.

In an order dated 31 August 2022, Justice MJ Dolamo ordered that the liquidators treat bitcoin as intangible assets that constitute property.

He also ordered that investors must submit their claims in rand value.

Justice Dolamo considered two scenarios for the order and separated investors into three classes.

Under the first scenario, he assumed that MTI was an unlawful scheme, whereas, for the second, he assumed the agreements between MTI and investors were not void.

The three classes of investors are as follows:

  • Class 1 — investors who received zero returns
  • Class 2 — investors who received returns but did not profit from the scheme (i.e. withdrawals less than investments)
  • Class 3 — investors who profited from the scheme

Scenario 1 — MTI is a pyramid scheme

In the first scenario, the court directed the liquidators to accept class 1 investors’ proven rand-based claims.

Class 2 investors must subtract their returns from their initial investments to determine their clams.

Rand values of bitcoin investments are calculated based on the date they were made.

Similarly, returns are calculated based on the date funds were withdrawn from the scheme.

The liquidators must verify Class 2 investors’ claims before accepting them.

The liquidators also still have a claim against these investors, even though their claims have been reduced by the amount they withdrew.

“Liquidators may pursue the Class 2 Investors in respect of the Returns, in terms of either section 29 or 30 of the Insolvency Act, when and where the circumstances so permit,” the order states.

If a return is clawed back from a Class 2 investor, they will be allowed to prove an additional claim against the estate.

Class 3 investors will initially have no claim, and liquidators may go after them to recover profits.

“The liquidators may pursue the Class 3 Investors in respect of all transfers made to these Investors by the Company, including in respect of the Profit(s)… when and where the circumstances so permit,” Justice Dolamo ordered.

The liquidators also have a claim against Class 3 investors who colluded to dispose of the bitcoin in a way that prejudiced MTI’s creditors or preferred one creditor above another.

Once the liquidators have recovered funds from these investors, they will have an opportunity to prove a claim in the estate “arising from the Company being revested with their initial investment into the Scheme, but not in respect of profit”.

Justice Dolamo ordered that the liquidators should not permit any claim where an investor tries to claim profits from the estate.

Scenario 2 — MTI investor agreements not voided

In the second scenario, MTI investors become creditors.

“Liquidators should then pursue the Class 2 Investors in respect of in the Returns, and the Class 3 Investors in respect of their initial investments and the Profits,” the order states.

“Liquidators, once successful in procuring return of the subject disposition(s), should permit such Investors to prove a further claim in the estate, arising from the Company being revested with such dispositions concerned.”

Scammers who scammed the scam

Justice Dolamo also ruled on individuals who defrauded MTI.

“They will not have any claims against the Company emanating from such conduct and the liquidators are vested with a cause of action against these individuals… to reclaim dispositions to these individuals by the by Company, when and where the circumstances so permit.”

It should be noted that the order was granted provisionally and that interested parties have been invited to respond on the return date why it shouldn’t be made final.

The return date is set for 31 October 2022 at 10h00.


Now read: United States lays charges against South African man over R28 billion Bitcoin scam

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High court grants huge provisional order in Mirror Trading International case