Owing to the lack of understanding about cryptocurrencies, the ability for scams to occur in the world of Bitcoin, Ethereum and other blockchain-based products is very evident. It seems almost every week there is a story of a new scam, Ponzi scheme, or theft of millions by those seeking to acquire ill-gotten gains from the technologically unsavvy. This, of course, creates a terrible image for crypto as many people associate the technologies with crime and believe if they deposit any of their hard-earned funds into a cryptocurrency trading platform, it’s as good as gone. This scepticism remains true in our great Rainbow Nation, where white-collar crime and corruption are considered the rule and not the exception. But remember, financial fraud dates back to biblical times and continues to exist in many other established markets (think Bernie Madoff). There’s still so much decentralised finance (DeFi), as a system, can offer the world. In this article, which first appeared on MyBroadband, Jan Vermeulen discusses how Mirror Trading International pulled off the largest South African Bitcoin scam and the legal repercussions of their actions. – Ross Sinclair
“Masterminds” of South Africa’s biggest Bitcoin scam summonsed — on the hook for R4.7 billion
Mirror Trading International’s liquidators have issued a joint summons against eighteen individuals to pay R4,666,077,528 to cover the scheme’s debts — with 7% interest.
According to the liquidators, these individuals are “masterminds” of the scheme, and it has asked the Pretoria High Court to hold them liable in terms of the Companies Act.
They argue that Mirror Trading International (MTI) was an unlawful Ponzi scheme and factually insolvent since inception.
The liquidators also contend that the defendants knew this.
“[The defendants] were at all relevant times aware of the fact that MTI was trading in insolvent circumstances as well as of the actions perpetrated and constituting fraud upon MTI’s creditors,” the summons states.
Consequently, they were all party to the fraudulent or reckless carrying on of the business of MTI, the liquidators stated.
The following table summarises the alleged positions the individuals named in the court papers held at MTI.
|Name||Alleged position in MTI|
|Johann Steynberg||CEO, 50% shareholder|
|Charlie Ward||COO, Head of Strategy Implementation|
|Monica Coetzee||Head of Corporate Services|
|Usher Bell||Former COO|
|Coenraad Rademan||Former Director of MTI (Pty.) Ltd.|
|Clynton Marks||50% shareholder, Head of Referral Program and Members|
|Cheri Marks||Head of Communications and Marketing|
|Tshidi Ramanamane||Trainer & Presenter|
|Liz Malton||Trainer & Presenter, Founder status|
|Romano Samuels||Head of Member Support|
|Jaco Eckley||Ran the Stellenbosch office|
|Vince Ward||Head of International Expansion|
|Leonard Gray||Head of Legal|
|Andrew Caw||Cryptocurrency advisor|
|Nerina Steynberg||Founder status|
|Gerald Lassen||Presenter, promoter, trainer|
|Don Nkomo||Associate of Clynton and Cheri Marks|
Mirror Trading International holds the ignominious title of South Africa’s biggest network marketing scam.
Chainalysis named MTI the biggest cryptocurrency scam of 2020.
The scheme accepted deposits in bitcoin and claimed to offer automated trading services — initially in forex and later in cryptocurrency derivatives.
According to the liquidators’ court papers, when MTI imploded, there was supposed to be 22,222.548 bitcoin in its accounts — around R11.6 billion at R522,845 per bitcoin.
Bitcoin has taken a hammering in the past few weeks. If it trades back over R800,000 per bitcoin, the amount climbs to over R17.8 billion.
MTI made headlines in September 2020 after a group calling itself Anonymous ZA exposed the inner workings of the scheme.
Steynberg went missing in December 2020, and the scheme collapsed. He was suspected of travelling in Brazil at the time.
In December 2021, Steynberg was reportedly arrested in the city of Goiânia, the capital of the Brazilian state of Goiás.
The liquidators said that MTI had a shortfall of at least 6,900 bitcoin at the date of liquidation.
They calculated the R4.7 billion the alleged masterminds owe on this bitcoin amount, using a price of R676,243.12 per bitcoin.
In addition to asking the court to hold the eighteen individuals jointly and severally liable for MTI’s debts, the liquidators also lodged separate claims against most of them.
“MTI, from time to time, made transfers of bitcoin to some of the defendants,” the liquidators stated.
“Every such transfer of bitcoin from MTI to the particular defendant constitutes a ‘disposition’ of the property of MTI,” they argued.
The liquidators then argue that the dispositions were collusive transactions, and that the defendants intended to defraud the creditors of MTI.
They offer the court several alternative claims against the alleged masterminds:
- All withdrawals must be considered invalid dispositions and repaid.
- Subtract deposits from withdrawals and only repay the difference.
- Withdrawals within 6 months of MTI’s liquidation are invalid and must be repaid.
These alternative claims are summarised for each defendant in the table below.
Defendants must pay either the rand value, or the bitcoin value, whichever is higher at the date the order is made, the liquidators asked the court.
The liquidators also asked the court to institute penalties against the defendants equal to the amounts they must repay.
Therefore, if successful, the defendants will pay double the amounts listed below in addition to MTI’s R4.7 billion debt.
It should be noted that the rand amounts are calculated based on bitcoin’s value at the time of the deposit or withdrawal. Bitcoin traded at far lower levels at MTI’s height.
|Name||Bitcoin transactions||BTC withdrawals within 6 months of liquidation||Claims against|
|Deposits||Withdrawals||All withdrawals||Difference||6-month cutoff|
Cheri and Clynton Marks respond
MyBroadband contacted all eighteen defendants named in the liquidators’ papers, and Cheri Marks responded by publication time.
Marks said the court papers were served yesterday, and their lawyers are reviewing the documents.
“In the interim, we can say that there are some very concerning aspects of the application,” Marks stated.
“We have always denied the contention that MTI was trading fraudulently or recklessly with our knowledge.”
She also maintains that MTI was never insolvent.
“We continue to argue that the sums put before the court in this application as well as the one resuming in the Cape Town High Court next Monday have never been conclusively proven,” Marks said.
“To date, we have had no access to the data used to calculate these sums and therefore cannot verify the authenticity of the model used.”
Marks said the solvency argument is premature since the liquidators have already recovered a large amount of money and no final list of proven claims.
The liquidators recovered 1,281 bitcoin from Belizian brokerage FXChoice last year, which they sold for around R1.1 billion.
FXChoice said it froze MTI’s accounts following reports that it could be a scam.
“This allegation again comes down to proof of solvency. Again we deny there is currently or was ever a solvency issue with the company and further deny our liability on the grounds provided by the joint liquidators,” Marks said.
“Without having had the time to properly dissect each claim made, it is not easy to offhand comment on the payments; however, I can personally say that there are glaringly obvious errors in the calculations and accounts attributed to us and others.”
Marks maintained that the data being used is not reliable.
“Instead of allowing interested parties the opportunity to verify [the data], it has been guarded from scrutiny all while being used in the courts without recourse,” she said.
“It is worthwhile noting that the sums quoted against Clynton have risen from what was earlier quoted in the papers presented to the courts, the amounts provided as a whole for MTI have again changed.”
Marks said until the proof required is placed in the open, a constant barrage of papers with contradicting amounts serves no one while the liquidators rack up unnecessary costs that they could use to pay members
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