Anatomy of a bitcoin scam: How MTI duped investors - TechCentral

Anatomy of a bitcoin scam: How MTI duped investors

Court papers filed by the liquidators for failed crypto scam Mirror Trading International (MTI) have lifted the curtain on one of the most extraordinary investment rip-offs in South Africa’s history.

It was rated the world’s biggest crypto scam of 2020, having roped in US$588-million (R7.9-billion) worth of bitcoin in 470 000 transactions, according to the 2021 Crypto Crime Report by Chainalysis.

A data dump by Anonymous ZA puts the number of bitcoin under MTI control at 23 000, worth about R11.5-billion at current prices. According to the liquidators, about 280 000 investors worldwide were involved.

MTI CEO Johann Steynberg disappeared in December 2020 after the company stopped paying out requests for withdrawals in a bitcoin investment scheme that promised returns of up to 10% a month. These promises turned out to be nothing but smoke. The company was provisionally liquidated in December 2020.

Legal argument will be heard next week in the Western Cape high court as to whether MTI will be finally liquidated or whether, based on an affidavit filed by 50% shareholder in MTI, Clynton Marks, the provisional liquidation order should be set aside on various grounds, including that the terms and conditions of the company make it clear that those investing in the scheme were members of a club, rather than creditors.

Detailed insight

Rather than subject MTI to liquidation, there are some within MTI who argue that it should be either placed in business rescue or allowed to reach a compromise with creditors under the Companies Act.

The provisional liquidators argue that it is impossible to rescue a scheme that is unlawful, and they are asking the court to declare MTI a Ponzi scheme, and to have it placed in final liquidation.

The court papers provide fascinating and detailed insight into the inner workings of the company.

A report by the Financial Sector Conduct Authority (FSCA), included as part of the liquidators’ door-stopper of a court filing, says there were three periods to MTI’s business:

  1. The first period was a disaster, but it might have been a small disaster had it stopped there. A total of nearly 51 bitcoins were deposited with Belize-based forex broker FXChoice, but 22, or 43%, of these were lost by the traders. There was no multi-level marketing involved during this stage. This was to come in the second stage.
  2. The second period was from August 2019 to October 2020 when Steynberg purportedly introduced a computerised trading bot which MTI falsely claimed to have generated exceptional returns averaging more than 10%/month, with only one losing day out of about 200. FXChoice reported to the FSCA that 1 846 bitcoin were deposited with it between January and June 2020, but of this 566 bitcoin (about 30%) were lost. These trading results were completely at odds with the wild claims of success being promoted on social media by MTI. FXChoice subsequently froze the remaining 1 280 bitcoins (recently sold by liquidators for about R1.1-billion) placed on deposit with it by MTI.
  3. The third period, and MTI’s last, was from October to December 2020. Steynberg alleged that all investors’ bitcoin were transferred from FXChoice to a new broker, Trade 300, supposedly operating out of St Kitts in the Caribbean island of Nevis. A total of 16 444 bitcoin was claimed to have been transferred in four lots, but when the FSCA investigated, it concluded that Trade 300 was a fraudulent creation of Steynberg’s and does not exist as a bona fide brokerage.

All MTI investors’ bitcoin are unaccounted for or lost.

According to the affidavit filed by lead liquidator Riaan van Rooyen: “Based on evidence provided by Steynberg that the 1 282 bitcoin frozen by FXChoice were not part of MTI’s clients’ bitcoin pool, but belonged to MTI and Steynberg personally, the conclusion is inescapable that all of the bitcoin held by MTI for the purpose of trading on behalf of its clients … appear to be either siphoned away by Mr Steynberg, alternatively depleted by ongoing payments of vast amounts of bitcoin to investors in respect of referral commissions, the binary bonus scheme and the payment of fictitious profits that were declared and credited in favour of clients on their back-office accounts (which had to be paid to an investor when he/she withdrew his/her investment).”

The people in charge of MTI had no qualifications for the posts to which they were appointed, according to the liquidators.

Monica Coetzee was appointed by MTI’s marketing executive Cheri Marks, first as a non-executive director, then an executive director. Her background was as an estate agent and legal secretary. Her starting salary was R15 000/month, which was later bumped to R40 000, and then one bitcoin a month (currently worth around R500 000), which was paid to her by Steynberg via a service provider called Coin Buyers Club.

Based on the evidence provided by the liquidators, MTI was owned 50-50 by Steynberg and Clynton Marks, who would divvy up 10% of the profits between them every Monday.

Steynberg calculated what the profits were, while expenses were paid from three loan accounts in the name of Steynberg, Clynton Marks and JNX Online (one of Steynberg’s companies). Ledgers obtained under subpoena show MTI owed JNX Online R7.1-million, Clynton Marks R439 530 and Steynberg R549 529.

Coetzee confirmed during testimony that Steynberg had exclusive management control of MTI’s back-office system.

The accountant, RDK Accountants, requested on numerous occasions the supporting documentation and invoices for payments authorised by Steynberg, but these were never forthcoming. Steynberg was the sole signatory on the MTI bank account.

Each month, Steynberg would transfer sufficient bitcoin to Coin Buyers Club to convert to rand and then pay salaries and other expenses.

Steynberg also appears to have been the only person in MTI to deal with both the broker in Belize and the server team in India. He would supply trading results from the broker to the server team for capture into the back-office system.

Huge loss

MTI’s accountant (who joined in August 2020) and other executives were pushing for revenue to be declared, though this never happened. MTI’s accounts reflected only expenses, and therefore the company was showing a huge loss.

When Cheri Marks confronted Steynberg about FXChoice’s statement that MTI had made substantial trading losses and that this did not correspond with the trading statements that were posted on the MTI back office, Steynberg told her that FXChoice was lying — because it was upset about losing a big client like MTI and was not happy being bombarded with clients’ queries after the Texas State Security Regulator issued a cease-and-desist order on MTI.

Evidence from FXChoice shows MTI (and presumably Steynberg) was fabricating trading results by redacting losing demo trades to show positive gains, and reporting these as genuine trades.

Steynberg was able to lie and deceive his way through this, and convince his management team that FXChoice was the one that was lying out of jealousy.

Steynberg did not consult MTI management, nor his 50% shareholder Clynton Marks, before allegedly transferring all the bitcoin from FXChoice to Trade 300. “Initially, they were all upset, but accepted Mr Steynberg’s explanation that FXChoice was lying (about the losses made by MTI),” according to Riaan van Rooyen’s affidavit.

Steynberg explained to management that FXChoice had only frozen MTI bitcoin, not the bitcoin of MTI members’ trading pool, which comprised about 10 000 bitcoin in digital wallets, according to Clynton Marks’s affidavit.

The first red flag for Cheri Marks was when the FSCA put out a statement on 17 December 2020, in which it confirmed to have found information that Steynberg had created Trade 300.

Steynberg convinced his management team that Trade 300 was an unregulated broker and that would avoid the risk of funds being frozen in the future. The management team accepted this explanation.

“I pause to note that it is clear that Cheri Marks is not (and never was) prepared to accept the obvious and uncontroversial reality that Mr Steynberg ran a fraudulent scheme of gigantic proportions,” deposes Van Rooyen.

Frustration

The liquidators express their frustration with the MTI management team and their lack of suspicion and scepticism at the ever-changing narrative spun by Steynberg who, they aver, was treated as a godlike figure.

The liquidators’ court filings, which include the FSCA report and supporting transcripts of interviews with Steynberg and others involved in the scam, paint a picture of a scamster who was prepared to wing it but who had no real clue how to close out a Ponzi scheme that had grown beyond his wildest dreams.

The developer of the automated trading bot, a Keith Badenhhorst, gave testimony to the effect that he was involved in the early development of a trading bot, but had virtually nothing to do with MTI for several years. This contradicted Steynberg’s testimony.

What is extraordinary about this story is that the FSCA first warned the public in August 2020 to get their money out of MTI. Despite this, the number of investors shot from about 60 000 to some 280 000, and that says something about the marketing acumen of the people behind MTI.

They convinced investors that the FSCA, the banks and the “mainstream” were out to shut them down because they had a system that could deliver financial freedom to the ordinary man and woman.

One word explains this extraordinary growth in membership, says Van Rooyen: “Covid.”

  • This article was originally published by Moneyweb and is used here with permission

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