Bitcoin scammers Mirror Trading International face R100 million fine

The Financial Sector Conduct Authority (FSCA) is planning to fine Mirror Trading International (MTI) R100 million for contravening various financial sector acts.

Described as one of the biggest crypto scams ever, MTI was finally liquidated on 30 June 2021.

The FSCA wrote to kingpin Johann Steynberg, who reportedly fled to South America, Clynton Marks and his wife Cheri Marks, Charles Ward, Monica Coetzee, Romano Samuels, Leonard Gray, and Usher Bell as well as the provisional liquidators on Monday to inform them that it intends to  impose an administrative penalty of R100 million on MTI.

The letter was shared by a Bitcoin newsletter although its contents were marked as confidential.

ALSO READ: Billions worth of bitcoin found as MTI is placed in final liquidation

Reasons for administrative penalty

The FSCA can impose an administrative penalty on people who contravene a financial sector law in terms of section 167(1)(a) of the Financial Sector Regulation Act. The findings in the draft FSCA investigation report informed the intended fine.

According to the letter, MTI, through the activities of Steynberg and Cheri Marks, as well as the assistance of Clynton Marks and others, conducted illegal financial services in contravention of section 7(1) of the Financial Advisory and Intermediary Services Act for at least 2 years.

The activities of MTI, Steynberg and Cheri and Clynton Marks also contravened Section 2 of the Regulations to the Financial Markets Act and section 111 of the Financial Sector Regulation Act. The letter states that they made material misrepresentations to their clients over an extensive period of time and misled them in the process.

All the people who received the letter now have the opportunity to make submissions on the investigation report and the proposed administrative penalty by 6 August 2021. If they do not respond, the FSCA could continue with the proposed enforcement and regulatory action.

ALSO READ: MTI Bitcoin ‘trading’ scheme leads to wine, antidepressants and tears

MTI timeline

The FSCA organised the transgressions into three periods of time:

The first period: April 2019 to July 2019

During the first period, MTI’s member trading accounts were linked to a professional trader it appointed through a multi-account manager arrangement linked to Meta Trader 4. Trading in derivative instruments was done based on forex pairs, using a platform broker called FXChoice. After substantial losses, MTI asked its members to delink their FXChoice accounts from the multi account manager account and move their Bitcoin to a pooled account.

Contravention: MTI did not have a financial services provider licence required by the Financial Advisory and Intermediary Services Act, although it was offering financial services. Therefore MTI was conducting unregistered financial services in financial derivatives in contravention of the Financial Sector Regulation Act.

The second period: August 2019 to October 2020

Starting in August 2019, Steynberg claimed that MTI employed a bot working with a head trader and trading team to make its trading decisions.

When MTI’s clients gave FXChoice ‘trading statements’ they received from MTI, FXChoice discovered they were based on demo trading accounts and not actual trades. FXChoice then froze the balance of the crypto assets linked to MTI on its platform.

The little trading done resulted in a capital loss of about 30%. According to the letter, the trading volumes and amount of Bitcoin on the platform was substantially less than the expected trading volumes based on the public claims by MTI.

Contravention: During this period, MTI was also running an unregistered financial services business in contravention of the Financial Advisory and Intermediary Services Act.

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The third period: October 2020 To December 2020

In October 2020, MTI claimed to have its trading activities to trade in derivative instruments based on Bitcoin to ensure it did not require a licence to operate as a financial services provider, but this was incorrect because the crypto assets were allegedly traded in the form of a derivative product, which still required a licence.

According to the letter, MTI, Steynberg and Cheri Marks claimed that the trading activities of MTI and all its clients’ crypto assets were transferred from FXChoice to its new ‘broker’, Trade300. The FSCA followed all possible links to establish whether Trade300 existed, but could only find one reference to Trade300, which was the website of Trade300, that was ‘under maintenance’.

When the investigating team searched Steynberg’s desktop computer, they found evidence that Steynberg had created the website of Trade300.

“It is the prima facie view of the Authority that the claim relating to Trade300 is false. In fact, Trade300 does not exist as a trading platform independent of MTI. It seems to be no more than a very basic website created by Steynberg,” the letter states.

It goes on to state that at first glance the evidence that MTI, Steynberg and Marks provided about the transfer of clients’ assets from FXChoice to Trade300, is false. The FSCA could find no evidence of any significant store of Crypto assets on any trading platform, while most crypto balances appear in the name and under the control of Steynberg.

The amount of these balances is well below MTI’s advertised balance as being due to investors of MTI.

Contravention: MTI should have had a category II licence for discretionary asset management and trading without it, again contravened the Financial Advisory and Intermediary Services Act.

ALSO READ: MTI CEO disappears with over R5 billion in investors’ bitcoin

According to the letter, MTI used only a relatively small percentage of the clients’ assets to actually trade on a derivative platform. The balance of the assets creates the impression that Steynberg kept it in his name and paid clients from this pool of funds as they requested withdrawals, based on their alleged derivative positions.

Apart from the clear misrepresentations to clients, the FSCA believes that MTI also required an over-the-counter derivative provider licence, which it did not have and therefore also contravened Section 2 of the Regulations issued in terms of the Financial Markets Act 2012 and the Financial Sector Regulation Act.