Court rules that Bitcoin scam MTI is a Ponzi scheme

The Western Cape High Court has declared Mirror Trading International (MTI) a Ponzi scheme, and all agreements with its roughly 200 000 members void from the outset.

MTI was declared the world’s largest crypto scam by Chainalysis in 2020 after it lured global investors with promises of 10% gains a month using a bot to trade forex. These gains turned out to be fictitious, and no evidence of any successful bot trading was found – only losses.

The scheme was astonishingly successful in attracting members, who had to deposit funds with MTI in bitcoin. The introducing member received 10% referral bonuses on new member deposits, resulting in upwards of 100 000 ‘slave accounts’ being opened, often in the names of family pets or domestic servants.

The judgment explains that the scheme started to unravel in December 2020 when thousands of member withdrawal requests went unanswered, and CEO Johann Steynberg fled the country for Brazil, where he was arrested a year later.

The National Prosecuting Authority has applied for his extradition back to SA, but US courts are also keen to get their hands on him and the bitcoin wallets he is presumed to control.

The applicants in this latest case were the liquidators. The respondents included MTI, which was placed in final liquidation in June 2021, 50% MTI shareholder Clynton Marks, investors Henri Honiball and Cecil Rowe, and a group of MTI investors.

Outstanding tax returns 

However, the court dismissed the liquidators’ request to have MTI declared factually insolvent since August 2019 until it was wound up on 29 December 2020, and to declare any gains received prior to June 2020 by members to be without value.

The court also refused the liquidators’ request to approach the court to recover ‘winnings’ from specific investors.

ALSO READ: MTI liquidators in response to Sars’s R931m claim: We owe you nothing

The one clear winner in this is the South African Revenue Service (Sars), which lodged a R931 million claim for unpaid taxes against MTI at a meeting of creditors in 2022.

This amount was based on an assessment of income tax and penalties owing, with Sars claiming the liquidators – and prior to that, MTI management – did not file tax returns, as was their duty.

Bitcoin valued at over R1bn

A person close to the case says the declaration of MTI as a fraud should speed the recovery of funds from ‘winners’ in the scheme – those who withdrew more than they put in.

Some of the ‘winners’ are known to have made more than R100 million by earning commission on the introduction of new members.

Ian Allis, attorney for a group of MTI investors, says the judgment effectively kills off any creditor claims, which are believed to total close to R500 million, but does not believe this will assist the liquidators in recovering assets from the scheme winners.

“The judgment will be good news for Sars, which is a secured creditor, so it is likely to walk away with the lion’s share of what has been recovered. But for the ordinary concurrent creditors, it’s not good news. Once Sars is paid out, there’s virtually nothing left for them in any event,” he says.

“What could happen now is we could see two sets of appeals – one from the liquidators, appealing that part of the relief that was denied them, and another appeal from the respondents challenging the ruling that MTI was a fraud.”

ALSO READ: MTI investors staring at a dwindling pot after latest court order

The liquidators recovered 1 281 bitcoin from a Belize-based broker, FX Choice, and sold these locally for about R1.1 billion.

It is reckoned that upwards of 29 000 bitcoin passed through MTI’s hands, a large percentage of which was paid out to members in the form of ‘profits’, although it remains unclear what happened to the rest.

Shifting the money

When the Financial Sector Conduct Authority (FSCA) started to investigate MTI in late 2020, Steynberg allegedly moved funds to a new broker, Trade 300.

The FSCA found that Trade 300 was a fictitious platform created by Steynberg, and he was in any event unable to move funds from the previous broker, FX Choice, as these had been frozen once the FSCA started investigating.

It remains to be seen whether any additional funds can be recovered once Steynberg is extradited, either to the US or SA.

That’s a long shot, according to Allis, as these funds are likely dissipated at this point.

If funds are recovered and a surplus is available for distribution, that would likely go to the two 50-50 shareholders, Steynberg and Marks – though that would almost certainly be challenged by the losers in the scheme.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.

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