MTI placed in provisional liquidation and damage could be huge

The Cape High Court placed bitcoin investment scheme Mirror Trading International (MTI) in provisional liquidation on Tuesday, December 29, 2020.

The court order instructs the sheriff to attach all property that appears to belong to MTI in all provinces and submit an inventory to the Master of the Cape High Court. No-one from MTI turned up in court to defend the action. 

A group called Recovery Action Group (RAG) was hastily convened over the last few days to represent as many of the estimated 280 000 members as possible to speak with one voice before the court and the regulators.

There was a fear that multiple liquidators were circling MTI with a view to feasting on its carcass, but in the end, the court granted the provisional liquidation order to MTI member Anton Lee, who had been trying unsuccessfully to withdraw funds from the company since December 21, 2020.

Tracking down the trades

A provisional liquidator will be appointed within the next few days to commence the mammoth task of tracking down the assets of senior MTI management and leaders. Moneyweb has been inundated with emails from members as far afield as the US, Canada and Mexico asking for news about the fate of their investments.

Advocate Vaughn Victor, a cyber-security and crypto expert who is part of the team representing Anton Lee, says it now appears that investors shipped roughly 23 000 bitcoin (worth R9.45 billion at current prices) to MTI, most of this within the last seven months – well after the Financial Sector Conduct Authority (FSCA) issued warnings to the public to steer clear of the company which lured investors from all over the world with promises of returns of up to 10% per month.

At this stage, it is not known how much of this bitcoin remains within the control of senior MTI managers, though Victor says his team has been able to track about 7 000 bitcoin in wallets under the direct control of MTI founder and CEO Johann Steynberg (worth about R2.9 billion at current prices).

It is unlikely anything like 23 000 bitcoin remains to be recovered by liquidators, as many believe the profits and bonuses paid out to members came from incoming bitcoin from new members.

Where is Steynberg?

As Moneyweb previously reported, Steynberg went missing in early December and is believed to be hiding out in Brazil. It was around this time that members started noticing that their requests for withdrawals went unanswered.

“We have placed wallet watchers on all the bitcoin under the control of Steynberg and other senior MTI managers and we will now start the process of reaching out to international authorities, including Interpol, to place a freeze on the movement of these assets,” says Victor.

Victor is also involved in the forensic investigation into BTC Global, another bitcoin investment scheme promising returns of around 14% a week which went down in flames two years ago. “Many of the same people involved in MTI were also involved in BTC Global,” says Victor.

FSCA raid

MTI started running into trouble in October 2020 following a search and seizure raid by the FSCA, which retrieved phones and electronic devices from MTI’s head office in Stellenbosch and the homes of some of its executives. The FSCA warned the public that MTI was trading without a financial services provider licence and was making extravagant claims to attract new members.

MTI maintained that it did not fall under the jurisdiction of the FSCA and was being victimised by the authority. MTI told its members that it was able to generate returns of up to 10% a month using a computerised algorithm, but when the FSCA investigated it found no evidence of any trading success.

Until a few months ago, MTI was trading forex through a Belize-based broker called FXChoice, and lost roughly 30% of 1 846 bitcoin on deposit with the broker over a period of four months. Members were shown demo rather than actual trading accounts, issued by MTI, prompting FXChoice to freeze the remainder of the bitcoin linked to MTI.

Regulators become concerned 

MTI then started to come to the attention of financial authorities in the US, Canada and SA, and purportedly switched to trading bitcoin rather than forex on the basis that this would prevent regulators interfering in its business. It claimed to be doing this through a new broker called Trade300, but the FSCA found no evidence that this broker existed. All it found was a website “under maintenance”, registered to Joe Steyn, a known alias of Johan Steynberg.

Speaking at an RAG online meeting over the weekend, Advocate Hendrik van Staden said four steps must now be taken to secure the remaining assets of members:

1. Obtain a provisional liquidation of MTI to secure the assets that were entrusted to the company and prevent them from being shipped to third parties.
2. Once the quantum of assets are established, it will be determined whether MTI can meet the claims against it before the “return date” (1 March 2021, according to the Cape High Court order) and whether there is any reason not to grant final liquidation.
3. The liquidators will seek extended powers from the court to take full control of the assets and ascertain where other bitcoin may have been hidden.
4. If MTI is unable to pay back the claims against it, liquidators will ask the court for a final liquidation order, at which point the proceeds of any assets will be sold and returned to members, after the costs of liquidation have been satisfied.

Van Staden also pointed out that those who received more than they paid into MTI can be asked to return or contribute to the liquidated estate.

This will come as a blow to the many thousands of people who made vast commissions from introducing new members to scheme. SA Revenue Services (Sars) has also been issued a copy of the Cape High Court order, and will no doubt be on standby to collect its share of undeclared profits generated through the MTI scheme.