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The U.S. Commodity Futures Trading Commission (CFTC) has reached an agreement with the South African liquidators of Mirror Trading International not to pursue a $1,733,838,372 (R33 billion) claim against the estate.
Under the terms of the deal, the CFTC won’t take any action to collect payment while bankruptcy proceedings are underway.
This should prevent U.S. creditors from monopolizing the pool of funds the liquidators recover. They have recovered over R1 billion and have spent over R113 million.
The CFTC lodged its claim against the estate of Mirror Trading International (MTI) and its former CEO, Johann Steynberg, in June 2022 in the Western District of Texas.
MTI’s liquidators filed a counter-application in February in the Southern District of Florida bankruptcy court for the South African liquidation to be recognized as the foreign main proceeding, which was granted.
One of the joint liquidators, Chavonnes Badenhorst St. Clair Cooper, was appointed the designated foreign representative in the case.
At the same time, the CFTC obtained a default judgment against Steynberg, who was ordered to pay close to $3.5 billion (R63.6 billion at the time) in restitution and penalties in the United States.
The order requires Steynberg to pay $1,733,838,372 in restitution to defrauded victims and a $1,733,838,372 civil monetary penalty — the highest civil monetary penalty ordered in any CFTC case.
“The settlement with MTI and default judgment against Steynberg represent the latest stage in our battle against fraudsters who victimized over 23,000 individuals from the U.S.,” said CFTC enforcement director Ian McGinley (pictured).
“Here, the fraudsters made the most modern of promises, claiming their ‘Advanced Intelligence Software with Bitcoin as the base currency’ would create untold wealth for investors, but were actually committing a classic form of fraud, a multilevel marketing scam.”
“Whether a scam involves fictitious electronic trading ‘bots’ or bitcoins, as this action involving a South African entity shows, we will pursue the scam artists wherever they may be.”
The CFTC said the order resolves the CFTC’s enforcement case against MTI.
MTI was a bitcoin-based network marketing scam that began in South Africa and drew in members worldwide.
According to the CFTC, MTI, with Steynberg as its principal, accepted at least 29,421 bitcoins from at least 23,000 individuals in the United States.
This excludes the many thousands more that were scammed worldwide, the CFTC said.
The CFTC valued the bitcoin at over $1,733,838,372. However, it took the dollar value of the cryptocurrency on one specific day rather than when the coins were deposited into the scheme.
While the CFTC described the scheme as an unregistered commodity pool, the Western Cape High Court has declared it an unlawful scheme.
In her ruling, acting High Court Judge Alma de Wet called it a pyramid and a Ponzi-type scheme.
The court later denied an application from MTI’s 50% shareholder Clynton Marks to appeal the ruling.
Johann SteynberS.A.s last public appearance during a monthly MTI leadership Q&A Zoom callBiggest pyramid scheme in SA history
Sources with knowledge of MTI’s liquidation have told MyBroadband that over 46,000 bitcoins flowed through the scheme.
Using the current bitcoin price of around R511,000, that values the pyramid scheme at R23.5 billion.
According to the liquidators’ court papers, when MTI imploded, there were supposed to be 22,222.548 bitcoins in its accounts — around R11.4 billion at current valuations.
This makes it South Africa’s biggest pyramid or Ponzi scheme in history by some margin.
The infamous Krion Ponzi scheme was valued at around R1.5 billion in 2009, while Travel Ventures International (TVI) was reportedly a R4 billion pyramid scheme.
The value of Africrypt is disputed, but the most realistic estimates valued the scheme at between R200 million and R1 billion.
MTI made headlines in September 2020 when a group calling itself Anonymous ZA exploited vulnerabilities in the scheme’s poorly-coded website.
Together with a MyBroadband investigative journalist and community members, the group exposed the inner workings of MTI.
In mid-December 2020, Steynberg disappeared while travelling in Brazil, and MTI collapsed. Liquidation proceedings were instituted shortly after that.
Steynberg was arrested in Brazil on 29 December 2021 — almost exactly a year after he first went missing.
He is currently detained pending extradition proceedings and was recently found guilty of using a forged ID in Brazil and fined around R595,000.
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