Liquidated bitcoin (BTC) scheme Mirror Trading International (MTI) was the subject of another court hearing this week in the Cape High Court, and the ruling may not please everyone involved.
One potential bombshell is the ruling that payouts must be calculated in rands at day of investment, rather than at day of liquidation. This is a provisional order that is certain to be challenged, particularly by the big winners of the scheme, before it is made a final order. Anyone with an interest in the case has until 31 October to lodge their arguments.
Until now, creditors were asked to submit claims based on the value of their deposited BTC at the date of liquidation. That was potentially a sweet deal for those who joined the scheme in early 2020 when BTC was trading between $5 000 and $8 000, considering that BTC was trading at about $35 000 when the company was finally liquidated in mid-2021.
The Cape High Court has disrupted those plans, dividing creditors into three groups. This court outlined two scenarios: one, where any agreements between investors and the company are void because the entire scheme was illegal from the outset (this is currently the subject of another case brought by the liquidators, seeking to declare MTI an illegal Ponzi scheme); two, where the scheme was not illegal from the outset. In the first scenario, three classes of investors are identified:
- The first class are those who invested in the scheme but received no return. These investors will be able to submit a claim equal to the rand value of their investment on the day it was invested (not the date of liquidation, thereby losing any potential capital gain).
- The second class are those who invested in the scheme and received returns, but did not profit from the scheme. These investors will be allowed to submit a claim equal to their ‘impoverishment” or the company’s ‘enrichment’ – whichever is the smaller amount.
- The third group are those who withdrew more than they invested. The court ruled that the liquidators will have a claim against these investors, based on a rand value of their receipts from MTI, less what they invested.
In the event the courts decide MTI was not an illegal scheme from the outset, a different scenario will play out. Those who withdrew less than they invested will become creditors of the company, and can make a claim equal to the rand value of their investment on the day of liquidation. It is then up to the liquidators to pursue these creditors for any withdrawals received.
Investors who withdrew more than they invested will be pursued by the liquidators for the full amount received from the company, including any profits and initial investments.
Once funds have been recovered from investors, creditors will again be allowed to make a claim against the estate of MTI.
Those who defrauded MTI will not have any claim against the company, and the liquidators will be entitled to pursue them for any ‘dispositions’ received from the company.
The applicants in the case were the six joint liquidators – H Bester, AW van Rooyen, CJ Roos, JF Barnard, D Basson, and CBS Cooper. The respondent was the Master of the Cape High Court.
MTI was placed in provision liquidation on 29 December 2020 after investors tried without success to withdraw funds from a scheme that was rated by Coinanalysis as the world’s biggest crypto scam of 2020.
Many – including the liquidators – have said it was a Ponzi scheme, relying on new inflows from unsuspecting clients to pay out older claims. It was also a multi-level marketing scheme that paid out referral bonuses of 10% on any new clients introduced. It didn’t take long for thousands of MTI members to learn to game the system, opening up accounts in the name of their dogs, children and domestic workers so they could claim an additional 10% on their ‘downline’. It was this aspect of the scheme that ultimately caused its undoing, according to filings by the liquidators now before court.
MTI roped in more than a quarter of a million people from all over the world with promises of returns of 10% a month, all generated by a computerised bot. When the Financial Sector Conduct Authority (FSCA) investigated, it found no evidence of a bot, and no evidence of any track record of successful trading – only losses.
A total of 1 218 BTC was recovered from Belize-based broker FXChoice and sold for close to R1.1 billion.
In a supporting affidavit in the most recent Cape High Court case, the liquidators say that 39 139 BTC were deposited with MTI, of which 32 285 were withdrawn, leaving 6 853 BTC unaccounted for (worth R2.3 billion at current prices). These unaccounted for BTC represent a liability to the company, underscoring the claim by the liquidators that liabilities exceed assets – something that has been disputed by some of the bigger MTI winners, particularly Clynton Marks.
The former CEO of MTI, Johann Steynberg, fled SA for Brazil in December 2020 and was arrested in December 2021. He is currently awaiting extradition either to SA or the United States.
Complicating matters is the civil case filed in June this year by the US Commodity Futures Trading Commission (CFTC) against MTI and Steynberg, charging them with fraud and registration violations.
It remains to be seen who gets their hands on Steynberg, as he is believed to be the most likely source of information on the missing Bitcoin.