FBI jumps onto MTI investigation

Written by Ciaran Ryan. Posted in Journalism

MTI’s collapse under suspicion of fraud is attracting heavyweight international law enforcement attention. From Moneyweb.

Image: Richard Sheinwald, Bloomberg News.
Image: Richard Sheinwald, Bloomberg News.

As bitcoin hit R500 000 over the weekend, the scale of the Mirror Trading International (MTI) collapse is growing by the day.

This weekend it was confirmed that the US Federal Bureau of Investigation (FBI) has thrown its weight behind the international investigation into MTI, the bitcoin investment scheme which promised returns as high as 10% a month. The scheme managed to attract a reported 23 000 bitcoin from around the world, most of this coming in the last seven months. This is worth around R11 billion at current bitcoin prices.

According to legal advisor Hendrik van Staden, speaking on a recent webinar with US lawyers on recent developments on the case, the US Federal Bureau of Investigation (FBI) has started monitoring the scheme, which stopped paying out members’ requests for withdrawals in early December, resulting in the Cape High Court placing MTI under provisional liquidation just before Christmas.

This was confirmed by members of the Recovery Action Group (RAG), which was formed in the last few weeks to represent the interests of MTI investors.

“The FBI is obliged to get involved wherever suspected fraud using US dollars is involved,” says Advocate Vaughn Victor, a cyber security and crypto expert involved in investigating financial fraud. “Because of the international nature of this investigation, there will be multiple law enforcement agencies from around the world getting involved.”

Though MTI claimed to have 280 000 members, research by Victor says the actual number was closer to 60 000, with many of these members creating “downline” accounts to beef up the numbers so as to benefit from the 10% commissions paid for introducing new members.

Based on the number of visitors to the RAG website, it is estimated that roughly 46% of MTI members are based outside of SA, with about 23% of these in North America. In financial terms, the largest volume of investments outside of SA are reckoned to have come from the UK and US.

Stuart Fraenkel of US law firm Nelson & Fraenkel says evidence is emerging that the bulk of US investors in MTI are based in California.

In recent months, regulators in Texas and Canada sounded the alarm over MTI’s business practices. The company is accused of making misleading claims about its returns, while the Quebec Financial Market Authority listed MTI as a company that solicits investors illegally. SA’s Financial Sector Conduct Authority (FSCA) also issued a warning about MTI’s business practices.

Fraenkel says information obtained from the Texas State Securities Board, working with the FBI, shows some of the “bad actors” within MTI are based in California and two of them are in bankruptcy. “Authorities here [in the US] will be digging to see where did the bitcoin go, and there will be a claw-back provision.”

The investigation will require cooperation between legal authorities and law enforcement agencies in multiple jurisdictions to help in tracking down the bitcoin shipped by investors to MTI.

The picture is complicated by different national laws which could hamper the task of clawing back missing assets in different parts of the world.

The investigators will have to track down bitcoin from multiple wallets that may be well hidden, and return these assets to the control of MTI. They will then have to be aggregated to see what is left of the estimated 23 000 bitcoin sent by investors to MTI.

The founder and CEO of MTI, Johann Steynberg, reportedly fled to Brazil in early December and went out of communication with management about a week later. This was after the FSCA issued a warning to the public to avoid MTI and its claims of high investment returns. In October, the authority launched a search and seizure raid on MTI’s offices and the homes of executives and in December issued a report blowing holes in MTI’s claims of being a successful bitcoin trading company. The scheme started to unravel shortly afterwards.

MTI plans countersuit after FSCA raid on offices and homes of execs (28 Oct 2020)
FSCA opens criminal case against MTI, says investigation ‘nearly complete’ (17 Dec 2020)

Liquidators are likely to be appointed within the next couple of days and can then start the legal process to freeze MTI’s assets. They will then seek the cooperation of authorities around the world to block the transfer of bitcoin belonging to investors. The MTI server is reportedly based in India, which has severe penalties for those engaged in financial crimes.

Victor says bitcoin “wallets” known to be under the control of MTI and those associated with it are being monitored and tracked to prevent assets being transferred to third parties. Members are being asked to nominate their preferred liquidators by signing on here or here.

Once the liquidators are appointed, they will ask the court for extended powers to assist in the tracking and recovery of assets internationally. They are also likely to convene a Section 417/418 inquiry under the Companies Act to interrogate MTI executives and leaders who profited from the scheme to assist in tracking down the assets.

It appears MTI had only one director, Steynberg, who was responsible for the day-to-day running of the company and the issue of payments. This in itself appears to be a violation of the Companies Act, given the apparent absence of a board and the various governance committees required for a company of this size.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.