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He invested R20 000 and months later, hearing that MTI may be an unlawful scheme, asked for his money back. Now liquidators are demanding he pay them back the bitcoin he invested – but at today’s price of R97 000. From Moneyweb.

The Insolvency Act was crafted to allow liquidators to recover property that typically depreciates in value – not for the kind of exponential growth bitcoin has seen. Image: Chris Ratcliffe/Bloomberg

Mirror Trading International (MTI) investor Ben Janse van Vuuren thought he’d dodged a bullet in October 2020 when, on hearing that it might be an unlawful scheme, he asked for his money back.

He invested R20 000 in the scheme in July 2020 and when he asked for his money back, he was duly paid out close to R21 000 in October 2020 – just months before MTI came crashing down and its CEO Johann Steynberg absconded to Brazil, where he is now in jail awaiting extradition back to SA for fraud.

Janse van Vuuren was one of the lucky ones who managed to get their money out before MTI was placed in liquidation later that year. Tens of thousands of other investors were not so lucky and are now waiting to hear if they will receive anything back from what was rated by Chainalysis as the world’s largest crypto scam of 2020.

But it seems Janse van Vuuren may not have dodged a bullet after all. This month he received a letter from one of the MTI liquidators demanding that he pay back the full value of the bitcoin he invested in 2020 – but at today’s value of R97 000.

Moneyweb asked the MTI liquidators to explain what was going on here, and received a lengthy exposition of the legal principles involved, specifically sections 26 and 32 of the Insolvency Act.

“If an investor received more bitcoin than what he has invested, the amount of bitcoin exceeding his initial investment constitutes a claim in the hands of the liquidators on the basis as provided for in Section 26 of the Insolvency Act, read with Section 32 of the Insolvency Act, being a so-called ‘disposition without value’,” say the liquidators.

Legislation aims to ‘restore fairness’

They go on to explain that an investor withdrawing even a portion of their initial investment six months before the liquidation of MTI is liable to repay the bitcoin “irrespective of whether same constitutes only the initial bitcoin invested or also fictitious profits”.

“The effect of Section 29 of the Insolvency Act, is often viewed by innocent investors as extremely harsh and unreasonable,” say the liquidators.

“However, it is important to keep in mind that the reason why these claims were created in the Insolvency Act, is based on fairness by restoring equity amongst the investors who lost their capital invested in MTI and did not withdraw their capital in the last six months before MTI’s liquidation and those investors who fortunately made a withdrawal within six months before liquidation.

“Whilst the investor who is required to return what he received, will obviously view this remedy as extremely unfair, the investor who made no withdrawal and lost everything, will most definitely agree that it is only fair that the withdrawals within six months should be returned, to be shared on a pro rata basis amongst all investors who lost their initial investments.

“This is precisely what Section 29 of the Insolvency Act aims to achieve.”

Unlawful

The Western Cape High Court last year declared MTI an unlawful Ponzi scheme that was using funds from new investors to pay out older ones.

The scheme roped in more than 100 000 investors and close to 30 000 bitcoin from investors in some 140 countries with promises of earning up to 10% a month using an computerised trading system that was later discovered not to exist. Members were incentivised through various bonus schemes to introduce new investors.

Read: Nearly 90% of MTI’s 304 000 ‘members’ were slave accounts

The high court order from Acting Judge Alma de Wet ruled that any agreements between MTI and its members were void ab initio (void from the outset).

MTI says any investor required to return capital in terms of Section 29 of the Insolvency Act is entitled to put in a claim for any capital loss suffered.

The claimant then shares pro rata in the available funds in the insolvent estate, along with other net losers.

For example, if an investor invested one bitcoin and, within six months before the liquidation of MTI, withdrew 1.5 bitcoin (their initial investment plus the fictitious profit), the liquidators will have a claim against that investor for the return of the full 1.5 bitcoin, or its current value. The investor at this point is entitled to prove a claim against the insolvent estate for the loss of his initial one bitcoin investment.

If bitcoin was an actual coin …

Where the bitcoin has been paid out to the investor and is no longer available as bitcoin, the liquidators are able to claim the monetary value at the time it was withdrawn or its value at the date the court orders the return of the property, whichever amount is the highest.

Section 32 of the Insolvency Act was crafted to allow liquidators to recover property that typically depreciates in value over time, and not for the kind of exponential growth in an asset like bitcoin.

In July 2020, when Janse van Vuuren first invested in MTI, bitcoin was trading on South African exchanges at around R160 000. This week it traded at around R800 000.

MTI liquidators acknowledge that demands to pay back the monetary value of bitcoin withdrawn is seen by many as unfair.

“However, one should consider this scenario in the appropriate context.

“If for example an investor withdrew the bitcoin and retained it, he now simply has to return the bitcoin which he withdrew,” say the liquidators.

“He will therefore then not be affected by the fluctuation in the value of the bitcoin. The problem obviously arises where investors sold their bitcoin and now have to either buy bitcoin at its current higher price to return to the liquidators, alternatively pay the current value of bitcoin to the liquidators.”

It’s also important to bear in mind that investors in MTI were obliged to deposit and withdrawn funds in bitcoin only.

About the claimable portion …

In Janse van Vuuren’s case – and many others like him who withdrew bitcoin within six months of MTI’s liquidation – he will have to pay back the roughly 0.13 bitcoin he was paid out in October 2020 and will be entitled to lodge a claim for the value of 0.12 bitcoin (being the amount he invested) at the time he made the investment.

In other words, he can only claim R20 000, not the current value of the bitcoin of R97 000.

This would be a concurrent claim against the MTI estate, meaning his claim will be pooled with all other successful claims and paid out pro rata based on the funds available for distribution.

“I understand their actions, but it definitely does not make sense to pay back R97 000 but [I can] only claim back R20 000. [This] seems unreasonable and unfair,” responds Janse van Vuuren.