Regulator cracks down on Bitcoin over alleged Ponzi scheme in South Africa

*The South African regulator, Financial Sector Conduct Authority, seeks more power to prosecute allegations of fraud involving Mirror Trading International Limited said to have 260,000 members

Alexander Davis | ConsumerConnect

For allegedly trading without a licence, South Africa’s finance industry regulator wants more power to prosecute perpetrators of fraud and oversee dealing in cryptocurrencies after the collapse of a Bitcoin trader, supposed to be the country’s largest Ponzi scheme.

The Financial Sector Conduct Authority (FSCA) is making proposals to regulate trading in cryptocurrencies, such as Ethereum, XRP and Litecoin, the watchdog’s head of enforcement, Brandon Topham, said by phone, Bloomberg report said.

The FSCA has handed details of its probe into the failure of Mirror Trading International (MTI) Limited to a top police unit after uncovering suspected fraud.

Topham said: “At the point something becomes a Ponzi scheme, we have lost our jurisdiction.

“We need the police and the prosecuting authority to work fast and put people in jail.”

MTI, which in November claimed it had 260,000 members and 23,000 Bitcoin now worth about $740 million, was placed in provisional liquidation last month after clients battled to withdraw funds.

The firm’s management in a letter posted on Telegram December 22, 2020, said that they were misled and that the company’s Chief Executive Officer Johann Steynberg may have fled to Brazil.

As liquidators want more power to probe South African Bitcoin trader, four temporary overseers must now begin tracing MTI’s investors to recover the firm’s assets, including money allegedly paid to some early players that runs into millions of Rands, report stated.

The FSCA investigation found that the company kept neither accounting records nor a comprehensive register of participants, apart from 170,000 unique e-mail addresses found during an October raid.

It was gathered the FSCA investigations hadn’t concluded MTI to be a Ponzi scheme and the regulator only noted it was trading without a license, Clynton and Cheri Marks, who joined the firm in August as head of the referral programme and head of communications respectively, said in an e-mail sent by their lawyer, Henry Selzer.

They said: “MTI set out to see what requirements are necessary to obtain a licence.

“When it became apparent that such a license would be impossible to obtain, Johann Steynberg moved MTI to crypto-trading for which apparently no licence was required. The live trades were demonstrated to the FSCA during 2020 and MTI cooperated with every request from the FSCA.”

A quadrupling in the price of the world’s best-known digital token toward the end of last year has been accompanied by convictions abroad in scams tied to digital platforms and speculation that authorities globally will seek tighter controls.

While the Marks have had no contact with Steynberg, or knowledge of his whereabouts since the matter came to light, they are sure he “will repay to members their Bitcoin investments as that is the character of the Johann Steynberg they came to know,” their lawyer said.

Topham added: “It’s going to take a serious investigation to ascertain how much was involved.”

The FSCA is also looking into what transpired at two other firms believed to have a relationship with MTI, said he.

Investors are drawn into potential scams because of South Africa’s persistently sluggish economic growth and greed, Topham said.

The testimonials of sport-stars or other prominent figures are also a lure, according to report.