SA Revenue Services (Sars) wants the Cape High Court to admit its own nominated liquidator to oversee the winding up of failed bitcoin scheme Mirror Trading International (MTI), which collapsed in 2020 when founder and CEO Johann Steynberg fled to Brazil.
Steynberg was arrested a year later in Brazil. He remains in custody, as South African authorities are seeking his extradition to SA. The US is reportedly also keen to get their hands on him, and the bitcoin (BTC) he is presumed to control, as several thousand American citizens were roped into the scheme.
This is the latest twist in a tangled story that looks increasingly bleak for the more than 200 000 investors who pumped more than 29 000 BTC into a scheme that promised returns of 10% a month. Those returns were supposedly based on an implausibly successful computerised trading bot, that was claimed to have lost in only one of 200 days. When the Financial Sector Conduct Authority (FSCA) investigated, it found no evidence of any bot, or any successful trading at all.
All it found were massive losses.
Sars has applied to be admitted as an intervening party in a case brought by one of the big winners in MTI, Clynton Marks, and one of the net losers, Henry Honiball, seeking to have the six co-liquidators removed on the grounds that they acted improperly and in bad faith in admitting the creditor claim of JNX Online, a company previously controlled by MTI founder Johann Steynberg. They also claim the liquidators did not act diligently in respect of MTI’s tax obligations, which prejudiced MTI and its creditors.
Sars previously admitted a claim of R931 million against MTI, making it the largest creditor.
It says the only two claims that have been admitted by the liquidators are those of Sars and JNX Online, though this appears to be an error by Sars, as thousands of claims have been admitted. However, Sars is top of the food chain and should it succeed in its claim, there may be nothing left for the more than 200 000 creditors hoping for a return of roughly R11 billion in bitcoin they pumped into the scheme.
Hilton Hope of Sars’ criminal and illicit economic activities divisions, has asked the Cape High Court to admit Sars as an intervening party, claiming it has a direct and substantial interest in the matter and to clarify statements made by both the liquidators and applicants that implicate the tax agency.
Hope wants the court to allow Sars to appoint a co-liquidator, who would then be in a position to assess where many of the side-shows involved in the winding up – notably the Section 417 and 418 enquiries in terms of the Companies Act – are in any way beneficial to creditors.
“It appears that no less than 7 commissioners have been appointed to investigate the affairs of MTI and many witnesses have so far testified and that the record runs into many thousands of pages. The legal costs must now be very substantial. The continuation of the unrestricted enquiry proceedings simply erodes the free residue which might otherwise accrue to Sars,” deposes Hope.
Sars is also concerned at the blizzard of court cases that bedevil the winding up process.
The MTI liquidators have brought another case before the court seeking an order declaring it a Ponzi scheme, in which case any winnings must be returned by the beneficiaries.
This case has been “mired with applications and counter-applications leading to an almost exponential increase in the papers before the court,” says Hope in his affidavit before the court. “This has doubtless led to the incurrence of substantial legal costs.”
It is also concerned at agreement made by the liquidators to pay a dividend to the “net losers” in MTI, and argues that the application by Marks and Honiball to remove the liquidators is premature, as is the challenge by the liquidators against the tax assessment of R931 million by Sars. That challenge will have to be decided in the appropriate forum. The Tax Administration Act sets out the procedure to be followed in the event of a tax dispute.
MTI is deemed a provisional taxpayer and failed to submit tax returns for 2020 and 2021.
Sars also claims Marks, as a director of MTI (he wasn’t, though he was a 50% shareholder), was liable to ensure MTI’s tax affairs were in order.
Where no tax returns are submitted, Sars is obliged to make an assessment based on the information to hand. It only received information from the liquidators in March 2022, and the issues involved were complex. Sars was obliged to act quickly to submit and prove its claim, given the possibility of some creditors being paid a dividend before its claim was admitted.
Marks and Honiball argued in their case that the imposition of an understatement penalty in its MTI tax assessment was the fault of the liquidators, something Sars rejects. The directors and controllers of MTI at the relevant times had a responsibility to ensure the company’s tax affairs were in order, according to Sars’ affidavit.
This is tough news for the hundreds of thousands of investors in MTI who were hoping to see some of their funds returned to them.
Should Sars succeed in its application, it will attempt to cut through the skein of court cases currently underway, bring an end to the mounting legal costs, and grab the majority of the roughly R1.1 billion recovered by the liquidators for itself.
Listen: Sean Newman, who’s writing a new book on MTI, shares some insights into its murky world