The US Commodity Futures Trading Commission (CFTC) filed a civil action against Mirror Trading International (MTI) and its former CEO Johann Steynberg on Thursday, charging them with fraud and registration violations.
The charge sheet says Steynberg “created and operated, through MTI, a global foreign currency commodity pool that only accepted Bitcoin to purchase a participation in the pool, with a value of over $1,733,838,372. This action is the largest fraudulent scheme involving Bitcoin charged in any CFTC case.”
MTI was rated the world’s biggest crypto scam of 2020, according to 2021 Crypto Crime Report by Chainalysis. MTI was placed in liquidation in December 2020 when investors were unable to withdraw funds from the scheme. Steynberg fled to Brazil around the same time, and was arrested late last year by police in that country. He is currently fighting extradition to SA.
The CFTC says it is seeking full restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act and CFTC Regulations.
“The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because the wrongdoers may not have sufficient funds or assets,” the commission warns in a statement.
An interesting feature of the complaint is that both Steynberg and MTI are cited as respondents, which means the liquidators of MTI as trustees will have to respond to the case, opening up a new front in their long-running legal battles to recover missing Bitcoin.
It has been speculated that this may also be a prelude to criminal charges being filed against Steynberg in the US, in which case a request for his extradition to the US may be forthcoming.
This would pose an interesting two-way tussle between SA and the US for Steynberg.
Court filings before the Western Texas District Court, where the case has been filed, say Steynberg and MTI accepted at least 29 421 Bitcoin with a value of more than $1.7 billion (R28 billion).
Steynberg and MTI “misappropriated, either directly or indirectly, all of the Bitcoin they accepted from pool participants.”
Of the more than 200 000 MTI investors worldwide who participated in the scheme, which was offering bogus returns of 10% a month, 23 000 were US investors. Of these 23 000, 1 341 are known to reside in Texas.
The US complaint says Steynberg made fraudulent misrepresentations, claiming a trading bot was achieving 10% profits a month, and that these funds were being traded in a pooled account, first at the Belize-based broker FX Choice, and later at the fictitious entity Trade300. MTI also claimed that barring one day, it had never had a losing trading day.
“In the only pooled account defendants held, at FX Choice, a broker located in Belize, and which they falsely claimed was trading profitably, (Steynberg and MTI) only deposited 1 846 Bitcoin and lost 566.6 Bitcoin trading unprofitably. Defendants never traded profitably, never earned any profits trading, and misappropriated essentially all of the at least 29 421 Bitcoin they accepted from participants,” reads the complaint.
MTI liquidators subsequently recovered 1 281 Bitcoin from FX Choice and sold this for the equivalent of R1.1 billion.
The US complaint details how MTI used multi-level marketing to expand its membership pool, paying bonuses for the introduction of new members. These bonuses were claimed to come from trading profits, but there is no evidence of any trading profits, giving rise to claims it was nothing but a Ponzi scheme, paying out older members from Bitcoin introduced by newer members.
The liquidators brought a case in the Western Cape High Court to have MTI declared a Ponzi scheme, in which case all disbursements from the scheme would have to be repaid. The court has yet to issue its decision in that case.
Steynberg and MTI deposited only 1 846.72 of participants’ 29 421 Bitcoin into the FXChoice Pool account, says the complaint. “Defendants never deposited the remaining 27 574 Bitcoin into the FXChoice Pool account or any account at Trade300, and failed to use those funds for any trading on behalf of participants. Instead, Steynberg, individually and as the agent of MTI, misappropriated participants’ Bitcoin for his personal use.”
Another interesting feature of the US case is that it was assisted by the Financial Sector Conduct Authority in SA, the Financial Services Commission of Belize, the Finnish Financial Supervisory Authority, and financial regulators in Texas, Alabama, North Carolina, Mississippi and the Federal Bureau of Investigation in the southern district of New York.