Mirror Trading International (MTI) says it is preparing a countersuit after a raid at several locations on Monday by the Financial Sector Conduct Authority (FSCA).
The FSCA arrived with search and seizure warrants at MTI’s offices in Stellenbosch and Polokwane, as well as the Durban homes of two MTI executives. The warrants were issued in terms of the Financial Sector Regulation Act.
Responding to the raids, MTI’s marketing head Cheri Marks says the company’s lawyers are preparing to approach the courts to have the warrants set aside, and to claim damages from the FSCA.
She claims FSCA divisional executive for investigations and enforcement Brandon Topham is on a personal vendetta against MTI – something Topham denies.
“We are fully compliant with all laws,” says Marks.
“In August this year our senior executives had a meeting with the FSCA at their offices where they requested certain documents – which we provided. Also at that meeting we demonstrated our live trades and provided proof of our bitcoin balance.
“We are 100% convinced this was a fishing expedition and that the application brought by the FSCA was illegal in the application, the merit and the execution.”
Topham issued the following statement to Moneyweb:
“On 26 October 2020 the FSCA executed three search and seizure warrants, which were issued by three separate high courts in Limpopo, KwaZulu-Natal and the Western Cape, on application by the FSCA, at the home of the chief executive officer of MTI, Mr Johan Steynberg, the home of the marketing director of MTI, Mrs Cheri Marks, and the MTI offices in Stellenbosch.
“The evidence gathered during the search and seizure operations will be used in the ongoing investigation into the activities of MTI.
“The warrants executed were not Anton Pillar orders [a form of civil search warrant] but were issued in terms of the Financial Sector Regulation Act, which allows us to obtain warrants to conduct search and seizure of information relating to a financial sector contravention.
“We do not conduct criminal investigations and our investigations are in terms of the Financial Sector Regulations Act, which is aimed at protecting the South African investing public and to ensure that a secure financial sector exists. Our investigations may lead to referrals of evidence to other authorities or to the SAPS [South African Police Service].
“Our next step is to examine the evidence and compare it with other information obtained. On conclusion we will make decisions involving whether we should take administrative steps against any person and or refer the evidence obtained to other bodies.”
MTI’s switch to bitcoin
MTI says it ceased forex trading several months ago to ensure it remained compliant with local regulations, and switched to bitcoin trading, using an automated trading algorithm. It is now using an offshore unregulated broker to prevent its trading activities from being shut down and its accounts frozen, says Marks.
In August, the FSCA announced it was investigating MTI and recommended that clients ask for their funds to be returned.
Marks earlier told Moneyweb that it has 170 000 members worldwide, with roughly 17 000 bitcoin that it trades on their behalf.
That’s worth more than R4 billion at current bitcoin prices.
In a Youtube webinar this week, MTI claimed 198 000 members.
On Tuesday, Marks said the number of members has now grown to more than 200 000.
She adds: “If Topham says they saw [MTI’s] live trades and bitcoin balances, why did they lie about that in the high court application and why was it omitted from the statement they put on their website?
“We understand that cryptos need to be regulated and we support that,” says Marks. “We provide daily trading stats so members can verify our trading performance. Over and above this we offer limited live trading views each week. We have been as transparent and open as possible, in fact even more so than others operating in this space.”
The FSCA says MTI has told it that it is taking clients’ funds in the form of bitcoin, which are then pooled in a single trading account on a forex platform. These funds are then traded using an automated high-frequency algorithm.
Marks told Moneyweb that the returns posted on Monday averaged 1.5% for the day.
Topham refutes allegations that the FSCA lied to the courts in pursuit of its investigations into MTI.
‘Contradictory information’ received
“We also place on record that demonstrations have been made to us with the view to convince us that live trading was taking place and that bitcoin balances existed,” says Topham.
“We can only say at this stage that we have not been able to independently confirm the accuracy of this demonstration and contradictory information has also been received.
“Obtaining independent evidence to support certain statements made to us (including existence of the trading and balance of investor funds) is part of the reason why we needed to request the court to allow us to gather further evidence.
“MTI previously indicated that they were trading in foreign exchange and that they now trade in crypto assets. We wish to point out that both these trading operations were and are implemented by means of derivative financial instruments. The FSCA has jurisdiction over all derivative instruments regardless of what asset or commodity forms the basis for the trades. We thus reject the statement that we do not have jurisdiction to investigate the matter.
“Our investigation will continue without fear, favour or prejudice and we are not threatened or deterred by unfounded defamatory remarks,” says Topham.
“Our earlier warning remains in place where we advised the public to exercise extreme care when ‘investing’ with any person or organisation not properly registered as Financial Service Providers or in terms of a properly executed prospectus registered with the CIPC [Companies and Intellectual Property Commission] or registered as a financial institution with the Prudential Authority.”
In an MTI webinar released earlier this week, it was claimed that the FSCA is paid by the banks and is doing their bidding in an effort to halt the outflow of funds into crypto from the banking system.
Says Marks: “We have said it all along: we believe we do not fall within the ambit of the SA regulations that the FSCA says we do, and we will be challenging this in court. We will also be seeking damages.”