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FSCA cracks down on Bitcoin after alleged Ponzi scheme

The authority is making proposals to regulate trading in cryptocurrencies.
Image: Chris Ratcliffe/Bloomberg

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, alleged to be the country’s largest Ponzi scheme.

The Financial Sector Conduct Authority 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.

The FSCA has handed details of its probe into the failure of Mirror Trading International to a top police unit after uncovering alleged fraud.

“At the point something becomes a Ponzi scheme, we have lost our jurisdiction,” he said. “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 from around the world and 23 000 Bitcoin now worth about $740 million — was placed in provisional liquidation last month after clients battled to withdraw funds. A surge in the price of the world’s best-known digital token has been accompanied by convictions abroad in scams tied to digital platforms and speculation that authorities globally will seek tighter controls.

Read:
FSCA investigating Mirror Trading International (Aug 19)
MTI placed in provisional liquidation and damage could be huge (Dec 29)
MTI: Provisional liquidators appointed (Jan 13)
MTI profiteers could be asked to pay back the money (Jan 19)

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

On December 22, MTI’s management said in a letter posted on Telegram that they were misled and that the company’s Chief Executive Officer Johann Steynberg may have fled to Brazil. In July, the Texas State Securities Board issued a cease-and-desist order against the company.

While the FSCA hasn’t received formal requests to assist law-enforcement agencies abroad, it is expecting queries, Topham said.

‘Live trades’
The FSCA investigations hadn’t concluded MTI to be a Ponzi scheme and the regulator only noted it was trading without a licence, Clynton and Cheri Marks, who joined the firm in August as head of the referral program and head of communications respectively, said in an email sent by their lawyer, Henry Selzer.

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

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.

The couple denied any negligence and also said there is “no connection whatsoever” between MTI and another failed cryptocurrency firm, BTC Global, other than that they were members of both companies. Regulators and liquidators were unable to supply contact details for Steynberg.

‘Get in quick’
“It’s going to take a serious investigation to ascertain how much was involved,” Topham said. The FSCA is also looking into what transpired at two other firms believed to have a relationship with MTI, he said.

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.

Another alleged South African Ponzi scheme in 2009 snared about 800 investors across eight countries, including Qatar’s Barwa Real Estate Co. Barry Tannenbaum, who was accused of running the alleged R12.5 billion scam, moved to Australia and at the time said that some of the allegations against him are “drivel.”

“I have been on radio shows where people say, ‘I am a professional Ponzi investor. You get in quick and get out and like with any business you have to risk money to make money,’” Topham said. “We need to make an example of MTI so that people understand that investing in a Ponzi is never a good idea.”

Listen: FSCA’s Brandon Topham and VALR’s Farzam Ehsani on the speed with which bitcoin and forex scams have ripped through SA and the MTI scandal’s impact on SA’s crypto market

© 2021 Bloomberg

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Long overdue.
A Ponzi scheme should be made illegal by law and a harsh sentence imposed plus all profit collected.
Plus the seizure of all property.

How many people continue to lose money since 2002 since the collapse of Krion?

No law can protect people against their own stupidity. No law can prevent people to act out of stupid greed. Ponzi-schemes are illegal already, but sadly, stupidity is still legal.

Headline misleading, they are cracking down on traders of crypto, not the crypto’s themselves.

Well all I can say is good luck trying to regulate the blockchain, I could be wrong but as far as I understand it would be nearly impossible to do something like that. If it was easy the US authorities would long ago have regulated it.

Cryptocurrencies are regulated as commodities in the US. It is taxable and crypto exchanges and traders are regulated as financial service providers. This is what is happening in SA also. Cryptocurrencies are regulated as financial products in SA and FSPs that provide a crypto service have to be regulated as such. This implies that all the Fica, anti-money laundering, Know-your-client, and tax protocols are enforced. Anonymity has disappeared from crypto trading.

So, they do not regulate the blockchain, and they don’t have to. They simply regulate the entry and exit points into, and out of cryptocurrencies. Under a regime of Fiat currencies, there is nowhere to hide.

This may be the most interesting development of the decade, a type of crowdfunding of a pinpoint attack on on entity that thinks it is The Law, or actually is above the law. Monty Python stuff. May just be that gold and silver is the next target–taht will be nice. How will Cantillion beneficiaries regulate this…..ban small traders? Close social groups? Close reddit subgroup, they will move en masse to signal telegram or even darker. Alt view; is this reddit group the start of the demise of wallstr/jse as we know it? All the laws and regulations to protect the soroses, Buffets, central banks bypassed “from the left field” Bitcoin looks like a safe haven compared to the uncertainty , fear in the hedge fund groups.

” There is no connection whatsoever between MTI and BTC Global other than they were members of both companies ” Surely that’s the only connection you need. The Marks’ must believe that they are untouchable. Lets hope that the authorities use people who know how to investigate and prosecute properly.

A ponzi scheme is already illegal in terms of common law fraud being illegal. That Bitcoin is involved is pedestrian

There’s ponzi schemes with normal cash as well…

You can’t protect people from themselves. They’d need to understand why it’s a ponzi and why the person promising you 10% per month is as bad as a drug dealer. Rather include it in those annual visits from ex-convicts sent to school to help people understand how the real world works.

You are aware that you can invest with multiple hedge funds today that will easily give you a return of 60-100%/ annum.

While its true 99.9% of services attached to Bitcoin is complete garbage scam, the0.1% are excellent services easily delivery 100+%/ annum,

So the only lesson we will be learning in school in 20-30 years time is that that financial advisor “saying your “wrintiewaar spaar rekening” return of 8% per year is the most you will get” – should belong to the museum poor stupidity.

The best traders and hedge fund managers on the globe have an average annual compound return of 25% to 30%. The trader that has the ability to get an average compound return of 20% per year is in control of a money-printing machine. Chasing annual average returns of more than 30% does not justify the risks. Returns of 80% per year are certainly possible, and it does happen, but the unavoidable losses will bring the returns back to the average. Novices focus on returns while professionals focus on risk management.

Yip, Purple, you should be stating “60-100% per ONE Annum, every so often” otherwise you’re dealing with Bernie Madoff, and we know which luxury suite he is living in for being such a great ROI Wizard!

Just for the record: A Ponzi scheme is defined as: “a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.” – Oxford languages.
“a classic Ponzi scheme built on treachery and lies”

This is tantamount to a pyramid scheme.

Crypto currency or the investment in them doesn’t get close. Please recognise the difference.

End of comments.

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