The Financial Sector Conduct Authority (FSCA) last week agreed to waive an administrative penalty of R50 million it threatened to impose in 2021 on Mirror Trading International (MTI), which was rated by Chainalysis as the world’s largest crypto scam in 2020.
The imposition of a penalty was threatened, but never implemented.
MTI was placed in liquidation in December 2020 after the company failed to honour requests for withdrawals by some of the 200 000-plus members. CEO Johann Steynberg stopped answering calls and disappeared to Brazil, where he was arrested late last year.
An estimated 29 000 Bitcoin, worth more than R18 billion at current prices, are reckoned to have been channelled through the scheme.
Last week’s consent order was issued by the Financial Services Tribunal. Commenting on the decision to waive the penalty, FSCA head of enforcement Brandon Topham says the FSCA did not oppose the liquidators’ request that the penalty be set aside.
“We recognised that the administrative penalty, which was imposed on MTI rather than the individuals running it, would reduce the payout to members, so we saw no reason to continue pursuing recovery of this amount.
“However, we reserve the right to impose administrative penalties on the individuals involved in the running of MTI at some point in the future, if the situation merits it.”
MTI became an international phenomenon by promising returns up to 10% a month, first by supposedly trading forex through a computerised trading bot, and later by trading Bitcoin (BTC). Generous commissions were paid for introducing new members, who were required to deposit funds into the scheme using BTC.
When the FSCA investigated the scheme, it found no evidence of any successful trading.
The original reasons given by the FSCA for its intention to impose an administrative penalty was that MTI, Johan Steynberg, and Cheri and Clynton Marks were conducting unregistered financial services business in contravention of the Financial Advisory and Intermediary Services Act, which is a criminal offence.
Lawyers for Cheri and Clynton Marks challenged the FSCA, arguing that any admin penalty imposed on them would be invalid because the cryptocurrency used by MTI was traded outside the borders of South Africa, where the FSCA has no jurisdiction, and that cryptos remain unregulated in SA.
Topham previously told Moneyweb that the FSCA had jurisdiction over MTI because it was involved in trading forex derivatives, even though members were required to deposit funds in BTC. Any company involved in derivatives trading must be licensed by the FSCA.