NOMPU SIZIBA: The story we’re set to look at now reads like an Mzansi or Hollywood movie, but sadly it’s a reality. In a nutshell, the CEO of one Bitcoin trading company, Mirror Trading International, or MTI, Johann Steynberg, has not been seen since December 3 this year. Interestingly, this gentlemen has gone Awol following the Financial Sector Conduct Authority warning investors to sell out of their investments with this particular outfit a few months back. Sadly, it seems like the number of investments at MTI actually rose thereafter. An MTI company statement released yesterday says that – and this is a very important clause – “As far as we know, Johann is in Brazil.” It then goes on to share that the CEO, Johann Steynberg, has not been forthcoming with MTI management leaders and clients about the goings-on with Bitcoin investments, and that ultimately – and this is the real kicker – they, as management, do not know whether their Bitcoin investments are safe. Thousands of investors are currently stranded.
Well, to fill us in on the detail, I’m joined by my colleague, Ciaran Ryan. He’s a Moneyweb journalist. Thanks very much for joining us, Ciaran. It’s very difficult to summarise what’s a complex story, which is basically the story you’ve been covering, but please do expand and give the listeners context around the circumstances of this story.
CIARAN RYAN: All right. This company, Mirror Trading International, grew out of South Africa headed by Johann Steynberg, who has been involved in some other very interesting business concepts before. So going back four years, he started up Mirror Trading International, where he was offering people what they called “algorithmic trading”. You can basically invest, but you have to invest in Bitcoin. I’ll come to that in a minute, because that’s quite important. You don’t invest in cash, you invest in Bitcoin. They would be using this algorithmic or this computer trading system and they would be generating up to 10% per month – so they were saying.
Now, when I first started looking at this several months ago, they had 80 000 members and the group had grown internationally. So people as far afield as Iraq, Netherlands, United States, South America, all over the place, had joined in. What was very successful about it was it had a “referral marketing” system. So, if I’m a member and I introduce you, I earn commission on anything that they make on you, going forward, and you bring in people.
NOMPU SIZIBA: So clearly people were getting those returns?
CIARAN RYAN: On paper they were getting those returns. I’m not sure – members would send me these reports, the statements which purport to show “look how big my account has grown”. But they could be shadow accounts – and that’s what the Financial Sector Conduct Authority [FCSA] says they are. They are not actually real.
So people thought that they were doing very well. They were introducing new members. I even had a call yesterday from somebody whom I know quite well, and he said to me, “Yes, I invested in this.” And this was after I had spoken to him about this, about crypto generally, that there are ways to do it correctly and there are ways not to.
NOMPU SIZIBA: On that subject, tell us the mechanism of owning a Bitcoin. How does it work, normally, and how did it differ in the case of Mirror Trading International?
CIARAN RYAN: Right. If you want to buy Bitcoin – and it’s not a bad thing to do, because it’s been a fabulous investment this year, it’s gone up 200% this year – what you would do is you go to a recognised exchange, like a Luno or VALR or AltCoin Trader or Ice3X. There are many of them in this. The big ones are Luno, VALR and AltCoin Trader. Those are the big three. Then you would deposit money with them, and you would buy Bitcoin. Now that Bitcoin that you buy on those exchanges sits in a “wallet”, which you control. They call it a wallet. You control that.
What was happening with Mirror Trading and MTI is that you had to go to a Luno or a VALR or an AltCoin Trader, and then you had to send that Bitcoin, ship it, and it goes electronically to Mirror Trading. So you’ve now sent it out of your control. It’s not in your wallet any more, it belongs to somebody else – or, it doesn’t belong but it’s in somebody else’s control.
That’s the thing about Bitcoin. There is no intermediary, there’s no ombud you can go to and say, “Hey, can I get my money back?” There’s no bank that you can go and say, “This debit card, I didn’t authorise this”. It all sits on the blockchain. There is a very, very detailed ledger. Every transaction is recorded, but the problem is, once you’ve sent it, you’ve sent it, and it’s out of your control.
NOMPU SIZIBA: Do we understand why Mirror Trading International became an even more attractive investment prospect for Bitcoin investors after the FSCA warned people not to go there?
CIARAN RYAN: My theory – and it is my theory only – is that there are two reasons for that. One is that they control their own channels of communication very well. So they would have Zoom calls, they would communicate on Telegram and various other means with their members. They said, “Don’t listen to what you’re reading in the press – the FCSA and the banks are out to get us.” So they created this. And a lot of the spirit in which Bitcoin was born comes out of that. The banks and the financial crisis of 2008 – the whole blockchain was a response to that.
It was like, okay, what is the problem with the financial system? Well, you’ve got this unlimited issuance of money which devalues and creates inflation. So what we’re going to do [with] Bitcoin is there will only ever be 21 million of them in issue. This explains in part why it’s rising so much at the moment. So the one reason was that they control their own channels of communication.
As to Covid, people are frightened and people have lost income, and they don’t know what to do. [People] said, “Well, my uncle’s in it, my dad’s in it. I think I’m going to join. He gives it a good word.” So that’s what happened.
NOMPU SIZIBA: So it would seem, according to the MTI company statement yesterday, that Mr Steynberg is a bit of a Lone Ranger, and has exclusive knowledge of what goes on with the Bitcoin investments. Do you suspect that with all those Bitcoin, under whatever alias he’s created, he’s done a runner forever?
CIARAN RYAN: That would seem to be a very strong possibility. There are all sorts of rumours, so it’s very hard to know. The information flow on this is just coming thick and fast. There was a message coming out of MTI yesterday that the local management now had control of the server. They’ve been able to get onto the platform, which is the backroom engine which runs this thing, and they’ve been able to verify the balance. Now, what that means I’m not quite sure. But what they’re saying is they don’t know that the Bitcoin is there. That’s the thing.
Now, when the FSCA did their search-and-seizure raid, which they did in October, they were able to find some of the Bitcoin. They exist in multiple different wallets, but they were not able to find all of them. So we don’t know. That’s the short answer.
NOMPU SIZIBA: So with Bitcoin, you’ve just mentioned it, it’s now flirting with the $24 000/piece level. As a collective, what’s at stake for those who are invested with MTI, and is there any recourse for investors, especially those who joined after being specifically warned not to go to MTI?
CIARAN RYAN: Well, I’ll tell you what happened today. There are two applications before the Cape High Court for the liquidation of MTI, the sole director being Johann Steynberg. And those two applications come from individuals who are members, who invested. The one invested R150 000. He’s been trying since the beginning of December to get it out. They would normally process this within two days, but they have to date not given him back the money that he invested. So he’s saying they are now factually and commercially insolvent, and he wants the court to make an urgent ruling that the company should be liquidated. If that happens, then liquidators are going to move in. They’re going to take control of the company, whatever assets they have. They’re going to get control of the computer systems and presumably they’re going to try and track down the thing.
Now, this is another point about Bitcoin. If I send you Bitcoin, you can actually copy that onto a flash drive and you can disappear. Nobody would ever know. The only time that Bitcoin would become visible again is when you want to sell it on one of these exchanges, like I mentioned on Luno. If you have an account with Luno, and you want to sell it for rand, you would then put it on Luno and it becomes visible again, and there are places and people who will accept payments. It’s peer-to-peer, or P2P. You send it back to him, or you send it to somebody else. They would never know.
NOMPU SIZIBA: You talk about the liquidators coming in. But of course, like you say, yes, they can sell a computer there. You know, if the guys own the property that they actually operate in, they can sell that, but it’s not going to compare to the value that people have already invested in.
CIARAN RYAN: Look, in October, when I spoke to MTI, they told me that they had 17 000 Bitcoin that had been shipped to them. Now at today’s prices that’s worth close to R6 billion. Where is that Bitcoin? That’s the job of the liquidators. If the liquidation order gets granted, they’re going to have to try and track that down.
Now here’s another point about this, about the people who’ve been earning these commissions that I’ve been talking about, the referral-marketing commissions. They had three different types of commissions you could earn here. That could be deemed to be unlawful enrichment, and they could then have a claim against you to pay that back. I’m not saying that is going to happen. I think it’s very difficult. You’ve got 280 000 members worldwide. What are you going to do with a guy who sits in Iraq or Japan, and he’s been earning this? You’ll have a hard time getting that back.
NOMPU SIZIBA: Ciaran, thank you very much for those insights. That was that Ciaran Ryan, my colleague here at Moneyweb. I think this story illustrates how important it is to ensure that you really, really know where you’re going to invest your hard-earned money. Potentially 280 000 people may not get a cent back from their original investment.