In case you missed it, Mirror Trading International (MTI) was founded in 2019 as a notional “cryptocurrency club”. The business plan was simple: customers would either buy cryptocurrency through the club or vest their existing crypto in the club, which would then trade currency pairs to further boost its value.

But there was a catch – well, several catches actually, according to the final liquidation judgment, which has just been handed down. In truth, there were so many catches you could dine on what you caught for years – and the organisers clearly did.

First, there was a huge bonus for anyone introducing new members to the club, which is generally sine qua non for Ponzi schemes. The profit split in the trading business, assuming there was one, went 40% to the owner of the bitcoin, 10% to the person who referred the client, 20% was held in reserve, 2.5% went to top management, and 2.5% went to the second level of management. I mean, you have to laugh.

Second, the marketing material of the business claimed that currency trading would take place by an artificial intelligence bot. Nice! Management was getting 5% of the upside on trading they claimed was being done automatically by a bot. As it turns out, there was no bot; the “back office” was doing the trades by hand using commercial contracts for different websites.

And third, and by no means least, MTI and its representatives claimed at length that clients were earning about 30% a month on their deposits.

In fact, acting high court Judge Alma de Wet wrote: “All daily published reports of daily trading profits were false and reports that MTI investors’ bitcoin grew every day, as a result of trading profits, by way of trading bonuses, were false. All reports that MTI had continuously traded profitably (in the so-called second period), were false; all reports that the trading of MTI’s bitcoin was effected by a bot with artificial intelligence, were false.” And – final nail in the coffin: “Reports that the bot traded in real-time were false.” OK, we get it.

It’s hard to know how much money was in the system and therefore how much money was stolen because – surprise – record keeping was a bit shoddy. But according to the international 2021 Crypto Crime Report, MTI Club had received $588-million (R8.5-billion) worth of Bitcoin across more than 470,000 transactions, primarily from exchanges, but also from self-hosted wallets. That made it the biggest crypto scam of 2020.

The big money

There is one very revealing part of the judgment in which Judge De Wet records that one investment recruiter by the name of Ignatius Bell somehow managed to recruit 190,000 investors. Based on the investment plan, that would mean technically Bell would have been earning around R6-million a month. And that goes to show where the big money was: not in the investment process, but in the referral process. Apart from a R7,000 investment made on his behalf, Bell himself didn’t invest in the scheme. I am not making this up.

Interestingly, the scheme was first uncovered by an anonymous hacking group called Anonymous ZA, which in September 2020 hacked the club’s website to show how shoddy its security was. By December 2020, Steynberg had decided his best option was to run – also not atypical of Ponzi scheme originators. Apparently, his wife and children didn’t make the cut and were left in South Africa. He was arrested a year later in Brazil when he tried to present a false passport.

Apart from the claims against MTI, which are not small, Steynberg has also been ordered to pay close to $3.5-billion (R63.6-billion) in restitution and penalties in the US. As MyBroadband laconically reports, it’s not clear how he is going to do that since he remains in a Brazilian jail.

So what are the takeaways? I think there are three (slightly obvious but anyway). First, the whole incident shows how dangerous new-sounding trends in investment are. MTI rather cleverly combined three new or newish ideas: crypto, contracts-for-difference and bot-trading AI. One would be bad enough, three together is a red flag.

Second, one of the oldest and truest rules of investing is that if it sounds too good to be true, it probably is. High returns are possible in short periods, but if anyone is offering returns of more than 10% a year in real terms, you are almost definitely getting scammed. By comparison, Berkshire Hathaway is globally acknowledged as the best in the investment business, and their return is about 11.5% on average every year over the past 10 years, and 11.3% on average every year over the past 20.

And the third is the saddest: what frail and desperate things are humans. You would hope that with the number of red flags this organisation was throwing up, surely nobody would be foolish enough to invest in them. But they did, by the hundreds of thousands.

Big pointer for the future: any company with smoke and/or mirrors in its name is probably dodge. BM/DM