As far as cryptocurrency scams go, 2020 wasn’t exactly the biggest stunner ever, bearing in mind that 2019 was actually a bloodbath. In 2020, USD 2.7 Bn worth of cryptocurrency was creamed off in scams but that’s even less than half of the USD 7 Bn that disappeared in 2019.
But in any case, certain odd events from last year have given South Africa an unwanted title as the country that was the site of the world’s biggest crypto scam of 2020. Indeed, it’s the first time an African nation has found itself at the top of this unwanted leaderboard.
This is according to the 2021 Crypto Crime Report by Chainalysis, a blockchain analysis company. As per the report, the infamous and heavily-publicized fraud surrounding Mirror Trading International (MTI), a purported bitcoin trading platform with offices in Johannesburg and Stellenbosch, was the biggest crypto-related scam of 2020.
The MTI sham siphoned off USD 588 Mn (ZAR 8.6 Bn) worth of bitcoin across 470,000 transactions, according to Chainalysis. The number of people sucker-punched by the scam likely runs into thousands from countries like South Africa (which accounts for more than half of MTI’s web traffic), and other places like Mexico, Canada, the U.K., and the U.S.
Although the MTI scam is smaller in scale when compared to the PlusToken incident of 2019, in which USD 3 Bn worth of cryptocurrency was sucked off from millions of mostly Asian victims, South Africa’s home-bred crypto scam was “by far” the biggest such incident in the world in 2020, per the report, which also claims most of the other crypto scams recorded in the year were much smaller in scale.
MTI was placed in provisional liquidation late last year and the circumstances of the sham have brought sterner scrutiny upon South Africa’s thriving crypto scene which is among the Top 2 in Africa in terms of the value and volume of crypto transactions.
Before the con unraveled, MTI had attracted tens of thousands of investors from around the world by offering returns of up to 10 percent a month.
“MTI presents itself as a passive income source. According to its website, users simply deposit a minimum of USD 100.00 worth of bitcoin, and MTI promises to grow it using an AI-powered foreign exchange trading software,” says the report, which analyses web traffic to the company’s website as well as transactions flows.
“The site indicates that customers can achieve consistent daily returns of 0.5 percent, which would translate to yearly gains of 500 percent,” it adds. “Algorithmic trading is a common premise for many cryptocurrency investment scams,” says Chainalysis.
Despite holding on to a veneer of false legitimacy and attracting unsuspecting investors since 2018, MTI has had a cloud of “scam-alert” over its head for much of its existence. And it wasn’t much of a surprise when the South African regulator, the Financial Sector Conduct Authority (FSCA), issued a warning about MTI and urged investors to request a refund back in August 2020.
Things came unstuck last December when the FSCA filed charges against MTI after its investigation found that the company falsified trade statements, didn’t declare losses and committed other acts of fraud to deceive the market.
The report by Chainalysis also suggests that the investigation uncovered that over 16,000 bitcoin of claimed customer investment funds were unaccounted for. And the CEO of MTI remains in the wind.
“MTI claimed to have transferred those funds to a new FX trading platform after its old platform banned MTI due to its scamming reputation, but the new platform says these funds were never deposited,” reads a portion of the report.
“Since those charges were filed, MTI customers have complained that they can no longer access or withdraw funds they’ve deposited to the platform, and MTI CEO Johann Steynberg has fled South Africa.”
Chainalysis also examined MTI’s cryptocurrency transaction history to better understand how the scam worked.
“MTI Club has received USD 589 Mn worth of bitcoin across more than 470,000 transactions, primarily from exchanges, but also from self-hosted wallets. MTI has also sent and received significant funds to and from a popular, bitcoin-friendly FX trading platform,” according to the report.
“Perhaps most interesting is MTI Club’s apparent usage of a popular cryptocurrency gambling service as a money laundering and cash-out mechanism,” it says.
“The platform is the biggest risky destination of MTI funds by volume, having received USD 39 Mn worth of cryptocurrency from the scam in 2020.”
Besides MTI, other relatively big crypto scams around the world in 2020 were found in TorqueBot, J-enco, Prance Gold Holdings, PGI Global, and few others.
It’s been speculated that the general decline in crypto scams recorded globally may be connected to the idea that “cryptocurrency users and the general public have grown more suspicious of such scams, or that potential Ponzi scheme operators have been scared off by the punishments doled out to the PlusToken operators.”
Some reports have it that Chinese authorities have since arrested 109 individuals associated with the massive PlusToken scam of 2019 and prosecuted six of the most prominent. However, it remains to be seen if the thousands of victims burnt in the MTI scam will get some measure of respite.
Featured Image Courtesy: Nairametrics