One too many

USD 5 Bn Lost In 3 Years: South Africa’s Way Too Many Crushing Crypto Scams

By  |  June 25, 2021

South Africa and cryptocurrency; not exactly a match made in heaven, or hell, but certainly a relationship with a checkered history.

Just like cryptocurrency itself, the South Africa-crypto relationship has been one of exciting highs and damning lows. And evidently, the one big blemish on the South Africa-crypto relationship is the seemingly non-stop orchestration of big money scams built around crypto investments.

It seemed as though the worst had happened last year when the infamous Mirror Trading International (MTI) fraud unravelled. As we had reported, it involved about 23,000 digital coins, totalling around USD 1.2 Bn – all of which basically went poof after the operator(s) disappeared into the wind. In fact, a report by Chainalysis described this as the biggest crypto scam of 2020.

Nothing could top that, it seemed. Nope! Spoke too soon.

It’s only June 2021 – some 7 months after MTI went bust – and the biggest crypto scam of 2021 may have already happened. Of course, it would take something very, very awful to top this.

Barely two days ago, it came to light that two South African brothers have vanished, along with UD 3.6 Bn worth of the most valuable crypto-asset, bitcoin.

The now-at-large duo, Ameer and Raees Cajee launched a cryptocurrency investment platform known as Africrypt in Johannesburg in 2019, and they had run the company together. The company fronted as though it was trading crypto and making huge returns with funds pooled from customers.

Familiar tactics stay ignored

It should have been a red flag that Africrypt’s main proposition was to promise investors a minimum return of five-times the amount invested within a short period. But that turned out to be the selling point that wooed people to join the platform in droves, and dole out huge sums.

Investigations have found that 69,000 coins have vanished and the brothers are unreachable at this point.

By implementing obfuscatory and deceptive tactics – such as claiming that the company was hacked in April and asking investors not to report it – the Cajee brothers bought enough time to “transfer the pooled funds from its South African accounts and client wallets, and the coins went through tumblers and mixers — or to other large pools of bitcoin — to make them essentially untraceable,” per a report by Bloomberg.

This incident, which could be reckoned as the world’s biggest ever crypto scam (in dollar terms), is yet another addition to South Africa’s ever-growing list of shocking, identical crypto scams – most of which have led to reactionary investigations and manhunts with little or no compensatory and punitive results.

Not the first, probably not the last

Indeed, crypto scams have grown bigger and bolder in South Africa since 2018, leading to as much as USD 5 Bn in losses in that time. It does seem like South Africa is increasingly becoming stuck to an unfortunate tag as a preferred spot for crypto scams.

What’s even more baffling is that the crypto scams perpetrated in SA all seem to be following the same playbook.

In 2018, thousands of South Africans lost more than USD 80 million in a bitcoin fraud orchestrated by BTC Global,  which masqueraded as a bitcoin trading company.

The company promoted a crypto investment scheme that lured people to hand over their money and earn an interest of 2 percent daily, 14 percent weekly, and 50 percent monthly. The whole thing crumbled after two weeks; the operators absconded and South Africans counted tens of millions of dollars in losses.

Another one happened in January 2019 when a fake bitcoin lottery scam infiltrated South Africa. By leveraging celebrity endorsements and taking control of the Twitter account of the South African Cricket Federation, a group of scammers promoted a fake lottery in which they lured people to donate bitcoin to qualify for a draw in which they could win USD 70 K.

Although this fraud was uncovered before any major damage occurred, an undisclosed number of people were swindled. And there’s more.

In June of 2019, a company vaguely known as Bitcoin Wallet went bust after operating a fraudulent scheme for several months. Reports have it that the company was drawing in as much as USD 130 K daily at one point. Its promise of 100 percent returns in three weeks – targeted at the rural residents who are likely to be uneducated – drew in multitudes in South Africa.

But Bitcoin Wallet was always one big ponzi scheme, and inevitably, it crumbled, and locals lost big. It was a bitter experience that even saw one of the runaway founder’s home get looted and torched by aggrieved persons.

Furthermore, in July 2020, Willie Breedt was outed as the CEO of the defunct Vaultage Solutions (VS), the company at the center of an alleged cryptocurrency scam in South Africa.

According to local media, an estimated 2,000 investors invested a total of ZAR 227 Mn (USD 13.35 Mn) into Breedt’s company. What went wrong? To put it simply, all the money somehow disappeared and investors were left high and dry. Breedt reportedly broke off all communication just before heading to Mozambique for a holiday in December 2019 an finally closing shop in January 2020.

Add all these incidents to the massive scams uncovered with MTI, and now, and Africrypt, and it goes to show how crypto scams in South Africa have increased in frequency, sophistication, and damage in recent times – more than any other country, it seems.

No doubt, South Africa is a booming market for crypto – one of the top two in Africa, by some estimates. In January, the daily value of crypto-asset trading exceeded ZAR 2 Bn (USD 141 Mn) for the first time in the country.

However, on the regulatory front, crypto in South Africa is more like a “do-at-your-own-risk” kind of thing at the moment, as government institutions attempt to figure out how to keep the crypto scene in check without stifling innovation.

Nevertheless, one thing that is clear is that the local regulators would need to act faster in their bid to ramp up efforts aimed at imposing order on the market amid rising cases of fraud perpetrated by often-elusive bad actors.

Featured Image Courtesy: Sygna

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