With the failure of what was claimed to be the biggest Ponzi system the country has ever seen, South African authorities are trying to exert more influence over crypto exchanges.
In December 2020, self-proclaimed Bitcoin (BTC) trading company Mirror Trading International was put in temporary liquidation as shareholders attempted to extract their funds and failed to do so. The company stated to have drawn more than 260,000 employees around the world, managing a recorded Bitcoin of 23,000, an amount now valued $716 million.
An inquiry by the Financial Sector Conduct Regulator, nevertheless, found that the company maintained no financial records and no user database of any sort. The management of the company alleged that CEO Johann Steynberg, who it claims may have fled to Brazil, was misleading.
As emphasized by the lawyers for the remaining management of the company, the FSCA had not yet established that MTI acted as a Ponzi system, just that it traded lacking a license.
Brandon Topham, head of regulation of the FSCA, told Bloomberg that before they gained traction, investigative authorities must be able to avoid certain schemes:
“At the point, something becomes a Ponzi scheme, we have lost our jurisdiction. We need the police and the prosecuting authority to work fast and put people in jail.”
Topham said, to that end, the agency is considering suggestions to officially control the exchange of cryptocurrencies such as Bitcoin.
Topham said it had been fairly common practice in South Africa to try to get into Ponzi plots early on:
“I have been on radio shows where people say, ‘I am a professional Ponzi investor. You get in quick and get out and like with any business you have to risk money to make money.’ We need to make an example of MTI so that people understand that investing in a Ponzi is never a good idea.”
In July, after completing that the project was a multilevel marketing scheme, the Texas State Securities Board terminated MTI operations taking place in its jurisdiction. South Africa’s own authorities were already skeptical of the statements of MTI that for each user it would return 10% profit per month.
“It’s going to take a serious investigation to ascertain how much was involved, ”Bloomberg was informed by Topham, stating that two other companies were under scrutiny for alleged links to MTI. Until now, liquidators have unable to track all the assets of the company and an extended final liquidation order is due to be issued on 1 March, presuming that court cases stay unchallenged.
Although policymakers have toyed with the control of cryptocurrencies for years, owing to the growing profile of Bitcoin and related cryptocurrencies, they are now being forced into implementing clear laws.
Brian Armstrong, CEO of Coinbase, stated December 2020 that the U.S. Treasury Department was considering legislation that could see exchanges requesting a name and physical address for users participating in any crypto transaction greater than $3,000 in price.