Bitcoin to bust: World’s biggest Ponzi scheme could cause more heartache for Australians

When South African alleged conman Johann Steynberg was led away in handcuffs after being tracked down by police in the Brazilian city of Goiânia two years ago, many of his investors – including thousands of Australians – thought their nightmare was over.

Built like a front rower for the Springboks, Steynberg, 40, was arrested under Interpol warrants for allegedly heading up the world’s largest cryptocurrency Ponzi scheme, Mirror Trading International.

Mirror Trading International – also known as MTI or MTI Club – pledged to deliver high returns to investors by pooling tens of thousands of bitcoin.

Bitcoin trading took off during the pandemic, pushing the currency to new heights and attracting droves of new investors.Credit: Getty

It blitzed through social media in 2020, sucking in as many as 100,000 people from 140 countries before coming unstuck following a flurry of investor complaints.

By the time the man with a thick neck, acne and a new mistress was arrested in December 2021, at least $US1.7 billion ($2.6 billion) of investments were long gone.

And unfortunately, as more than 5000 people based in Australia are about to find out, the matter is far from over.

This masthead can reveal that MTI’s South African-based liquidators hope to claw back money from 5250 Australians who are believed to have made money off the scheme, either by receiving payments during the scheme’s duration (as “returns” on their investments) or via commissions for bringing in new investors.

The fallout from the MTI scheme underscores the huge risks that ordinary people take when they click on a link shared on social media and buy into an investment scheme that sounds great, but in reality is too good to be true.

It also highlights the often wealth-destroying outcomes of the heady days of bitcoin investments during the pandemic, when people were spending more time on social media, and increased interest in cryptocurrency led to a huge surge in the price of the digital currency.

One of Australia’s top consumer advocates, Gerard Brody, says dodgy investment schemes skyrocketed during the pandemic and continue to be a problem.

“It certainly seems that Ponzi schemes and investment scams are something that’s not uncommon here in Australia,” says Brody, who chairs the Consumers’ Federation of Australia and is a board member of the Australian Financial Complaints Authority.

Brody points to how the corporate watchdog recently put out an investor alert encouraging people to check whether a business offering an investment was licensed to operate in Australia. A list published with the alert included scores of new illegal investment schemes being offered to local consumers.

“The fact that the national financial services regulator is doing that says that they’re worried about these sorts of investments – Ponzi-scheme scams and the like – in the community,” Brody says.

Home to roost

Despite the massive numbers of investors involved, MTI’s victims have kept a low profile in Australia, keeping their discussions to private pages on Facebook and Telegram groups.

On those forums, investors discuss the possibility that some of them might have to pay back some of the money they earned from the scheme, and the benefits that pooling these winnings could have to the group’s many thousands of victims worldwide. Most seem unaware of the recent legal action in Australia regarding the case.

Last month, a group of liquidators appointed to MTI in South Africa won urgent court orders from Australia’s Federal Court that recognised the liquidation in Australia. The orders granted the liquidators the legal right to interview investors about their winnings, so they can seek to recoup money from scheme participants.

In making the orders, Justice Catherine Button noted that “the evidence does not disclose what, if any, assets MTI has in Australia. That said, potential recoveries from early investors who did receive proceeds funded by later investors may constitute an asset”.

“To the extent that MTI does have assets in Australia, it is appropriate that the liquidators have the capacity to realise those assets and deal with them in the liquidation for the benefit of MTI’s creditors,” Button added.

Thousands of Australian-based investors in the schemes will be interviewed by lawyers from local firm Hicks Oakley Chessell Williams, according to documents filed by the liquidator’s Australian lawyers with the Federal Court.

Those documents, obtained by this masthead, included a request for judicial assistance to the Australian court from South African High Court judge Judith Cloete, which revealed the extent of the scheme in Australia. Cloete said in her request: “The jointly appointed liquidators have, through their preliminary investigations, determined that approximately 5250 individuals ordinarily residing in the Commonwealth of Australia either received bitcoin from MTI [or] alternatively benefited from the scheme.

“Digital forensic specialists in the Republic of South Africa have been employed to determine the exact number and reports have become available. It is further believed that those who benefited from the scheme did so inter alia, at the prejudice of other creditors, as defined in ... the [South African] Insolvency Act.”

The liquidators told the court they also believed that about 3735 creditors – or scheme losers – resided in Australia.

Their lawyers declined to comment when contacted by this masthead.

Not all ‘victims’ are created equal

Sorting through the Australian “winners” and “losers” of MTI could be a very hard task for the liquidators and their lawyers.

Many investors remain wary of engaging with lawyers, even ones officially working with the liquidators, believing they are being scammed all over again.

“This is the only way victims will see any of their money again. It’s highly unlikely though and it’s time-consuming. So when we get a recovery guy on the scene it’s just another scam,” says an MTI user on a victims-focused Facebook page.

Investors, who spoke to this masthead under the condition of anonymity, fearing reprisals, also believe there are people in Australia who were intimately involved in the scheme. This includes two men believed to be linked to the development of the group’s fake software and other promoters of the scheme.

According to court documents, about $83 million was paid in commissions to marketers of the scheme. For locals who received those commission payments, it could get very sticky.

According to authorities in South Africa and the United States, MTI was both a Ponzi scheme and a pyramid scheme.

A Ponzi scheme is, in its most simple definition, a type of fraud that lures investors with the offer of high returns and undisclosed risk. The classic element of the Ponzi scheme is that new investors’ money is used to pay existing investors – and there is no actual investment scheme offered by the operators.

The Australian Taxation Office warns on its website: “Existing investors in a Ponzi scheme … are unlikely to suspect that it is not a genuine investment.

“This encourages these investors to target friends, family and other acquaintances into the scheme, often attracting more vulnerable groups and individuals with the promise of quick returns on their investment.”

What marks a pyramid scheme as different is that existing investors are paid for bringing in new investors – often through the promise that the bigger the pool, the better the returns. In many instances, the people participating in them are breaking the law. They are often also aware that they are participating in a pyramid scheme.

It appears many investors were unaware it was a pyramid scheme. Instead, they thought they were making a passive investment in cutting-edge technology and didn’t need to know much about investing or bitcoin.

Part of the scheme’s magic was it claimed to have created an investing “bot”, according to an indictment filed against Steynberg and MTI by US authorities.

Steynberg and his associates claimed the “bot” would set up sophisticated trading strategies for buying and selling bitcoin, and along the way make investors huge earnings – as much as 10 per cent a month.

Like any good Ponzi scheme, the bot never existed.

According to US authorities, only a fraction of what was pooled by investors was ever invested – and what was invested did not make any money and instead made a loss. The rest of the money was allegedly misappropriated by Steynberg and his associates.

In September, a US court declared MTI and Steynberg had broken US law and ordered Steynberg to pay $US3.4 billion in restitution and fines, making it the biggest Ponzi scheme in global history based on the size of the court’s penalty. He continues to fight extradition to South Africa to face criminal charges and has long claimed to be innocent of the allegations made against him.

US regulators celebrated the court’s finding.

“Here, the fraudsters made the most modern of promises, claiming their ‘Advanced Intelligence Software with bitcoin as the base currency’ would create untold wealth for investors, but were actually committing a classic form of fraud, a multilevel marketing scam,” says Ian McGinley, director of the US Commodity Futures Trading Commission’s division of enforcement.

Out in the cold

While US regulators are hunting the bad guys who are estimated to have ripped off 23,000 Americans, Australian regulators have played little role in bringing the architects of the scheme to justice, despite about 9000 residents being caught up in the scheme.

Sources close to the Australian financial regulator – the Australian Securities and Investments Commission – say there has been no request for assistance from offshore authorities. The sources also said that ASIC had received only two complaints about the scheme from local participants, a low number compared with the amount of complaints the regulator receives each year.

The lack of action in Australia reflects a key difference between the US and Australian enforcement approaches. Where US authorities tend to pursue offshore sellers of illegal products – such as unlicensed investment schemes – to its residents, Australian regulators tend to view those matters as outside their remit.

That is because an Australian investor forgoes most of their consumer protections once they invest in a scheme that is not registered in Australia.

Leading consumer advocate Gerard Brody.Credit:

Advocates such as Brody urge Australians to check whether the scheme they’re considering investing in is registered on ASIC’s list website, and whether it is properly licensed to offer financial services in this country.

“When something goes wrong, like in this case, you can be left without any assistance or remedy,” he warns.

“Dealing with a licensed Australian entity means that you will have consumer protections, and you will have the right to go to the Australian Financial Complaints Authority if something goes wrong.

“Today, we also have the compensation scheme of last resort that is meant to be there to give people confidence to invest because if their adviser or the entity does the wrong thing, they will be covered. But none of that exists if you’re dealing directly with an unlicensed foreign firm.”

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