Bitcoin Pyramid Scheme Scammer Ordered to Pay $3.4 Billion
The CFTC alleged that a South African fraudster tricked thousands of people into investing billions of dollars in bitcoin in a commodity pool that was a big lie.
The Commodities Futures Trading Commission patted itself on the back for winning one of the biggest civil cases against a crypto crook, even though most – or some – of those affected will see some of their money returned. On Thursday, a Texas judge handed down a default judgment in a multibillion-dollar fraud case against a man accused of swindling billions in bitcoin from unsuspecting people online looking to invest in bitcoin.
The CFTC filed its massive $3.4 billion civil lawsuit last year against Cornelius Johannes Steynberg, AKA Joe Steyn, listed as a South African man who at the time of the lawsuit was operating in Brazil with the company Mirror Trading International. The agency alleged that Steynberg operated an online currency pool for three years from 2018 to 2021. Users had to pay bitcoin to access the pools, which were found on sites such as “MTImembers” and “myMTIclub.” The CFTC said he got people to invest 29,421 bitcoins, which totaled $1.7 billion at the time.
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In its original complaint, the agency said MTI lied to pool participants that they were trading over-the-counter foreign currency, otherwise known as “forex.” Steynberg allegedly told pool participants that his company used a bot to make successful trades using their money, although this was all a lie, and all bank statements offered to participants were just fakes made from demo accounts on an off-site trading platform. Steynberg’s brokerage platform, which he called Trade300, didn’t even exist, and he used word of mouth and other heavy-handed advertising campaigns to get more people involved, hence the accusation that it’s a multi-level marketing scheme.
“Defendants never traded profitably, never made a profit, and misused substantially all of the at least 29,421 bitcoins they accepted from participants,” the agency alleged in the lawsuit.
The court order now has Steynberg and the company each paying $1.73 billion in civil penalties. While the staggering $3.4 billion penalty is easily one of the largest penalties ordered against any crypto fraudster, it remains unclear whether anyone caught by Steynberg’s scheme will ever see their money again. The CFTC said the company was currently in liquidation proceedings in South Africa after declaring bankruptcy in 2021.
The agency admitted that victims may not see any restitution “because violators may not have sufficient funds or assets.” Attorney information for Steynberg was not available as he never responded to multiple subpoenas issued by the CFTC, hence the default judgment. According to the agency’s release, the man behind the scheme has been arrested by Interpol agents in Brazil and is also a fugitive from South African law enforcement. Steynberg is also wanted by the financial police in the IRS for his involvement in the MTI scheme.
Gizmodo reached out to the CFTC to find out if the agency is contacting Steynberg to collect his penalties, but we did not immediately hear back.
Although Steynberg’s scam was carried out until 2021 (itself a massive year for cryptogrifts), crypto scams were rampant last year and continue to prey on investors into 2023. US financial agencies have tried to warn banks against crypto scams amid reports. from researchers that nearly a quarter of new crypto tokens are actually built by scammers who plan to pump up the price of their tokens and dump them later for a tidy profit.
At this point in crypto’s life—more than 14 years since bitcoin’s initial inception—it’s hard to tell whether willful fraudsters are drawn to the anonymous benefits of crypto, or whether crypto inevitably turns every project into a scam. Research from the Bank for International Settlements has shown that most people who invest in bitcoin actually lose money, so at this point, does the chicken or egg argument really matter?
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