Latest crypto scam steals about R54bn from high profile SA investors

Another massive crypto scam has been uncovered by Darren Hanekom of Hanekom Attorneys. He joined Alec Hogg on the BizNews Power Hour to explain what Africrypt is and how it managed to steal about R54bn from its investors – which includes high-profile South Africans and celebrities. Financial advisor Magnus Heystek also joined in as co-host. – Claire Badenhorst

Darren Hanekom on Mirror Trading International, a recent cryptocurrency scam:

With regards to Mirror Trading International, it pretty much followed on the prelude of the previous Bitcoin bull run when everyone looked at these technologies and largely viewed it as something that they might have missed out on. And Mirror Trading International was an entity that operated on a variety of levels in the way in which they marketed their service. It was very much along the lines of a multi-level marketing business whereby they would utilise a wide variety of individuals to spread the core message of what they were doing. They were very much boots on the ground in that they would utilise the networks and incentivise individuals to bring on more recruits and in turn earn a percentage.

On what Africrypt is and how it differs:

Well, right now, the investigations are still in infancy stage. It’s always tricky to know exactly the magnitude of how big these matters are or whether it’s potentially connected to other schemes or global schemes. So with regards to the magnitude, it started a lot smaller in respect of client individual balances. So clients would send funds, which would then be converted into coins on a wallet. They would be shown this wallet address on a weekly/monthly basis; they would be shown their respective balances. [There] wasn’t a community element to it. So one client was isolated from the next. From what we understand, there weren’t massive telegram groups, there weren’t massive WhatsApp groups, there wasn’t massive sort of client community engagement. So that’s why it’s tricky to understand the depth of the alleged theft, but from what we’ve seen, at the very least, hundreds and hundreds of millions of dollars, if not billions of dollars, from what we’ve seen on the Blockchain after following client transaction and client wallet balances. So the magnitude fluctuates given the movement and price of Bitcoin at any given time. But it does rank in the billions.

On what has happened to the money:

That is potentially the billion-dollar question. So what has not happened is a clear narrative as to what had transpired on that day. What has not happened was a continued engagement with investors as to what’s going on, what is being done to recover these funds and what they’ve uncovered so far. What has happened is not much and the silence is the problem right now. We can only dig up as much as we can see in this highly convoluted system, but without any indication as to what exactly is the extent of this, it is difficult to pinpoint an exact amount.

On where the founders of Africrypt are now: 

From what we’ve received from investors, they don’t know where they are. They were in contact before and they had a fairly open dialog with the directors of the businesses and that all came to a sort of halt the day of the hack. So we have no clue as to where they could be and why it is that they haven’t reached out to investors after the purported hack. But with that amount of resources at your disposal, you could really be anywhere.

On why it is considered a ‘hack’:

Right now, with regards to the hack, what was conveyed to investors was that the business was subjected to a compromising array of attempts at getting keys or addresses or getting access to respective wallets. The narrative is that the website was compromised; there’s mention of hosting and servers being compromised. What we found concerning is that Bitcoin and cryptocurrencies exist outside of your traditional hosting or outside of your traditional server pools or hardware. By its very nature, it’s decentralised and that’s also what gives it its value. That’s why people like it – because it’s impenetrable. To this day, I don’t know anyone globally that was able to compromise the distributed ledger Blockchain. You would have to compromise every single minor. It would need to be not just one hack, you would need it to have gotten into their hosting service. You would have needed to get into their backend platforms.

Magnus Heystek on crypto: 

You know, I have an old saying when it comes to these kinds of things. It says a fool and his money should not be locked up in the same room for an extended period of time because they’re going to do stupid things. And the crypto thing, the Bitcoin, and all the other stuff has got lots of elements of this. In the last two to three years, but especially the last year or so, the hype, the bubble – it just got bigger and bigger and bigger. And at every seminar, every interview we have with people, the first question is, should I buy Bitcoin? And it was a full-blown scam, euphoria, whatever you want to call it. And we now seeing the tail end of this.

I hadn’t heard of Africrypt until I read the same article as you, but we’ve had previous ones and that’s always been a big question. Who controls the people behind the people who control the money? Where is the safety of your money? Always been a problem. The advocates of this decentralised currency have always said that’s its strongest point. But the hackers and the crooks have turned that strongest point into its weakest point because you don’t know where your money is – it’s gone. You can’t trace it. [In] which country is it? Faceless individuals who are smarter than you are on the computers [and] will just run off with your money and we’ve seen it all over the world now.

Darren Hanekom on how he got involved: 

So from our side of things, we’ve been involved in the legal side of crypto advisory for the past two to two and a half years. We’ve advised exchanges, arbitrage companies, traders, institutional traders and all the rest, and it was largely through that network that they reached out to us. Before the hack we were approached to do analysis on this company. I’m a massive advocate, Magnus, of cryptocurrency and its movement and its potential. So, I mean, age aside, I mean, we’ve also seen people within those age groups doing phenomenal things with the technology and great innovations. So I’m very reluctant to immediately assume the age gives them away. But what did cause concern for us and the client who approached us is that basic questions couldn’t be answered, and that was the first sort of tell as to what could be going on.

About a month or two after we were approached, I was then called again to say that this is what had happened and it was troubling to know that this could be done at such a magnitude. To speak to what Magnus mentioned earlier [about] the hype and the euphoria, the problem is that people, with Covid, people are vulnerable. People are looking for that quick profit and anyone in the cryptocurrency space who is involved with it, not just in this current bull run but in the previous one will tell you, it’s highly volatile, there is opportunity and there’s a lot of ways of making great contributions to the space. But if you aren’t prepared to do the research yourself, if you aren’t prepared to dig into what this technology is, the last thing you should do is to hand over that responsibility in its entirety to someone else.

Other industry players that we have engaged with in this space have also said the same thing. We have never heard of these guys. We don’t know who they are. We’ve never engaged with them. They’ve never participated within the space and it was shocking to them to see the numbers. And the reason why that was possible is because it was a very close-knit circle with trusted individuals whose connections were ultimately leveraged to play off of the next person. So it wasn’t a random person. It was always somebody who you trusted, who was possibly making money, and people on top – the first, early adopters do make money – and that slowly began to snowball.

Magnus Heystek on whether his clients were victims of the scam: 

We’ve told our clients from the beginning that Bitcoin or any other currency is not a registered product in South Africa. We don’t comment on it. We don’t deal in it and if you go invest in it, it’s at your own risk, go somewhere else. We have sent out several newsletters saying we cannot comment on it – do not ask us about Bitcoin. It’s not a licensed product and I don’t want to be the first financial adviser who stands in front of the ombud and the ombud asks me, explain to me how Bitcoin works, Mr Heystek, and I don’t know. You just walk away from it.

Darren Hanekom on what happens next: 

Well, right now, we understand that there is a liquidation pending in the Gauteng local division, which was brought by another group of investors. We have not been privy to those papers as to what it includes. Interestingly, myself, along with many other practitioners, have not been able to get copies of these papers to actually find out factually what the case is. We do know that there is an upcoming date, so we look forward to seeing the factual narrative as to what transpired or at least what the company’s assets comprise of.

Magnus Heystek on where the founders are now: 

Well, obviously, we don’t know everything right now, but I doubt if it’s on the same scale that Darren is referring to that they’ll still be around in South Africa. They probably externalised some of the assets by hook or by crook, and they might be living next door to the Guptas and the Zumas in Dubai. If those numbers are anything remotely accurate, I think they’re gone. They’ve headed for the hills.

Related articles: