While the crypto market has continued to evolve, the amount of crypto stolen has surged in recent years creating a large pool of fraud cases. In a historic verdict, US District Judge Lee Yeakel has ordered a South African executive to pay more than $3.4 billion in restitution and fines for a fraud scheme involving Bitcoin. 

Cornelius Johannes Steynberg, the founder and CEO of Mirror Trading International Proprietary, was involved in a global “fraudulent multilevel marketing scheme” to solicit Bitcoin from people for participation in an unregistered commodity pool operated by Mirror Trading.

The scheme resulted in the solicitation of at least 29,421 Bitcoin, worth more than $1.7 billion in March 2021, from at least 23,000 individuals in the United States and from around the world. 

However, Steynberg misappropriated all of the Bitcoin accepted from pool participants either directly or indirectly, according to US Commodity Futures Trading Commission (CFTC). Despite the US CFTC imposing the fine, it warned that it “may not result in the recovery of any money lost because wrongdoers may not have sufficient funds or assets.” 

Since the end of 2021, Steynberg has been in detention in Brazil on an Interpol arrest warrant, as he is a fugitive from South African law enforcement. The CFTC has imposed a permanent ban on Steynberg’s trading activities in all markets that fall under its regulation.

The Scheme’s Modus Operandi

Steinberg’s Mirror Trading International Proprietary operated as a Bitcoin investment pool that utilized bot trading algorithms. The investors would deposit Bitcoin into the pool, and in return, the pool would generate daily profits from trading on various cryptocurrency exchanges. 

However, the CFTC claimed that the bot trading algorithms were a sham and were never used to trade cryptocurrencies. Instead, the pool’s funds were used to enrich the pocket of Steynberg and other operators of the scheme.

The US agency further alleged that Steynberg misrepresented the pool’s performance and concealed the significant losses it incurred. The funds that investors received were not from actual trading profits but from the Bitcoin deposited by other investors. 

The CFTC also revealed that Steynberg and his associates used a portion of the Bitcoin deposits to acquire assets like real estate, luxury cars, and expensive watches.

Implications Of The Verdict

The $3.4 billion fine imposed on Steynberg is the highest-ever civil monetary penalty in any CFTC case. The magnitude of the fine highlights the severity of the fraud and the significant role that Bitcoin played in the scheme. 

The verdict may also serve as a warning to other bad actors in the cryptocurrency space, signaling that they cannot evade legal consequences. However, the CFTC’s warning that the fine may not result in the recovery of any lost funds highlights the need for increased regulation in the cryptocurrency industry. 

Regulators must strive to ensure that investors are protected from fraudulent schemes, and companies must adhere to strict operating standards to avoid scams.

Meanwhile, Steynberg’s conviction and the massive fine imposed on him may help to build trust in the cryptocurrency space to some extent, as it demonstrates that fraud and other illegal activities in the industry are not immune to legal consequences. 

Regardless of the circulating news in the industry including that of major bank First Republic Bank (FRC) collapse, the crypto market has experienced bullish movement.

Over the past 24 hours, the global crypto market cap has surged by 1.4% with the total value above $1.2 trillion.

Featured image from iStock, Chart from TradingView