MTI Liquidators' Bitcoin Repayment Demand Met with Investor Resistance

The Insolvency Act, drafted in 1935, faces unforeseen challenges in the case of Mirror Trading International (MTI), a bitcoin Ponzi scheme. Liquidators demand repayment of bitcoin or its equivalent in rand from investors who withdrew funds, even at today's higher bitcoin value. This interpretation contradicts the 2023 Maher judgment, which calculated investments in rands, sparking resistance and resentment among investors. The liquidators argue they are acting for the benefit of creditors, considering the potential financial means of investors, but their actions are challenged as unjust and ignoring established guidelines. The master's dismissal of a complaint against this interpretation does not preclude future court challenges on the application of Section 32(3) to bitcoin.

MTI Liquidators' Demand for Bitcoin Repayment Faces Resistance from Investors

In an unprecedented case, the liquidators of Mirror Trading International (MTI), a bitcoin Ponzi scheme that collapsed in 2020, have sent out thousands of letters of demand to investors who withdrew funds from the scheme. The liquidators demand that these investors repay either the bitcoin or its rand equivalent—but at today's significantly higher prices.

This interpretation of the Insolvency Act, first drafted in 1935, has sparked widespread outrage among MTI investors. They argue that it unfairly penalizes them for withdrawing funds from a scam that they believed was legitimate.

One investor, Ben Janse van Vuuren, withdrew R21,000 from MTI in July 2020. However, the liquidators are now demanding that he repay the 0.13 bitcoin he withdrew at today's price of R97,000. This represents a staggering increase of over 350%.

"This is outrageous," said van Vuuren. "I thought I had dodged a bullet when I withdrew my funds. Now I'm being asked to pay back almost five times what I took out."

Attorney John Lister, who represents over 400 MTI investors, believes that the liquidators' interpretation of the Insolvency Act is flawed. He argues that the act does not anticipate the unique circumstances of a digital asset like bitcoin, which can experience wild price fluctuations.

"The section of the act that the liquidators are relying on was never intended to be applied to a volatile, intangible asset like bitcoin," said Lister. "It's simply not fair to demand that investors repay at today's prices when they withdrew their funds at much lower values."

Lister and his clients are relying on a 2023 judgment by Acting Judge Alan Maher in the Cape High Court, which ruled that MTI investors who withdrew less than they invested should only be required to account for the returns they received.

The liquidators, however, disagree with Lister's interpretation of the Maher judgment. They argue that they are not bound by it and that their demand for repayment is for the benefit of all creditors.

"We understand that this may seem harsh to some investors, but it is our duty to maximize the recovery for creditors," said the liquidators in a letter to the Master of the Cape High Court.

While the liquidators have developed guidelines to assist in the settlement of claims for less than the amount demanded, Lister believes that this is a hollow gesture.

"It's not about affordability," said Lister. "It's about the fact that there is a valid defense to these demands. The liquidators are simply ignoring the sensible guidelines provided by the Maher judgment."

The controversy over the liquidators' bitcoin repayment demand is likely to continue before the courts. If the liquidators' interpretation of the Insolvency Act is upheld, it could have devastating consequences for MTI investors, many of whom could face bankruptcy.

Meanwhile, Lister and his clients remain hopeful that the courts will recognize the unfairness of the liquidators' demands and provide them with a fair settlement.