We track down funds scammed from a Moneyweb reader

Like many people during the Covid scare, Moneyweb reader Jon Halana* thought he could spice up his retirement savings by exploring the more exotic fringes of the investment world.

He stumbled on a UK-based website called MainTrade, which offered a profit of $80 000 (close to R1.5 billion at the current rate of exchange) if he could stump up a deposit of $100 000 (close to R1.9 million).

He didn’t have that much, but was able to come up with about $55 000 (jsut over R1 million).

“No problem”, said the kind folks at MainTrade. “We’ll temporarily credit you with the roughly $45 000 you need to make the $100 000 deposit, and then you can keep the $80 000 profit.”

This $80 000 profit took just two weeks to materialise. Halana’s MainTrade “dashboard” reflected this unbelievable run of good luck, showing net equity of nearly $130 000.

Halana admits he should have been less greedy and taken a closer look at what he was getting into. He is a retired forensic scientist, now studying accounting.

“It’s embarrassing that I fell for this, but I did,” he says. “Had it worked out like I hoped, I would have been in the pound seats. But I got greedy and blew a good portion of my retirement savings.

“Instead of enjoying my retirement years, I am now having to go back to work.”

Lured in …

It didn’t start like this. After some online schmoozing with a sales representative, Halana was convinced enough by November 2022 to transfer $12 407 in bitcoin (BTC) to MainTrade. This was duly reflected on his account statement, along with a series of apparently successful trades.

A week later, he was convinced to make a further deposit, this time for $13 400. The crypto trading continued, this time with a few losses, though the profits apparently dwarfed these.

The profits from trading amounted to an astonishing $31 941 in the space of just two weeks.

This was when he was made another tantalising offer – bump up your capital to $100 000, and you will make a profit of $80 000 in the next two weeks. Halana was unable to make the $100 000 deposit requirement, so MainTrade credited him regardless. His account now reflected a total balance of nearly $130 000.

The problem arose when Halana wanted to withdraw his profits. He was told by his broker “Lucas” that he needed to pay “taxes” on his “profits”, which is an immediate red flag.

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There was extensive back and forth on WhatsApp between Lucas and Halana on this subject, with Lucas explaining how regulators were clamping down on investment schemes and companies like MainTrade were the gatekeepers for the financial authorities.

The tone was imperious, with Lucas chiding Halana for wanting a speedy withdrawal of his money – warning him that regulators were watching.

Of course, he never saw a cent, and Lucas eventually stopped answering Halana’s WhatsApp messages and then blocked him.

It was at this point that he went to Brackenfell Police Station to open a criminal case.

Around the same time, Halana listened to a Moneyweb Crypto podcast with Carel de Jager, research group leader for distributed ledger technologies at the Council for Scientific and Industrial Research (CSIR).

De Jager explained that it is possible to track BTC transactions due to the open source and transparent nature of the Bitcoin blockchain.

The CSIR has developed a proprietary tool for the tracing of crypto assets.

CSIR takes a deep dive

Moneyweb asked the CSIR to investigate and see if it could track down what happened to Halana’s funds.

The CSIR prepared an extensive report showing that the funds ended up on addresses hosted by a long list of crypto exchanges, including Binance, FTX (now in liquidation) and Coinpayments.net, among others.

In compiling the report, De Jager was at pains to emphasise that these exchanges can in no way be deemed complicit in the scam. One of the main crypto exchanges used by the scammers was Binance.

Moneyweb reached out to Binance to assist in the freezing of assets in the addresses uncovered by the CSIR, and the matter has now been handed over to Binance’s investigations team.

“Halana was lured into transferring bitcoin into an illicit trading scheme known as MainTrade, which promised high returns to investors,” writes De Jager.

“As with anything that sounds too good to be true, the scheme turned out to be a scam, and Halana lost all of his funds. He then consulted the Distributed Ledger Technology research group at the CSIR to conduct an investigation into the flow of the BTC after it was sent to the perpetrators. Their software indicated that the funds were sent to known exchanges such as FTX and Binance shortly after it was received.

“The research group then authored a technical report containing details of each transaction, which will now be sent to the exchanges in an attempt to recover any available funds.”

Bitcoin is built on an open, neutral, permissionless protocol, adds De Jager. One of the characteristics of this protocol is censorship resistance, meaning that any transaction will be processed and verified, regardless of its nature.

In traditional finance, the freezing of accounts is used by authorities as a valuable tool against crime. If you attempt to sell illicit substances online, your payment gateway will censor your payments even long before law enforcement gets involved.

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“Even though this valuable mechanism for fighting crime is unavailable, there are numerous other attributes of the Bitcoin blockchain which make it a bad choice for crime,” says De Jager.

“The blockchain is completely transparent, meaning that anyone in the world can view and scrutinise every single transaction that has ever occurred. This means that anyone can also be an auditor. The sheer volume of transactions that happen globally makes it difficult to do proper analysis manually, but smart software can be programmed to process the available data in real time.

“This software can then be taught to detect patterns that indicate money laundering, tax evasion, terrorist financing or a number of other illicit activities.”

The challenge with crypto assets is that once a transfer has been made, it cannot be intercepted or reversed, as in the case of a Visa or Mastercard payment. It is now common for law enforcement bodies to place a freeze on crypto accounts known to be used for criminal purposes.

Moneyweb sent questions to MainTrade but did not receive a reply.

A common practice among scammers is to close down one scam as soon as it gets negative publicity and then relaunch the same scam under a different name.

Scammed again

MainTrade was not the only bad investment decision made by Halana.

He also sent nearly $90 000 to an outfit called 7XFX, supposedly a forex trading company that – like MainTrade – promised unbelievable returns. These, too, proved illusory. The trader responsible for Halana’s account went by the name of Jeff Fisher, and six of the seven trades he opened were against the prevailing market trend.

This resulted in several margin calls that Halana was required to make – a sign of fictitious trades that the victim is led to believe will eventually bounce back into profit if more capital is deposited.

“Yes, I am ashamed to say I got caught up in two scams around the same time,” says Halana.

7XFX, an unregulated forex broker operating out of Saint Vincent and the Grenadines in the Caribbean, required “clients” to deposit money in BTC, which is another scam alert (similar to what Mirror Trading International was doing). The UK’s Financial Conduct Authority issued a warning that 7XFX was not authorised to offer services in the UK.

The company has since closed its website, no doubt to spring up somewhere else under a new name.

We’ve published this list before, but it’s worth reposting.

Signs of a scam

These are some of the red flags of a scam that Halana missed or ignored.

• No company registration number or certificate that could be verified.
• No licence issued by a financial regulator anywhere in the world (crypto companies are generally unregulated, but they will still have company registrations, offices, phone numbers and credible directors with a track record of business success; you can, and should, investigate these).
• ‘Directors’ who look like pictures of models grabbed off the internet, and when you Google search that image, the person shows up as a ‘director’ of other dodgy investment schemes.
• Bad English on the website.
• Testimonials from ‘satisfied’ customers.
• Claims of guaranteed returns.
• Claims that you cannot lose your money.
• Approaching clients on Facebook or WhatsApp.
• Insistence that you invest in bitcoin and send that bitcoin to an address given to you by the scammer (once your bitcoin is sent to that address, it is gone, and there is no one who can help you recover it).
• Adding weird costs like “cost of transfer” (when you ship bitcoin or any crypto from a legitimate company like Luno, the costs of transfer are already paid by you, and they are generally quite small. You do not have to pay two sets of transfer costs).
• Ponzi scheme set-up, as in Halana’s case: start small and then see a successful payout. Comforted by this success, you are encouraged to go bigger the next time. That’s when it unravels. You’ve been had.
• Delays in receiving withdrawals: claims of procedural errors in requesting withdrawals, demanding more money (like the cost of transfer), and then claiming you took too long, made some administrative error – anything to delay the process. In Halana’s case, he was blocked on WhatsApp.
• Claims your investment will go into bitcoin “mining”: there are reputable “miners” (who use heavy-duty computers to solve complex problems and get rewarded with bitcoin), but these companies don’t need your money, and most of them are doing well enough, as we previously covered in Moneyweb. Some of them are listed on stock exchanges and offer an indirect way to gain exposure to bitcoin.

* Jon Halana is not the reader’s real name.