A Cape Town law firm hired by investigators says it is unable to find Ameer and Raees Cajee, founders of Africrypt, the country's largest cryptocurrency exchange. The firm has since reported the matter to the Hawks, an elite unit of South Africa's police force.
It has also told crypto exchanges around the world to be on the lookout should anyone try to sell the digital currency on their platforms.
Largest crypto scam in history
Back in April, when Bitcoin had reached its highest valuation yet, Africrypt warned clients of a hack. But it strangely asked clients not to alert law enforcement authorities or lawyers, claiming that doing so "would slow down" the recovery process.
Not all of the company's clients believed that, and some investors retained Hanekom Attorneys to look into things.
"We were immediately suspicious as the announcement implored investors not to take legal action," Hanekom Attorneys said to Bloomberg. "Africrypt employees lost access to the back-end platforms seven days before the alleged hack."
The law firm eventually found that Africrypt's pooled funds had been transferred from its client's accounts so many times and through so many filters that it was nearly impossible to trace the cryptocurrency.
A total of around 69,000 bitcoins are missing from the firm. At the time of their disappearance, this was equal to around $3.6 billion, but with recent drops, their value now stands at just under $2.4 billion.
Even at the lower number, the amount still makes it the largest cryptocurrency loss in history should the money not be recovered. According to a report from April, the 80 largest cyber thefts from the past decade only resulted in a collective loss of $2.5 billion.
Recovering the missing bitcoin could also be made more complicated by the fact that cryptocurrencies, such as Bitcoin, are not legally recognized as financial products in South Africa. This means that the Finance Sector Conduct Authority, which normally handles these matters in the country, is unable to start a formal investigation.
Scam highlights problems with decentralized, unregulated crypto
The Africrypt case is the second high-profile scam involving cryptocurrencies to hit South Africa. Last year, the collapse of bitcoin trader Mirror Trading International resulted in the loss of around 23,000 coins, totaling about $1.2 billion in the biggest crypto scam of 2020.
Cases like these highlight the concerns that many government regulators have over cryptocurrency's decentralized, unregulated nature. In some instances, regulators are all too happy to step in.
In China, the country's central bank recently called on financial institution executives to enforce a ban on offering financial services related to cryptocurrency trading.
In its announcement, the People's Bank of China identified cryptocurrencies, such as bitcoin, as a risk for illegal cross-border transactions and money laundering, as well as a challenge to economic and financial order. (Related: Chinese crypto crackdown causes bitcoin prices to plunge.)
Even in the U.S., there the general mood towards crypto tends to be more positive, many are also starting to call for increased regulation. Billionaire investor and Dallas Mavericks owner Mark Cuban recently called for crypto regulation following the collapse of an algorithmic stablecoin that he put money into.
Stablecoins – a type of cryptocurrency that's pegged to an asset, usually the U.S. dollar – have rocketed in value in recent years. The latest of this, Tether, now boasts a market capitalization of $62 billion.
"There should be regulation to define what a stable coin is and what collateralization is acceptable," said Cuban who declined to reveal how much he lost, only telling Bloomberg that "it was enough that I wasn't happy about it."
Meanwhile, in a recent blog post this month, Cuban noted that "banks should be scared" of the largely unregulated technology.
But while regulation still doesn't exist, Cuban warns would-be investors to be wary of putting everything into crypto.
"All tokens are not created equal. In some projects, there is a risk that everything goes to zero," he said. "We urge those investing in the ecosystem to educate themselves in these new financial projects. Never invest what you’re not prepared to lose in entirety."
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