Founders flee as court cases build up

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The two companies that have launched the monero cryptocurrency have come under legal attack. A case is building up against the founders of the two companies that launched monero, which is now the largest and most important cryptocurrency in the world. The first company to launch monero was called “monero-foundation.com”. The second company was called “monero.com”.

A by now familiar scenario: a cryptocurrency startup raises tens of millions of dollars in funding and promises to revolutionize the world with its revolutionary technology. Fast forward a few years. The startup founders have been indicted by the FBI, the SEC has opened an investigation, and the founder of the company has gone missing. Welcome to the world of cryptocurrency startups, where there are few rules and no laws, and the founders of these often young companies are often protected from legal consequences in the country that they started their companies in.

Founders flee as court cases build up

The two South African brothers are under increasing pressure to appear before authorities as investigators look into one of the largest thefts of cryptocurrencies in the country.

Raees and Ameer Cajee are the central figures in the saga of the infamous Africrypt crypto-currency investment scheme. Local investors were left in the dark and without resources after a hack in which the company’s cryptocurrency holdings were stolen, the Kaji brothers said.

The brothers ran a proposed investment company that promised lucrative returns, according to their presentation by 2020. Customers could deposit either South African rand or bitcoin (BTC) with Africrypt, which then managed these investments.

In April 2021, everything collapsed after Raees Cajee emailed investors that hackers had allegedly stolen an unconfirmed amount of his shares. Shortly after Kagee asked its customers not to take legal action, the Africrypt website was taken offline.

There are conflicting reports about the actual value of the cryptocurrencies Africrypt manages, but a June 2021 report from the Wall Street Journal cites a big brother estimate that Africrypt managed about $200 million in cryptocurrencies at the height of the market boom in 2021.

Investors have sought legal help to recover their funds from Africrypt, while financial regulators have been hampered by the current South African regulation of cryptocurrencies, which is outside their jurisdiction.

It is important to note that the Africrypt saga is not the first time the Kaji brothers’ company has been the victim of an alleged hack. In 2019, RaeCreate Wealth, a Hong Kong-listed company run by Kahisa-informed investors, had some of its cryptocurrencies stolen in the Binance hack. It is unclear whether investors were compensated for their losses, as Kaji registered Africrypt later that year, according to company registration documents reviewed by Cointelegraph.

Kaji brothers disappear

The whereabouts of the Kaji brothers are still unknown. The couple had previously stated that their flight from South Africa was prompted by threats from several disgruntled customers, who have banded together to take legal action.

Local company Badaspex (Pty) Ltd is taking its own legal action to recover the money invested in Africrypt. The company announced on 19. April filed a petition to liquidate Africrypt after the system said it had lost investors’ money.

Cointelegraph contacted Johannesburg-based lawyer Gerhard Botha, who represents Badaspex, as well as other investors who lost money in Africrypt. Botha confirmed that Badaspex wants to recover the $2.4 million (R35 million) invested in Africrypt – an amount that does not take into account the rising value of BTC entrusted to the Kaji brothers’ company. The lawyer represents 105 investors whose lost investments he says amount to only $8 million (Rs 115 million).

The lawyer also refuted Caja’s statement to the WSJ in June that Badaspex director Juan Meyer, a figure once linked to convicted Czech mobster Radovan Krejcir, threatened her after Africrypt closed.

Meyer’s lawyer said his client had tried to meet one of the brothers at a Johannesburg hotel to discuss Africrypt’s closure. After making the appointment, Meyer waited at the front desk for about 15 minutes, after which hotel security asked him to leave. Botha told Cointelegraph that Kaji’s version of events was opportunistic, as the incident was clearly described in the application for the court order:

The version put forward by Kahi is unfortunate, since Mr. Meyer’s visit was recorded in a statement made in court. …] There was no physical interaction between them. The Kaji brothers were allowed to comment on this version in court, but did not do so.

The Kaji brothers engaged Johannesburg lawyer John Oosthuizen shortly after the alleged robbery. Oosthuizen made several comments to the media before announcing that he will no longer represent Brothers and Africrypt at the end of June 2021. Africrypt has until the 19th. of July to present arguments against Badaspex’s request to liquidate the company.

Another source who conducted a private investigation into Africrypt told Cointelegraph he was aware of 35 separate criminal cases opened over the investment of about $3.2 million (R46 million) in the system.

Bank statements obtained by Cointelegraph show that more than $7 million (R100 million) was routed through a Kaji bank account belonging to a local company – a point disputed by First National Bank.

The brothers reportedly left South Africa in December 2020 and were found in various hotels in the United Arab Emirates.

Africrypt does not fall within the jurisdiction of the CBT of South Africa

This type of financial fraud generally falls under the jurisdiction of the Financial Sector Conduct Authority of South Africa (FSCA). Cointelegraph has contacted the regulator to find out if it is actively involved in the ongoing Africrypt investigation.

In response, the FSCA issued a public statement confirming the complaints against Africrypt and investigating whether the company was indeed offering a financial product or service to the public. This is a very important aspect because Africrypt had to register with the regulator for this, which it did not do. The FSCA statement reads:

So far, we have only found evidence of transactions with crypto assets. Crypto assets are not currently covered by any South African financial sector legislation and the FSCA is therefore not in a position to take regulatory action.

Although the FSCA is not in a position to impose sanctions on the company, it said that its own investigation of the company showed that it had used a dubious investment scheme : This organization offered exceptionally high and unrealistic returns, similar to those of illegal investment systems commonly known as Ponzis.

In another local report, Raees Cajee said Africrypt was registered with the Financial Intelligence Centre (FIC) and that the company had complied with the required anti-money laundering (AML) measures. Cointelegraph has contacted the FIC to find out if Africrypt is registered with the centre, but has not received a response at the time of publication.

Customers used a local exchange to send crypto-currencies to Africrypt

The information provided to Cointelegraph by the private investigators allowed for a basic blockchain analysis of transactions sent to and from bitcoin addresses of Africrypt customers in recent months.

Some customer portfolios have received BTC from the original portfolio, which has received over 689,000 BTC worth about $22 billion since November 2020. Cointelegraph has revealed that it is a hot wallet belonging to popular South African crypto-currency exchange Luno.

CipherTrace, an international blockchain analytics company, supported the case, but noted that the exchange was likely only used to process deposits from Africrypt customers, not to accumulate assets. A spokesperson for CipherTrace told Cointelegraph:

Of course, it is possible that some of the Africrypt funds were deposited or sent to this exchange, which could indicate that Africrypt was not a stand-alone exchange, but rather a high-yield investment program.

Luno Africa CEO Marius Reitz told Cointelegraph that Africrypt does not own the Luno account and that there is no relationship between the two companies : Although Africrypt began the application process for the Lano account in 2019, the process was never completed and thus the business account was never opened.

Reitz added that Luno had not received any customer inquiries about Africrypt prior to the reports of the company’s bankruptcy. He added that Africrypt has not been detected by any of the blockchain analytics companies dedicated to detecting and preventing the use of cryptocurrencies for illegal activities. Nevertheless, the Exchange is involved in ongoing investigations:

Luno has and will continue to work with the authorities and stakeholders. Our preliminary investigation showed that the amount claimed was grossly overstated. Moreover, the vast majority of affiliated companies and shareholders of which we are aware did not have Lano accounts.

Private investigators also told Cointelegraph that some BTC was reportedly transferred to VALR, another popular South African cryptocurrency exchange, after a blockchain analysis was performed on the bitcoin wallet address of another Africrypt customer.

VALR CEO and co-founder Farzam Esani told Cointelegraph that they cannot share information about their users, adding that the company is registered with the FIC and is doing everything possible to prevent illegal activities through its platform: VALR is registered with the Financial Intelligence Centre and we regularly work with regulators to combat activities by companies that seek to abuse our industry or cause harm to others.

Africrypt embezzlement amount grossly overestimated

Initial media reports on the Africrypt saga cited astronomical figures for the amount of assets under management. Originally, figures of $3.6 billion were mentioned, figures that Reitz finds incredible:

It now appears that the approximately 70,000 BTC that were allegedly moved were grossly exaggerated. Moving that much BTC would set off several alarm bells among exchanges and blockchain analytics companies, especially considering it was moved in a matter of hours.

Reitz also noted that the accuracy of the Africrypt system’s stated scope is an important consideration. The size of the amounts initially reported simply could not have been moved or shaken without affecting cryptocurrency markets or being noticed by analyst firms.

Reitz also noted that following the collapse of Mirror Trading International in 2020, this latest incident is an important reminder for investors to do their homework when entrusting assets to third parties:

Any profit guarantee should be treated with suspicion, as returns on cryptocurrencies cannot be guaranteed. Many financial scams advertise bots that act on your behalf and present false valuations as proof of guaranteed or inflated returns. If something seems too good to be true, it probably is.

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Emilia James
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