$2 300 000 000 USD
DESCRIPTION OF EVENTS
AfriCrypt was a "Currency exchange service in Johannesburg, South Africa." Africrypt described itself as "an investment firm exclusively focused on crypto-currency and blockchain technology".
"We are an investment firm exclusively focused on cryptocurrency and blockchain technology. Our Artificial intelligence driven trading platform is a world class trading platform that uses complex deep learning , machine learning algorithms to effectively and efficiently trade automatically without human intervention."
"Africrypt is an electronic, off-exchange digital liquidity provider. We operate using an electronic communications network (ECN). We provide aggressive streaming liquidity solutions , some of the deepest liquidity in the world and cutting edge technologies to deploy liquidity to end users anonymously with 24/7 accessibility."
"Africrypt’s payment division (Secured Digital Payments) provides domestic, offshore and international market leading payment services. Africrypt’s propriety payment gateway enables a wide range of institutions to accept payments in various forms."
"Africrypt has uniquely positioned itself to become one of the industry’s first full-suite advisory firms to offer merchant banking and consultancy services specifically tailored for the digital world."
"Africrypt connects banks, payment providers, digital asset exchanges and corporates making global money transfers seamless. Africrypt’s Founder and CEO, Raees Cajee first learned of Bitcoin in 2009 while watching the news with his father and ever since he’s been hooked. Raees’ passion for cryptocurrency led him to begin mining ETH while still in school, but with the rapid growth of the blockchain and cryptocurrency industry he was soon building his own Artificial Intelligence models which developed into an AI driven trading system. It’s this dynamic and innovative trading system that has fuelled Africrypt’s astronomical growth from a one-man operation running out of a bedroom to one of Africa’s largest and most successful AI trading companies in only a few years."
While one site lists the founding date as 2016, another reports that Ameer "and his brother, Raees, 20, set up Africrypt in 2019." "Raees is 19 years old and his life has been crypto currency and blockchain technology. He matriculated with 5 distinctions in 2018 with 100% in information technology, 98% in economics and 95% in applied mathematics. Raees founded the business in 2013 in a tiny room in a small house in Robertsham south of Johannesburg. He was only 13 at the time." "Ameer Co-Founded Africrypt in 2019. He also Co-Founded and was the COO of RaeCreate Wealth, a quantitatively orientated cryptocurrency fund. Prior to that he was the head of macro trading at RaeCreate Wealth. He was a personal equity trader for two years before branching out into derivative trading for a further two years. Ameer has extensive experience in the financial markets and is perfectly suited to head operations at Africrypt."
The team also consisted of Ranju Patel as Chief Financial Officer and Daniel Opperman as External Compliance Officer. Ranju is a "Chartered Accountant (SA). Member of SAIPA, SAICA AND IRBA. Ranju is a director of Africrypt who specializes in accounting, tax and strategic financial planning as well as our internal auditing. Ranju plays a huge roll in the efficiency of Africrypt." "Daniel is an admitted advocate to the High Court of South Africa (non-practicing). After graduating in 1987, He acted as a State Prosecutor and briefly as a Magistrate. He then pursued a career in commerce and worked for various Insurers. His primary focus is now Corporate Governance, Compliance, Risk Management and Practice Management."
"There are conflicting reports around the actual value of cryptocurrency that was managed by Africrypt — but a June 2021 report by the Wall Street Journal quoted the eldest brother’s estimate that Africrypt was managing around $200 million worth of cryptocurrency at the height of the market’s 2021 boom." "An archive of Africrypt's website from Jan 2021 also suggests it was holding less than $3.6bn in assets: "We manage over $100m across our venture fund and AI-driven trading platform," it read." "One investor who spoke to MyBroadband on condition of anonymity said that at the beginning of March, the Cajee brothers allegedly bragged that Africrypt was handling around $700m (R10bn) of investor funds."
"Shortly after the Cajees had pleaded with clients not to opt for legal proceedings, the Africrypt website went offline." "Things fell apart in April 2021 after Raees Cajee informed investors through a letter that hackers had allegedly stolen an unconfirmed amount of its holdings." "A group of clients instituted liquidation proceedings against Africrypt on 19 April 2021. The brothers vanished soon thereafter."
"This week 69K BTC were stolen in a massive exit scam by Africrypt exchange founders." "According to Bloomberg News, the founder of the cryptocurrency investment platform Africrypt lost contact and 69,000 bitcoins (currently valued at approximately US$2.3 billion) on the platform were transferred. At 4 o'clock, Ameer Cajee, chief operating officer of Africrypt, told the client that the platform was hacked and asked them not to report the lost funds to the authorities."
"Investors have sought legal counsel in order to wrestle back their funds from Africrypt, while financial regulators have been hamstrung by current regulations of cryptocurrencies in South Africa, which leaves the space out of their jurisdiction."
"Skeptical investors soon hired law firm Hanekom Attorneys to investigate, and the firm has so far been unable to find the brothers." "[T]he lawyer has not been able to contact the founder of the company and has notified the South African Criminal Investigation Department. In addition, the lawyer found that funds on the Africrypt platform were transferred from their accounts and customer wallets, and made it untraceable through the Bitcoin mixer." "Hanekom told Bloomberg that Africrypt employees had lost access to the platform seven days before the alleged hack occurred. The firm’s investigation found that Africrypt transferred funds from its clients’ wallets and attempted to make them virtually untraceable using tumblers and mixers. Hanekom has since alerted global exchanges in case there is any attempt to cash in on the alleged crypto theft."
“We were immediately suspicious as the announcement implored investors not to take legal action,” Hanekom Attorneys said in response to emailed questions. “Africrypt employees lost access to the back-end platforms seven days before the alleged hack.”
"While South Africa’s Finance Sector Conduct Authority is also looking into Africrypt, it is currently prohibited from launching a formal investigation because crypto assets are not legally considered financial products, according to the regulator’s head of enforcement, Brandon Topham. The police have not yet responded to a request for comment."
"The founders of the company, Raees and Ameer Cajee, have reportedly disappeared to the UK – while investigators say the ‘hack’ reeks of something more sinister." "In its report, the UK outlet Daily Mail claims to have seen documents suggesting that Raees had purchased Vanuatu citizenship for about $131,000 (£95,000) back in October 2020. About three months later, Ameer would make a similar purchase." "According to the report, the Cajee brothers are among more than 2,000 people who bought citizenship in 2020 using the country’s controversial “golden passports” scheme." "The same report quotes Cajees brothers suggesting that their disappearance had been prompted by fears that a criminal gang wanted to harm them."
"Interestingly, the claims by the brothers that they fled South Africa to avoid being harmed by an organized criminal syndicate appear to be corroborated by a Moneyweb report. In this report, the Cajees brothers are quoted claiming that they had received death threats following the collapse of Africrypt. It is these death threats that Raees uses to justify their joint decision to flee the country."
"However, in its report, the South African-based Moneyweb appears to contradict the assertion that Raees and his brother are hiding in Vanuatu. Instead, it points to an affidavit signed by Raees which indicates that he may have been in Tanzania when he signed this document. The signing of the affidavit had apparently been prompted by a South African High Court’s decision to grant a provisional liquidation order against Africrypt."
"As the Moneyweb report notes, in the next few months, the High Court is expected to rule on whether to grant the final order or not. However, before this ruling is delivered, interested parties argue their cases hence Raees’ affidavit."
"Meanwhile, in his affidavit, Raees again dismisses claims that $3.6 billion in investors’ funds have gone missing under the Cajee brothers’ watch. Instead, Raees suggests that the amount in question is closer to $6 million." "A lawyer for two brothers who founded a South African Bitcoin investment firm has told the BBC they categorically deny any involvement in a "heist"." "Also in his affidavit, Raees rejects allegations that Africrypt had a bank account at FNB or the assertions that the investment company had invested in cryptocurrencies. He also repeats Africrypt management’s long-shot argument that the investment firm should not be held liable for the losses." "According to Gerhard Botha, an attorney representing a group of investors, the claims against Africrypt totalled around R140m in June."
"Lawyer John Oosthuizen, who represents Raees and Ameer Cajee, told the BBC the brothers "categorically denied" they had been involved in a "heist" or had absconded with funds."
"There is no foundation to the accusation and there's no merit to those accusations," he said. "They maintain that it was a hack, and they were fleeced of these assets," he added. "He said his firm was working to prepare a dossier to demonstrate to the authorities that Africrypt had been hacked and the brothers had been the victim of theft."
“We don’t think this is possible,” says Cheong, a certified crypto and blockchain investigator. “If this is true, the hackers would have broken through several security layers in a matter of minutes to get to the crypto, and that is extremely unlikely. We don’t think this was a hack. One reason we say this is that four months before the alleged hack, funds were being depleted out of wallets under the control of Africrypt.”
While AfriCrypt's legal team "declined to confirm the $3.6bn value for the Bitcoin lost, and noted media reports suggesting the value was an overestimate", "Cheong says Hanekom’s claim of R43 billion is closer to the truth, and hints that the actual figure could be higher – much higher – once all the wallets used by Africrypt are totalled together." "By painstakingly piecing together the web of transactions into and out of wallets used by Africrypt, Cheong hints that some of these wallets are used by operators known for ransomware attacks on business and by ‘dark web’ operatives."
AfriCrypt's legal team has emphasized "that the [founders] were young men aged 18 and 20 with "very little life experience"." "He said the brothers had received death threats and their first reaction was to keep themselves and their families safe." "He said Raees and Ameer Cajee would co-operate with any future inquiries by the authorities. But at present they had not been notified of any investigation."
Due to a market void caused by a lack of regulation, AfriCrypt was founded in South Africa and grew to massive size as the leading exchange platform. There was no oversight as the platform assets were depleted and the platform was utilized by every range of nefarious actors.
Some blockchain analysis alleges that the platform was not fully backed and funds were being moved out for at least 4 months prior to the official "hack". Investors had no visibility to ensure their assets were backed, nor any way to hold the platform accountable. If we believe the official hack story, assets were not stored properly in cold storage. Given the reported credentials/background of the rest of their team, if either of the other two members of their team has been key holders, it's doubtable that any of the funds would have gone missing.
At the moment, it would appear that all platform users will face nearly complete losses of their funds, after a long legal battle.
HOW COULD THIS HAVE BEEN PREVENTED?
AfriCrypt is yet another one of the "easy to prevent" cases, given that it could have been prevented or severely mitigated by any regulatory framework enforcing offline storage of funds, proper multi-signature wallets, or visibility to the backing of assets.
With the right framework, these types of situations are extremely easy to prevent with minimal impact to innovation.
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