Africrypt fraud: possibly the largest exit scam in history

    01 Jul 2021

    This is a story so simple that its almost frightening. Amir and Rais Kaji, two brothers from South Africa, created a large cryptocurrency exchange Africrypt in 2019. Lo and behold, they just disappear, along with 69,000 BTC of their clients – at the time it was worth over $ 4 billion (according to other estimates – $ 3.6 billion).

    As per the reports by the local media, first problems for “African Winklevosses” began in April this year, at the same time when the bitcoin rate was smashing records (on April 17-18, the BTC traded for a record $ 64,000+ per crypto coin). Shortly before that, on April 13, Amir Kaji (who was a Chief Operating Officer) sent out a message to Africrypt clients that the company had stopped its operations due to a hack: “Our system, customer accounts, wallets and nodes have all been compromised.”

    Afterwards Africrypt management asked clients not to report the incident to lawyers and authorities, as it would “slow down the process of recovering funds.”

    At this point, all this already looked like a classic crypto exchange exit scam. Moreover, later, in the course of the investigation, it turned out that ordinary Africrypt employees had lost access to the servers a week before the brothers announced the (alleged) hack. (We will leave the question as to why no one sounded the alarm at that moment to the investigators.) In addition, the very fact of a hacker attack on the exchange has not yet been confirmed.

    Over the course of the week, as it turned out later, cryptocurrency funds from accounts and client wallets were withdrawn and put through bitcoin mixers, which now made them impossible to track. (Which raises another question: why didn’t the laundering of a huge amount of 69,000 BTC raise questions from Western intelligence agencies, which have long been monitoring such movements of cryptocurrency funds?)

    Shortly thereafter, the company website went down and the brothers dropped off the grid (calls were redirected to voicemail, and later their phones were disconnected). The Kaji brothers also deleted the cryptocurrency exchange account on Twitter, but for some reason kept its profile on Instagram.

    The the crypto exchange users quickly coordinated their efforts and hired a Cape Town-based law firm Hanekom Attorneys to investigate the “hack”. Its experts, having assessed the incident, themselves turned to the elite unit of the South African Police Service with a request to investigate the disappearance of Amir and Rais Kaji.

    At the same time, the monitoring of Africrypt’s activities was taken up by the South African Financial Sector Conduct Authority (FSCA). And then it turned out that this financial regulator cannot conduct an official investigation – under the current laws crypto assets in South Africa are not considered financial products. Essentially, legally speaking, Africrypt’s founders stole a wagon of candy wrappers.

    Another quite fascinating thing to note is that the younger of two brothers is now 17, the older is 20.

    By the way, there is another version of this entire story. It claims that the Kaji brothers, along with the crypto exchange, had also launched a certain investment project associated with it, and in this scheme of theirs promised the investors a return of 10% per day. So here we are talking about a trite old financial pyramid, of which this world has already seen plenty.

    According to people involved closely with those events, Rais Kaji called himself a “cryptocurrency guru”: he told investors that he learned about bitcoin in 2009, when he was only eight years old – in his words, he watched the news with his father, and saw everything there. Later, at school, he started mining ETH. Then, as a grown-up, he allegedly created an artificial intelligence-based trading platform that “contributed to the astronomical growth of Africrypt.”

    The stories, by the way, are completely unoriginal: the author of these lines has heard similar fables in the crypto world many times, sometimes repeated verbatim. However, clients who believed these stories sometimes invested more than $ 100,000, with some investments reaching as high as $ 1.4 million.

    Finally, the most recent details: the Kaji brothers did not just disappear off the face of the Earth: there is now a lawyer named John Oosthuizen representing their interests. He told BBC reporters that the brothers “categorically deny” their involvement in the “robbery” or accusations that they fled with the money.

    Asked if the brothers had contacted the police following the alleged hack, Oosthuizen replied: “No.” According to him, some unknown people threatened the brothers’ lives, so they primarily were concerned with protecting themselves and their families. The lawyer also said that his firm was working on preparing a dossier that should demonstrate to investors and law enforcement agencies that the Africrypt exchange was hacked, and the brothers themselves had been victims of a crime. Finally, the lawyer promised that Rais and Amir Kaji would cooperate with the authorities in any investigations.

    However, so far all this looks like an exchange exit scam – which it likely is. So, if the brothers are not found, the Africrypt story may turn out to be the largest cryptocurrency scam in history. There is also, of course, the amazing story of the PlusToken pyramid collapse, the damage from which was estimated at $ 5.8 billion. But there was still no cryptocurrency to speak of – just cryptocurrency rhetoric and tall tales about the blockchain used to attract funds from future defrauded depositors.

    One more question remains: why did this happen in South Africa? After all, Africa is the poorest continent, and it is not easy to collect such a huge amount of money there. But it is in Africa where blockchain and fintech companies have flourished in recent years. The reason being, the majority of the continent’s population is not covered by banking services, does not have bank accounts, and local currencies are often subject to high inflation. So, various mobile payment systems in Africa are much more popular than in other regions of the world – even people who cannot read and write use them freely here.

    But this has a downside: low financial literacy among the population. People who have never dealt with a bank in their life, do not know the real deposit rates or the basic rules for managing their own finances, are much more likely to buy into the promise of a 10% daily return than any European or American.

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