Here’s What Happened When Investors Let Teens Handle Their Risky Crypto Investments

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When Gill Mudditt raised money by selling his house last year, a friend introduced the Johannesburg resident to Ameer Cajee, an 18-year-old who ran a South African cryptocurrency investment firm.

Mudditt, 72, saw an opportunity to grow his money by harnessing the bitcoin craze. Cajees’ age didn’t bother her. On the contrary, I’m glad he’s young, he knows more than I do, she said, she thought at the time.

Mudditt invested around one million South African rand, or the equivalent of about $ 70,000, at the end of last year in Africrypt. The company was started by Cajee and her brother Raees in 2019, when they were 16 and 19, respectively. Mudditt says she was told she would trade bitcoin and other digital assets using an algorithm developed by the brothers.

The Cajees have attracted millions of dollars in investment capital into Africrypt until things started to unfold this spring. In April, the brothers told investors their business had been hacked and funds stolen, forcing them to suspend Africrypts’ operations. Then they disappeared.

The rise and fall of Africrypts took place in a hot cryptocurrency market. The prices of bitcoin, ether, and even joked assets like dogecoin have skyrocketed this spring. This attracted individual investors to companies like Africrypt, which offered a way to profit from the upside down market with trading strategies that made the uncharted territory of cryptocurrencies accessible and attractive.

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Many Africrypts investors came from a circle of largely affluent South Africans that included a professional athlete and business owners. Clients like Mudditt had met the brothers through friends or family members and introduced them to others.

How much Africrypt manages, and how much the brothers owe these investors, is disputed. A lawyer for an investor group says he believes Africrypt, or a syndicate he was a part of, controlled a blockchain address that at one point held assets worth $ 3.6 billion but no longer holds anything.

Africrypt CEO Raees Cajee, now 21, says the company has never managed so much money for its clients. His company’s assets under management were just over $ 200 million at the peak of the market, and he is about $ 5 million missing, he told the Wall Street Journal in late June. Since then, the brothers and their representatives have not responded to calls or emails requesting comment on this article.

Since April, a group of investors have hired lawyers to try to trace the funds, while another group has taken legal action to try to liquidate Africrypt and recover the money.

The cryptocurrency world has grown far beyond the reach of financial watchdogs in many countries, including South Africa and the United States. This has left regulators like the United States Securities and Exchange Commission to step in only when they believe an existing law applies to a certain digital asset or transaction, although some authorities around the world are now looking for more. control.

South Africa’s financial watchdog said last month that cryptoassets are not currently regulated by any financial sector law, and the Financial Sector Conduct Authority is unable to take regulatory action. on Africrypt. Lack of oversight can leave Africrypts investors with little protection and complicate their efforts to recover their funds. The decentralized nature of cryptocurrencies and the anonymity they give to users are also likely to be barriers.

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The normal mechanisms or tools that we would have as a regulator, we don’t have in this case, said Brandon Topham, FSCA’s head of enforcement and market integrity. We have no jurisdiction, but the police are investigating, he added.

South African police spokespersons addressed questions about the Cajee and Africrypt brothers to the Hawks, a special investigative unit. A spokeswoman for the Hawks said no case had been opened.

Luis Farias, 50, a co-owner of three gas stations and a container business, heard about Africrypt through a friend. He says he met Raees Cajee in the city of Durban and felt a connection when he learned that the young man’s father, like himself, was suffering from partial paralysis. Soon the father visited Farias on the outskirts of Durban for coffee, he said.

Farias says his bond with the Cajee family deepened from there: parents invited Farias to lunch, and the two families bonded over their interest in luxury cars. The Cajees drove a Porsche and a Lamborghini, among others, he says. Farias says he supported Raeess’ candidacy for the members-only Porsche Club.

Farias initially invested 200,000 rand in Africrypt, as of July 2020, and then raised it to millions of rand. The brothers had assured him that they were limiting the risk to his capital by trading with only 20% of the funds he had invested, he said.

Over time, Farias says he’s been told his funds generate around 8-9% returns each month. Mudditt says she was getting around 10% profit per month. Both left their profits invested with Africrypt.

An investor presentation of Africrypt seen by the Journal offered a snapshot of 20-month trading results for three portfolios through August 2020. Investors could put as little as R10,000 in a passive portfolio, with returns varying from 1.5% per month to 4.4%. An aggressive style portfolio, requiring a minimum investment of R 1 million, was showing returns of up to 13% in a month. None of the three types of portfolios recorded a loss in a month.

After six months of investing with the Cajee brothers, Farias says he told his business partner, best friend, and family doctor about Africrypt.

READBitcoin is likely to do more harm than good in developing countries

But things started to take a turn for the worse in the spring.

For Farias, the first sign of trouble came when his son tried unsuccessfully to withdraw 50,000 rand at the end of March. Farias says they have been told on several occasions that the request is being processed. A few days later, Farias discovered that he could not access the website to check his account balance.

Farias says he found himself in a difficult situation. For me, it’s not just about the money, he says. I had a personal relationship with these guys.

Still, on April 12, he emailed Raees Cajee asking for a full refund.

A day later, he and other investors received a letter from Ameer Cajee saying the company’s systems had been breached. Ameer, chief operating officer of Africrypt, said the company is trying to recover the funds and urged investors to be patient and not to take legal action as it will only delay the recovery process. .

Farias says he immediately contacted a lawyer.

The Cajee brothers are now in hiding because they have received death threats, according to Raees. They plan to return to South Africa to attend a July 19 court date related to Africrypt’s liquidation proceedings, he told the Journal last month.

As Farias and other investors wait to collect their funds, Mudditt could prove to be one of the privileged few. In February, the food supplement distributor needed to make payment for a new home.

I was thinking, I don’t want to pay when I get 10% out of a million a month, she said. Yet Mudditt withdrew the million Rand she initially invested, leaving an additional 200,000 Rand of accumulated winnings in her Africrypt account.

Mudditt says she still hopes to get the rest of her money back.

Farias, meanwhile, says he tried to pressure the Cajee brothers to return his funds while deepening their operations. He says he told Raees he would take the information he gathered to the authorities.

In mid-June he got a text from Raees: Good luck like I mentioned once that happens there is nothing I can do for you. Hope you understand very clearly what this means before you do something stupid.

Write to Anna Hirtenstein at [email protected] and to Alexandra Wexler at [email protected]

This article was published by Dow Jones Newswires

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