Fraud and Cryptocurrency – recent developments

We are now starting to see a variety of cryptocurrency related frauds appearing before the English Court. Following the decision in AA v Persons Unknown [2019] EWHC 3556 (Comm) (where an insurer was granted a proprietary injunction as part of its strategy to recover a ransomware payment which had been negotiated and paid in Bitcoin) the English Court has dealt with several cases relating to cryptocurrency. Two of those cases are mentioned in this blog.

Firstly, it is noteworthy that disputes involving cryptoassets require specialist legal assistance. Not only do they require the deploying of specialist third party blockchain tracers, they are almost always multi-jurisdictional. This presents operational challenges which need to be developed and carefully considered as part of the asset recovery strategy. For example, the governing law and jurisdiction of the claim may be unclear, or alternatively interim and final orders may need to be recognised and enforced in other jurisdictions.

Secondly, it is apparent that the English Court has sympathy for victims of fraud in these situations, and is ready and able to assist in the tracing, following and recovery of those assets. Indeed, the nature of these frauds are varied. It is not always the case that the asset which was misappropriated was the cryptocurrency itself, our experience is showing that the conversion of misappropriated funds into cryptocurrency is part of the process of masking the identity of the wrongdoers. Therefore, we expect that cryptocurrency will continue to be used as a vessel to attempt to move misappropriated money beyond the reach of the victim.

Thirdly, the very nature of these claims makes it very challenging to immediately identify the wrongdoer. The gateway for securing freezing orders and related relief against persons unknown (developed in CMOC Sales & Marketing Limited v Persons Unknown & Others [2018] EWHC 2230 (Comm) is now being used to help victims of these frauds.   In cryptocurrency matters, the applicants generally seek injunctions and supporting disclosure orders to locate the wrongdoers and: (1) restrain the assets of the wrongdoers and (2) restrain the traceable proceeds of the cryptoassets that had been removed from the relevant exchange(s). The availability of Norwich Pharmacal Orders and Bankers Trust Orders (in circumstances where the exchange that has the information may be out of the jurisdiction) is a matter that the Court carefully considers.

In Ion Science Ltd v Persons Unknown & Others (unreported), 21 December 2020 (Commercial Court), the Commercial Court granted interim injunctions and a bankers trust order against certain cryptocurrency exchanges following an alleged initial coin offering fraud (whereby approximately BTC valued at around £577,000 was paid to a third party). This was the first case that considered the issue of the lex situs of cryptocurrency (for the purposes of determining jurisdiction and governing law of the claim), and also paved the way for Bankers Trust orders (i.e. orders to obtain confidential information about the customer of a financial institution that has perpetrated a fraud) being granted against exchanges out of the jurisdiction.

In Fetch.AI Limited  & Others v Persons Unknown & Others [2021] EWHC 2254 (Comm), it was alleged that persons unknown were able to access accounts (held with Binance) which contained several different cryptoassets. The wrongdoers then traded the cryptoassets at an undervalue, which caused losses totalling in excess of $2.6m. What is noteworthy here is that part of the claim was framed in breach of confidential information (the confidential information being the private key that controlled the wallet).  In addition, and in considering the categories of persons unknown, the Court was also careful to ensure that innocent receivers of the cryptocurrency were adequately protected. The latter point is something that will undoubtedly be developed (i.e. where a third party alleges that they innocently acquired stolen cryptocurrency) – and it is expected that there will be significant judicial argument on those issues (not necessarily in this case) in due course.

The English Court is very much alive to the new frontier of cryptocurrency disputes and has sympathy for the challenges faced by the victims of fraud in those situations.  We expect that the English Court will continue to support these victims and the creation of new solutions to what are complex and multi-jurisdictional legal problems.


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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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