Bitcoin Fraud: English Court Grants Extensive Interim Measures to Protect Investors | Dechert LLP

The English Supreme Court granted1 a combination of powerful remedies, including worldwide freeze orders in favor of a UK resident who fell victim to unknown persons operating a suspicious cryptocurrency investment scam. This ruling strengthens the growing reputation of English courts for acting quickly to grant urgent remedies to protect victims of cryptocurrency fraud.

The facts

In late 2021, the applicant transferred over £26,000 to ‘Matic Markets’, a cryptocurrency investment platform based in London and Switzerland, to invest in Bitcoin. She believed that Bitcoin would increase in value and be released to her upon request. However, when she tried to withdraw her Bitcoin and any profits in December 2021, her request was refused by an apparent representative of Matic Markets. She became suspicious and commissioned an expert report, which concluded that shortly after the plaintiff acquired the Bitcoin, it was embezzled by unknown persons (named as the first defendant), before being transferred to a final cryptocurrency wallet without their consent in the Seychelles. – exchange based on Huobi Global Limited (Huobithe second defendant).

The decision

A significant amount of the applicant’s Bitcoin had likely already been dissipated, with a small amount potentially under Huobi’s control.

Based on the findings of the expert report, there was a good arguable case that Matic Markets was a fully fraudulent operation run by organized criminals, with the potential to misappropriate investor funds and interfere with other banking and online transactions.

The judge granted all orders requested by the applicant, including:

1. an injunction preventing both defendants from dealing, directly or indirectly, with traceable Bitcoin;

2. a worldwide freeze order prohibiting the first unknown defendant from unreasonably discarding or otherwise handling Bitcoin in the final cryptocurrency wallet;

3. a disclosure order requiring Huobi to disclose payment-related information about account holders to assist in the identification of the first unknown defendant related to the final wallet;

4. reporting restrictions to avoid reporting the alleged fraudsters, thus minimizing the chances that the remaining Bitcoin will be dissipated; and

5. Permission to Serve Out of Jurisdiction by Alternative Means. Given the apparent fraudulent nature of Matic Markets, there was no certainty that the names of the people the applicant had previously responded to were true. However, she did have access to the email addresses to which lawsuits could be notified.

The Judge also confirmed that the English court was competent to hear the request for the reasons set out in art. Ion Science Ltd v Unknown People, which we reported in March 2021 (accessible here), namely that the applicable law to determine the dispute is the law of the place where the owner of the crypto asset is domiciled.

On a related note, after granting remedies similar to those described above, the English court in ion science recently commissioned what we understand to be the first third-party debt order on Fiat money (i.e. conventional) in relation to diverted crypto assets. Third-party debt injunctions allow judicial creditors to recover part or all of the condemning debt by freezing and seizing amounts owed by a third party to the debtor.

conclusions

The importance of acting quickly when there are concerns of cryptocurrency misappropriation cannot be overstated. The English court in the case of Sally Jayne Danisz acknowledged that in cases of alleged fraudulent misappropriation, cryptocurrency can be dissipated “with a click of the mouse” and that time is “manifestly essential”. The speed with which English courts can act and grant powerful preventative remedies in such cases should provide cryptocurrency market users with a certain degree of comfort.

Furthermore, the English court’s decision in ion science granting a third party debt order shows that remedies available in England have strength and can result in tangible recoveries for investors subject to crypto fraud.

The authors thank Maddie Drabble, Trainee Solicitor in London, for her valuable contribution to this OnPoint.

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footnotes

1) Sally Jayne Danisz v (1) Unknown Persons (2) Huobi Global Limited (trading as Huobi) [2022] EWHC 280 (QB).

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