REUTERS | Dado Ruvic

Cryptocurrency fraud and asset recovery

It is no secret that the rapid development of cryptocurrencies and sudden surges in their popularity have posed challenges for the authorities.

Investors, financial and legal experts, traders and commentators on this swiftly-evolving sector have voiced their feelings on this subject at various times in recent years. Often their statements are prompted by significant or newsworthy events involving cryptoassets, and often they focus on the lack of regulation surrounding such assets and the seeming inability of the law to keep abreast of developments.

Judgement in one recent case, however, looks set to be of huge significance regarding cryptocurrency fraud and asset recovery. The case of Ion Science Ltd and Duncan Johns v Persons Unknown, Binance Holdings Limited and Payward Limited, in which I represented the applicant, can be considered a landmark. It may be set to have relevance in many future, crypto-related cases.

The case is notable because it is believed to be the first initial coin offering (ICO) fraud case to have gone before the Commercial Court. As such, it can be seen as the first step towards addressing at least some of the legal questions posed by cryptocurrency and, in particular, its use by those looking to make fraudulent gains.

But if that was not notable enough, this was also the first case where the court granted permission to serve a free-standing Bankers Trust order out of the jurisdiction against cryptocurrency exchanges. In AA v Persons Unknown, it was doubted whether this could be done. This latest case makes it clear that it can be done. This is a development that gives a vital tool to those looking to trace what they have lost via crypto-related fraud, as such an order compels a third party (in this case a cryptocurrency exchange) to disclose certain information to the applicant.

It could be argued that the case is also as important for being the first time that a court has considered the lex situs (the location) of cryptocurrency. The case saw the court assess whether England was the appropriate forum for the trial of the dispute. The court considered that the events (the fraud) had occurred within the jurisdiction and related to Bitcoin that was, or had been, within the jurisdiction and so, therefore, the lex situs was said to be the UK. For the purposes of this case it meant that England was to be viewed as the right place for the case to be heard. But looking beyond this case, this decision may be one that brings much-needed clarity to an issue that is set to arise with increasing frequency.

While the judge made it clear that this judgment should not be considered authority (in line with the practice direction dealing with the status of judgments on ex parte applications), it is nevertheless a case that is sure to have ramifications.

For those seeking to regain what they have lost due to cryptocurrency fraud, it gives them some sort of route map to follow when it comes to bringing legal action to regain what is theirs. For those who have committed crypto-related fraud, it is an indicator that the law is coming to recognise the dangers they pose.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: