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Dispute Resolution
Tuesday 6th April 2021 Jake Woodhouse  Niten Chauhan 

Recent case provides clarity over cryptocurrency fraud

The recent decision handed down in Ion Science Limited and Duncan Johns v Persons Unknown, Binance Holdings Limited and Payment Ventures Inc. (unreported, 21 December 2020) appears to provide some much needed clarity and, indeed, assurance to crypto-currency owners who may be concerned about the spate of fraudulent activity which has spawned and multiplied within the crypto-asset sphere.

FACTS

The applicant paid 64.35 Bitcoin (valued at around £577,002) to what was believed to be a reputable company offering legitimate crypto-currency products. However, it transpired that he had been duped by fraudsters who, after assuring the applicant that his investment in two separate ICO’s (Initial Coin Offering) had been successful and that profits would be paid out, instead took his Bitcoin and dissipated it through various cryptocurrency exchanges.

BANKERS TRUST ORDER

The UK Commercial Court has now granted the defrauded party’s application for a Bankers Trust order, which has the effect of compelling the crypto-currency exchanges (of which the fraudsters were users) to disclose information pertaining to the fraudsters’ movements of the Bitcoin and its location. This appears to be the first time that the court has granted permission to serve a freestanding Bankers Trust order out of the jurisdiction against cryptocurrency exchanges, following reluctance to do so in AA v Persons Unknown AA v Persons Unknown [2019] EWHC 3556 (Comm).

WORLD WIDE FREEZING ORDER

An application was also made and granted for a proprietary injunction and world-wide freezing order over the assets of the fraudsters involved. What is particularly important is that this was granted by the court against persons unknown but upon the basis that the court had satisfied itself that the description of the fraudsters was clear enough to allow the establishment of who would and would not be included in the group involved.

GUIDANCE ON “LEX-SITUS”

Clarity was also given as to the “lex situs” of a crypto-asset (the location of crypto-assets for the purpose of the applicable law), which was held to be the place where the relevant participant in the Bitcoin system (in this case the person or company who owned the Bitcoin) is domiciled. As such, the applicant was able to bring proceedings in the UK.

IMPACT OF THE CASE

Though not a binding authority, the case is a good demonstration of the court’s treatment of crypto-assets as property and their willingness to be flexible where crypto-assets are concerned, with a seemingly greater desire to assist victims of fraud involving cryptocurrency.

That being said, the actions of the court will remain inherently reactionary in nature to such crypto-asset fraud. In order to make the crypto-asset sphere a safer space for investors (and thereby potentially increase the value of the crypto-assets themselves) greater volumes of regulation directed toward consumer protection would be desirable.

This almost certainly will not be the last word said on the matter so be sure to check our website for future developments.

For more information on this or any other fraud related matters, contact Niten Chauhan by email on nchauhan@jpclaw.co.uk or telephone 020 7644 7263 or connect with him on LinkedIn, or Jake Woodhouse by email on jwoodhouse@jpclaw.co.uk or telephone 020 7644 7276 or connect with him on LinkedIn.

Disclaimer

All articles on this website do not necessarily cover every aspect of a topic and are designed for information purposes. Reliance should not be placed on their contents without specific legal and financial advice first being taken.

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