Cryptocurrency Fraud - The High Court Considers The Position Of "Cryptoassets"

Publication Date06 May 2021
SubjectFinance and Banking, Criminal Law, Technology, Financial Services, White Collar Crime, Anti-Corruption & Fraud, Fin Tech
Law FirmStevens & Bolton
AuthorLorna Sleave and Edward Cummings

In our article last year we discussed the extent to which cryptocurrency is considered to be "property" for the purposes of English law and recent case-law which clarified the remedies available to victims of fraud concerning the digital currency. Despite cryptocurrency being in use for some time, having been first created in 2009, investing in it has become increasingly prevalent in recent years. As its use and popularity grows an increasing number of disputes involving cryptocurrency are being dealt with by the English courts, and while the approach of the courts in dealing with this kind of fraud may not have crystallised yet, the position is becoming clearer.

A recent High Court decision in Ion Science Limited & Duncan Johns v Persons Unknown & Others, has provided further guidance and we discuss the decision below.

Background

The case arose from proceedings brought by Ion Science Limited (ISL) and its sole director Duncan Johns, who claimed to be victims of a cryptocurrency initial coin offering, or ICO, fraud. Mr Johns claimed he was persuaded by an individual said to be connected to a Swiss entity called Neo Capital, Ms Black, to transfer funds which were converted into Bitcoin by Ms Black, granting Ms Black remote access to his computer to manage this. Mr Johns also made further transfers to an escrow account, claiming Ms Black informed him these payments were needed to release commission payments from one of the investments, the "Oileum ICO".

The applicants said they subsequently discovered that Neo Capital was not a real company and the Swiss regulator had issued a warning that it may be providing unauthorised services. Neither Mr Johns nor ISL received any profits supposedly made in relation to the Oileum ICO or received back any of the funds invested. The court heard evidence from an expert in cryptocurrency frauds who concluded that (i) a substantial part of the Bitcoin transferred or their traceable proceeds were held by the Binance and Kraken cryptocurrency exchanges; and (ii) both exchanges held information about the customers to whom those accounts belong.

Alleging the sums invested had been misappropriated, the applicants applied for a proprietary injunction, a worldwide freezing order and an ancillary disclosure order against persons unknown, the individuals or companies describing themselves as being or connected to Neo Capital. In addition, the applicants sought a disclosure order against Binance Holdings Limited, a Cayman company...

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