English court grants wide-ranging relief after cryptocurrency scam

4th March 2022

Why is this case of interest?

In SD v (1) Persons Unknown (2) Huobi Global Ltd (trading as Huobi) [1], the High Court granted a total of six worldwide freezing orders, interim injunctions and disclosure orders against ‘persons unknown’ for the benefit of a UK resident who had unwittingly fallen victim to a suspected cryptocurrency investment scam.

The decision is a further helpful illustration of the English courts’ pragmatic approach and wide powers to assist with the recovery of misappropriated digital assets such as cryptocurrencies [2]. It reaffirms England and Wales’ position as a leading jurisdiction for dealing with this type of action. Individuals and companies that need to take action against fraudsters online can be reassured that the English courts understand these emerging and evolving types of intangible digital assets and have the necessary powers to assist with recovering them, just as they do with physical property.

What happened in the case?

The claimant transferred her Bitcoin to a cryptocurrency investment platform called ‘Matic Markets’, which she had seen advertised by a celebrity on social media. She believed that the Bitcoin would appreciate in value and that she could have it released back to her as she pleased at some future date. However, when the time came for her to withdraw her Bitcoin and any profit from the platform, this was refused by the Matic Markets representative she had been dealing with.

Alarm bells rang with the claimant who commissioned an expert to trace the location of her Bitcoin. The expert found that the entire Matic Markets platform was likely engineered to misappropriate funds, but that some of the claimant’s Bitcoin could be traced to an “end wallet” at the Huobi exchange.

Unfortunately for the claimant, the remaining Bitcoin could no longer be traced. In order to prevent any further dissipations, the claimant swiftly brought an urgent application to the High Court seeking:

• A worldwide freezing order to prohibit dealing with the Bitcoin that had already been traced;

• An interim injunction to stop the removal or disposal of the traceable Bitcoin;

• A disclosure order against Huobi to release payment details to assist with identifying the ‘persons unknown’.

All of the claimant’s applications were granted in full. The Financial Conduct Authority issued warnings about the suspected scam nine days later and further court orders were secured at a later hearing.

What legal and practical advice arises?

• Cryptocurrencies and other digital assets are recognised as property under English law, in respect of which the courts can grant proprietary injunctions (in addition to other forms of relief). Any prospective claimant should not be discouraged from using the courts as an effective route to try and recover digital assets.

• The English courts consider that the location of a cryptocurrency is determined by the place where the owner has a residence or place of business. This means that an individual based in this jurisdiction can also commence court proceedings in the English courts to recover cryptocurrencies that may have since been dissipated to foreign jurisdictions. This is particularly helpful where fraudsters who are able to transfer digital assets at the click of a button are likely to be located in various places across the globe.

• Those who suspect they have had their digital assets fraudulently misappropriated should seek immediate specialist legal advice and act swiftly in (1) instructing an expert legal tech investigation firm with extensive knowledge and capabilities to locate the assets and (2) applying to the court for injunctive relief – even where the perpetrators are unknown. The claimant was praised by the court in this case for not delaying in bringing the action over the Christmas and New Year period.

• If a claimant does not know the actual identity of the individuals who have misappropriated their assets or where those individuals are located, it should seek the court’s permission to carry out alternative service of the court documents (for example by sending them to any specific email addresses it has for the suspected fraudsters).

• A claimant may also wish to consider obtaining a ‘Bankers Trust’ disclosure order which can require banks or institutions holding misappropriated funds to disclose certain payment-related information about account holders. These can be made outside the jurisdiction and can lead to the location and preservation of the digital asset which is highly useful in instances of fraud.

How we can help

Any individuals or businesses who suspect that their digital assets have been stolen or exposed to a potential fraudster should seek specialist legal advice immediately in order to protect the assets as best as possible and limit any further dissipation.

Walker Morris’ Commercial Dispute Resolution team has extensive experience of dealing with fraud claims and obtaining effective injunctive and other relief to preserve stolen assets. We have strong links with a number of tech experts who are able to assist with tracing stolen digital assets. Our Technology & Digital and other specialist colleagues across the firm are used to advising from a prevention perspective, for example on matters such as governance and/or data security.

Please contact Louise or Jack if you have any queries arising from this briefing or need any advice or assistance.

[1] [2022] EWHC 280 (QB)

[2] See our recent briefings on combatting cyber fraud and injunctions against ‘persons unknown’