SO Legal secures High Court disclosure and freezing order for crypto fraud victim

In a significant victory for our client, SO Legal successfully obtained a disclosure order and interim freezing order in the High Court of Justice, Business and Property Courts of England and Wales in connection with their suspected involvement in a sophisticated cryptocurrency fraud.

This order, issued without notice, froze assets worth £135,000 and requires a cryptocurrency exchange to disclose information regarding the identity and location of the owners and controllers of specific wallet addresses connected to the fraud. The application included an order for innovative alternative service via NFT. 

This case highlights the evolving nature of cryptocurrency law and demonstrates the court's ability to respond rapidly to protect victims of digital fraud.

The freezing order

Our client approached SO Legal after falling victim to a complex digital fraud. Their cryptocurrency had been stolen and traced to wallets controlled by the first and second respondents. Despite not knowing their identities, SO Legal, acting on behalf of the client, demonstrated the necessity of urgent legal action.

The primary legal remedy sought was a freezing injunction to prevent the respondents from moving or dissipating the stolen assets, valued at approximately £135,000.

The order was issued without notice, meaning the respondents were not informed of the application before it was granted to prevent any risk of them hiding or moving the assets.

Key points of the order include:

• Specific wallet addresses, understood to be owned and controlled by the first and second respondents were subject to a freezing order.
   
• The first and second respondents are prohibited from removing any assets from England and Wales, or from disposing of or diminishing the value of their assets, up to the value of £135,000.
   
• The freezing order applies to all assets, whether located inside or outside of England and Wales.
   
• A disclosure order was made against the third respondent requiring them to disclose the identity and location of the owner(s) of specific wallet addresses, which formed part of the cyber fraud.

Service of the order via NFT

Given the first and second respondents' identities and locations were unknown, SO Legal successfully argued for an innovative method of serving the court documents.

The order and all supporting documents were served by an NFT (non-fungible token) delivered to the respondents' digital wallets on the Binance exchange. This cutting-edge approach allowed the legal team to ensure that the documents reached the respondents in a secure and trackable manner despite their anonymity.

Additionally, the applicant was granted permission to serve documents to the third respondent, Binance, at its registered office in the Cayman Islands.

Legal arguments presented

The case was built through the efforts of Ryan Grace and SO Legal's litigation team, who worked to secure the best possible outcome for the client. Their work laid the foundation for the legal strategy that followed.

Led by Clive Blackwood, counsel for the applicant from Lamb Chambers, Temple, SO Legal presented the following key legal arguments:

1. Cryptocurrency as property: While cryptocurrency is virtual in nature and ultimately exists only on a distributed computer ledger, it has been established that cryptocurrency constitutes "property" in English law. This was established in cases such as AA v Persons Unknown (2019) and Wang v Darby (2021). The court accepted that the stolen cryptocurrency could be treated as property, making it subject to the freezing order.
    
2. Jurisdiction: SO Legal argued that, according to recent case law, the jurisdiction for crypto-assets is where the owner is domiciled, which in this case was England and Wales. This principle was established in Ion Science & Duncan Johns v Persons Unknown & Others (2020) and reaffirmed in Fetchai v Persons Unknown & Binance (2021). The court agreed, accepting that English law should apply to this matter.
    
3. Persons unknown: The identities of the first and second respondents were unknown, but the court has previously shown a willingness to issue orders against "persons unknown" in cases involving cryptocurrency fraud (e.g., Tippawan Boonyaem v Persons Unknown). SO Legal demonstrated that the respondents could be tightly defined as the persons responsible for the theft and the individuals controlling the wallets where the funds were traced.

Next legal steps: The road ahead

Following the successful issuance of the freezing order, several steps remain in this case:

• Further disclosure: A critical next step in this case is obtaining a disclosure order against the third respondent, the cryptocurrency exchange where the stolen assets were transferred. The exchange holds essential information about the identity and location of the first and second respondents, which is crucial for progressing with legal action. A disclosure order will compel the exchange to reveal information about the digital wallets associated with the fraud, including the identity of the individuals controlling them. As the exchange is required to operate strict "know your customer" (KYC) protocols, it is likely to possess detailed records about the account holders behind these wallets.
   
• Enforcement and recovery: Once the respondents' identities are established through the disclosure process, SO Legal will take further legal action to recover the stolen cryptocurrency and seek additional remedies on behalf of the client.

Conclusion: Protecting digital assets with innovative legal strategies

Crypto assets like Bitcoin and NFTs have experienced significant growth in recent years, leading to the emergence of complex and unique legal challenges. This case demonstrates the agility of the English courts in responding to digital fraud and the legal protection available to crypto owners.

Our proactive and strategic approach enabled our client to secure a critical freezing order, including the innovative use of an NFT for service, marking a significant step in recovering the stolen assets.

With the recent introduction of the Property (Digital Assets Etc.) Bill to Parliament, the legal landscape surrounding digital assets continues to evolve, further strengthening the protections available to crypto holders.

If you or your business have been affected by cryptocurrency fraud or face legal challenges in this evolving area, our experienced solicitors are here to help. 

Please note: Due to the specialist work and costs involved in tracing and recovering cryptocurrency, these services are generally only suitable where the value of the assets lost is £10,000 or more. We may refer enquiries relating to cryptocurrency fraud, tracing and recovery to an independent third-party specialist where appropriate.