Recovering your coins: crypto fraud and asset recovery in the UK

Published on September 1, 2021

Cryptocurrencies are unlike traditional forms of currency.  They exist virtually and are not backed by any government or central bank. Instead, they use a decentralised system to record transactions simultaneously on all computers in the global network.  This digital ledger, or “blockchain” as it is known, is not controlled by any one person or company, and is immutable.

However, the same factors that make cryptocurrencies attractive to investors, such as the ability to move money quickly and easily across borders and the lack of central control, also make them susceptible to fraud.  Fortunately, the Court’s proactive approach to dealing with new and emerging technologies means that the English legal system is well-placed to meet the challenges posed by crypto fraud.  In particular, the Courts have not shied away from finding that cryptoassets are subject to the same rights and remedies as other forms of “property” under English law.

For example, in Elena Vorotyntseva v Money-4 Limited and ors [2018] EWHC 2596 (Ch), the High Court granted the Claimant a freezing injunction over Bitcoin and Ethereum worth over £1.5 million held by (the trading name of Money-4 Limited).  The funds had been transferred to Nebeus on the understanding that it would hold and deal with them on the Claimant’s behalf.  However, the Claimant became concerned that the funds had been dissipated and sought a freezing order against Nebeus. The Court held that there was a real risk of dissipation as Nebeus had failed to produce sufficient evidence that it still held the funds and granted a freezing order in the Claimant’s favour, preventing further dissipation of the funds.  The Judge found that a freezing injunction was appropriate, as the Claimant’s Bitcoin and Ethereum were deemed to be “property” and the order froze the actual quantities of cryptocurrencies held in the relevant wallets rather than their monetary equivalents.

In the more recent case of Fetch.AI Lrd & Anor v Persons Unknown Category A & Ors [2021] EWHC 2254 (Comm), the Court granted a proprietary injunction and a worldwide freezing order against unknown fraudsters who had accessed the Claimants’ trading accounts on the Binance exchange and transferred the Claimants’ funds to third-party accounts, resulting in losses in excess of US$2.6 million.  The Court also granted third party disclosure orders against the two companies operating the exchange (an English company and a company incorporated in the Cayman Islands) under the Bankers Trust and Norwich Pharmacal jurisdictions.  Bankers Trust and Norwich Pharmacal Orders require a party who has become “caught up” in the Defendant’s wrongdoing to provide disclosure of documents and information which might assist a Claimant in identifying the persons responsible and tracing the proceeds of the fraud.  In this case, the Court held that it was entirely unreal to suppose that such information would not be held by the Binance companies and that there was a real prospect that disclosure would lead to the location and preservation of the Claimant’s property. The Court therefore granted third party disclosure orders against the Binance companies.

These cases provide helpful guidance as to the remedies available under English law to those seeking to trace and recover stolen cryptoassets.

Gresham Legal has extensive experience of applying for and obtaining worldwide freezing orders and other forms of interim relief, including third party disclosure orders, and a proven track record of assisting clients to make successful recoveries of stolen funds.

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