Bitcoin fraud: the English Court grants extensive interim remedies to protect investors

The English High Court has granted¹ a combination of powerful remedies including worldwide freezing orders in favour of a UK resident who fell victim to persons unknown operating a suspected cryptocurrency investment scam. This decision entrenches the growing reputation of the English courts to act speedily to grant urgent remedies to protect victims of cryptocurrency fraud.

The Facts

In late 2021, the applicant transferred more than £26,000 to ‘Matic Markets’, a London and Swiss-based cryptocurrency investment platform, to invest in Bitcoin. She believed that the Bitcoin would increase in value and be released to her on request. However, when she sought to withdraw her Bitcoin and any profits in December 2021, her request was refused by an apparent representative of Matic Markets. She became suspicious and commissioned an expert report, which concluded that shortly after the applicant acquired the Bitcoin, it was misappropriated by persons unknown (named as the first defendant), before being transferred to a cryptocurrency end-wallet without her consent at the Seychelles-based exchange of Huobi Global Limited (Huobi, the second defendant).

The Decision

A significant amount of the applicant’s Bitcoin had likely already been dissipated, with a small sum potentially remaining under the control of Huobi.

Based on the findings of the expert report, there was a good arguable case that Matic Markets was a wholly fraudulent operation run by organised criminals, with the potential both to misappropriate investors’ funds and interfere with other banking and online transactions.

The judge granted all of the orders sought by the applicant, including:

1. an interim injunction preventing both defendants dealing, directly or indirectly, with the traceable Bitcoin;
2. a worldwide freezing order, prohibiting the unknown first defendant from unjustifiably disposing of, or otherwise dealing with, the Bitcoin in the cryptocurrency end-wallet;
3. a disclosure order compelling Huobi to disclose payment-related information about account holders to assist with the identification of the unknown first defendant connected with the end-wallet;
4. reporting restrictions to prevent tipping-off the alleged fraudsters, thereby minimising the chances that the remaining Bitcoin would be dissipated; and
   
5. permission to serve out of the jurisdiction by alternative means. Given the apparent fraudulent nature of Matic Markets, there could be no certainty that the names of the persons with whom the applicant had previously responded were real ones. However, she had access to their email addresses to which proceedings could be served.

The Judge also confirmed that the English court had jurisdiction to hear the claim for the reasons set out in Ion Science Ltd v Persons Unknown, on which we reported in March 2021 (accessible here), namely that the applicable law to determine the dispute is the law of the place where the owner of the cryptoasset is domiciled.

On a related note, following the grant of remedies similar to those outlined above, the English court in Ion Science has recently ordered what we understand to be the first-ever third-party debt order over Fiat (i.e. conventional) money in relation to misappropriated cryptoassets. Third party debt orders allow judgment creditors to recover part or all of the judgment debt by freezing and seizing sums owed by a third party to the judgment debtor.

Conclusions

The importance of acting quickly when there are concerns of cryptocurrency misappropriation cannot be overstated. The English court in the case of Sally Jayne Danisz recognised that, in cases of alleged fraudulent misappropriation, cryptocurrency can be dissipated "at the click of a mouse" and that time is "manifestly of the essence." The speed with which the English courts can act and grant powerful pre-emptive remedies in such cases should provide crypto market users with a degree of comfort.

Further, the English court’s decision in Ion Science to grant a third-party debt order shows that the available remedies in England have teeth and can result in tangible recoveries for investors who are subject to crypto fraud.

Dechert’s international litigation team has a breadth and depth of experience in dealing with the types of urgent remedies described in this OnPoint.

The authors are grateful to Maddie Drabble, Trainee Solicitor in London, for her valuable contribution to this OnPoint.

Endnotes:

1) Sally Jayne Danisz v (1) Persons Unknown (2) Huobi Global Limited (trading as Huobi) [2022] EWHC 280 (QB).