A claimant was recently induced to transfer approximately £2.5 million in cryptocurrency to unknown persons who were posing as a reputable American brokerage firm. However, it turned out to be a scam. With cryptocurrency’s emergence as a new and largely unregulated technology, it has often been used as a way of defrauding individuals. Today, we look at a long-running litigation case in which a victim of cryptocurrency fraud failed in their claim due to being unable to prove that the funds had reached the account he was claiming against.
Let’s find out more about the case.
Background
The cryptocurrencies were moved through various blockchain wallets in a series of transactions. The claimant alleged that a portion of his cryptocurrencies eventually reached the wallet of Bitkub Online Co. Ltd, a crypto exchange (“Bitkub”). He claimed against Bitkub in unjust enrichment and as a constructive trustee of the misappropriated funds.
It was held that the claimant failed to prove that on the balance of probabilities any of his cryptocurrency had reached the relevant wallet on the Bitkub platform. As the claimant failed to establish this factual issue, his claims upon the imposition of a constructive trust and in unjust enrichment were dismissed.
Decision
The court decided that Tether USDT is a property for the purpose of English law. It is neither a chose in action nor a chose in possession but a different form of property which can be the subject of tracing and can constitute trust property in the same way as other property. This reasoning should also apply to other cryptoassets such as Bitcoin and NFTs.
The court considered that a constructive trust could be imposed on Bitkub if the claimant could demonstrate that he could trace the misappropriated cryptocurrency to the wallet of Bitkub and also Bitkub received the assets with knowledge of fraud.
The court also confirmed that the defence of bona fide purchase for value without notice is available to the claim for cryptocurrency.
Although the claimant failed in this action, this judgment provides a practical guide on a number of important issues relating to cryptocurrency claims.
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