In D’Aloia v (1) Persons Unknown (2) Binance Holdings Limited & Others [2022] EWHC 1723 (Ch), UK Courts Uphold Service of Cases by NFTs, Crypto Exchanges Arguably Have Constructive Trustee Duties Against Victims of Cyber Fraud I decided there was.
theft
The complainant was a victim of a scam who was lured into transferring approximately 2.1 million USDT and 230,000 USDC by scammers operating a fake online brokerage website, allowing investors to put cryptocurrencies into two wallets. , asked to trade on its platform. The complainant eventually became aware of the fraud when he tried to withdraw his funds and discovered that his account was blocked.
Digital investigators traced the complainant’s cryptocurrency deposits to a number of cryptocurrency exchanges. Most of the stolen cryptocurrencies were stored on Binance.
application
Complainant seeks what has become a standard remedy in claims against unknown persons for cryptocurrency, interim ownership injunction and disclosure of information about the identity of account holders from relevant cryptocurrency exchanges. Bankers Trust Disclosure Relief to enforce Both orders were granted.
Two key aspects highlighted in this case – alternative services by NFTs and cryptocurrency exchanges that may hold misappropriated assets as constructive trustees – are examined below. increase.
Alternative service by NFT
Alternative service applications are common in cryptocurrency cases where interim relief is sought for unknown persons. For example, an email alternative service is AA v Parsons Unknownabout bitcoin [2019] EWHC 3556 (Communications). and, Reyes vs Parsons Unknown [2021] Both EWHC 1938 (Comm) Binance and Tether Holdings Limited (the holding company behind the USDT token) do their best to draw the attention of an unknown person to the extent they can use the contact details they hold. I was commanded to make an effort. they. More generally, in cybercrime cases involving anonymous defendants, courts have approved a number of new forms of alternative services such as text, Facebook Messenger, and WhatsApp.
In this case, for the first time in this jurisdiction, the Court has decided that by “airdropping” the NFTs into two wallets to which the complainant has transferred the associated cryptocurrencies (and by sending them to the transferred email address), the alternative Acknowledged service order. used by an unknown person to address the plaintiff).
The term “airdrop” simply refers to the (usually unilateral) transfer of digital tokens to an address on the blockchain, and is often used in the context of ICOs to distribute specific coins to generate interest. . Using that feature to authorize the service of legal proceedings is an interesting innovation. The judge ruled that he would have been hesitant to order alternative service solely through NFT without ordering service through the more traditional alternative route of email. but it remains to be seen if it will be a standalone method for alternative services in future cases (at least if no other information about the unknown scammer is known besides the wallet address, although in principle it should be ).
This decision follows the same deployment in the United States. LCX AG, -v- John does No.1 to 25 A service token has been airdropped into your wallet. The tokens contained hyperlinks to relevant court documents, allowing plaintiffs to track whether the documents were accessed and record relevant IP addresses.
Crypto exchanges as constructive trustees?
The issue of cryptocurrency exchanges holding misappropriated assets on the basis of constructive (or consequential) trust has arisen before in the aforementioned Reyes case. Although analysis of the issue in that case is limited, the judges have identified potential obstacles to such a finding (the Fact Matrix) breaking the necessary chain of causality. The case offers little additional analysis, and without the benefit of submissions from the defendants, the case is subject to unannounced trial only on the basis of (relatively low) controversial and adequate case standards. It should be kept in mind that it represents a certification made in Therefore, it reflects only a provisional position.
However, if that analysis is to follow, the cryptocurrency exchanges, if they fail to ring-fence the relevant cryptocurrencies after being notified that they hold the cryptocurrencies, will be subject to unauthorized use of the cryptocurrencies held on their platforms. You may face claims of breach of trust by fraud victims in respect of stolen virtual currency. Related to this issue is the fact that cryptocurrencies deposited on cryptocurrency exchanges are usually mixed with the cryptocurrencies of other users, but of course exchanges have their own ways to track user deposits. We have an internal bookkeeping system. As such, one of the many areas of concern that will arise as these procedures evolve is that merely ring-fencing funds within such internal systems, rather than at the blockchain level, could be imposed on exchanges. Is it sufficient to comply with the obligations? Turned out to be a constructive fiduciary.
comment
These procedures are important because they provide victims of cryptocurrency scams with an additional potential route to providing procedures to scammers for whom limited other information other than the address of their cryptocurrency wallet is known. However, if it helps to finally settle the question of whether exchanges hold identifiable misappropriated cryptocurrencies as interim trustees, the lawsuit will be rightfully hailed as a milestone. It can be even more important. The implications of such findings are important and will be carefully monitored as the proceedings progress.
