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Cryptocurrency fraud hit the headlines again with the theft of more than US$600 million from the blockchain platform, Poly Network.
Most victims of cryptocurrency fraud do not suffer such high-profile losses, although many lose life savings or a company's entire investment assets.
In its latest consumer research publication on cryptoassets ownership, published in June 2021, the Financial Conduct Authority (FCA) revealed there are more than 2.3 million cryptocurrency holders in UK.
The significant rise in value of cryptocurrencies over the past 12 months has encouraged many novice investors to search for a pot of digital gold and increased their allure for fraudsters.
Between September 2015 and September 2020, the value of one Bitcoin increased from US$200 to US$10,000. By March 2021, it was worth US$64,800.
The rising profile of cryptocurrencies in the mainstream media has eroded caution among amateur investors when it comes to buying crypto assets. However, the risks associated with cryptocurrencies extend beyond their volatility, in an industry rife with fraud.
The good news is cryptocurrencies are more traceable than traditional assets. The transparent nature of the blockchain system means anyone can obtain a copy of every transaction of that particular cryptocurrency by downloading the blockchain.
There are a number of existing legal tools to support the investigation process and recovery efforts despite the international movement of the assets.
The English High Court has reacted to this new digital landscape with a number of recent welcome developments confirming:
- Cryptocurrencies are to be treated as property;
- Proprietary freezing injunctions over cryptocurrencies can be obtained against 'persons unknown'; and
- Disclosure orders can be obtained and served out of the jurisdiction against cryptocurrency exchanges.
In the seminal case of AA v Persons Unknown [2019] EWHC 3556, the English High Court confirmed that Bitcoin constitutes 'property' despite it being neither a 'thing in possession' (because they are intangible and cannot be possessed) nor a 'thing in action' (because they do not embody any right capable of being enforced by action).
The case also demonstrated the victim does not need to know the identity of the perpetrator, but can define the category in which the perpetrator falls.
The case of Ion Science v Persons Unknown extended this position and demonstrated the court's willingness to support the victim of a cryptocurrency fraud, despite the unknown location of the fraudster and the relevant cryptocurrency exchanges being located outside of the jurisdiction (in that case, the US and Cayman Islands).
Ion Science v Persons Unknown was the first initial coin offering fraud case to go before the English High Court, the first time a court has considered the location of Bitcoin and one of the only cases where the court has granted permission to serve a free-standing 'Bankers Trust Order' out of the jurisdiction against cryptocurrency exchanges.
UK based victims of cryptocurrency scams have access to justice, even when the fraud an international dimension of a fraud and the assets are transferred offshore.
In addition, section 25 of the Civil Jurisdiction and Judgments Act 1982 provides a platform for claimants in proceedings outside the UK to use the helpful tools of the English High Court if a footprint can be found connecting any aspect of the fraud or the cryptocurrency assets to England.
This might be as straightforward as the assets passing through an English based cryptocurrency exchange or potentially that the fraud was perpetrated with a device containing an IP address located in England.
The key point for victims is that the English High Court has demonstrated a willingness to assist in the recovery of assets in cryptocurrency fraud cases, even where cases fall beyond geographical borders.