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Closure of Bitcoin trading accounts

Author: Syedur Rahman  25 January 2021
2 min read

Syedur Rahman of Rahman Ravelli assesses the implications of a case that highlights the issues facing financial institutions when dealing with the termination of cryptocurrency accounts.

In the recent case of Ang v Reliantco Investments Ltd [2020] EWHC 3242 (Comm), the Commercial Court considered a dispute that arose from the termination of the claimant’s Bitcoin trading account (and cancellation of open trades) by the defendant (an investment company), following suspicions of money laundering. 

The court found that the firm had the right to terminate the account following breaches by the claimant of the customer agreement. But the court found in favour of the investor in relation to the deposited funds in the account. The defendant had an obligation to return the money (held under a Quistclose trust) and, in respect of the open trades, the defendant was only entitled to ‘close out’ the trades under their contractual right - but could not cancel the trades.  The court also awarded the claimant the losses she claimed on the unrealised gains on her open Bitcoin positions and the loss of investment returns caused by the closure of the account. 

Background 

In January 2017, the claimant, Ms Ang, opened an account with the defendant, Reliantco, which offers investments in financial products and services through a web-based trading platform called UFX. Ms Ang invested in Bitcoin futures through the UFX platform and, after making considerable profits, she withdrew a total of US$600,600 from the account in May 2017. Ms Ang invested a further £300,000 during July and August 2017. 

Reliantco requested further source of wealth (SOW) and know your customer (KYC) documentation from Ms Ang, which she provided. But Reliantco terminated the account on 10 August 2017. The defendant closed the trading account and concurrently cancelled any open trades due to an alleged money laundering risk. 

Trial and Judgment

The account closure became the basis of a dispute between the claimant and the defendant as to:

  1. Reliantco’s entitlement to terminate Ms Ang’s account. 
  2. Ms Ang's recovery of the remaining funds in the account, as well as the unrealised gains on the open positions in her account, and the loss of investment returns she would have made. and 
  3. The value of such claims. 

The defendant argued that the account was primarily operated by the claimant’s husband. He is a previous user of the platform whose account had been blocked after compliance checks found that he had been accused of fraud in 2015. Reliantco also said that the SOW information provided was inaccurate. It pleaded a counterclaim for its costs, on the basis of an indemnity provision in the terms and conditions, which stated: “You agree to indemnify us against any loss, liability, cost, claim, action, demand or expense incurred or made against us in connection with the proper performance of your obligations under this Customer Agreement.’’

Mr Justice Butcher ruled that Ms Ang's claim succeeded and Reliantco's counterclaim failed.

Conclusions

The ruling in this case relates specifically to the trading accounts of Bitcoin futures. But it will no doubt apply more generally to other types of trading account, and so will be of specific interest to other firms running trading platforms and financial institutions. 

It broadly demonstrates the risks that such financial institutions face when dealing with the termination of accounts due to alleged criminal or compliance risks. It is a case that shows that the potential consequences of account terminations can be significant for firms; with liability for termination of the account extending not only to the money in the accounts, but also to the loss on any outstanding and future trades.

Any financial institutions that risk being affected by similar circumstances should review their own contractual documents so they cover such eventualities and allow for complete discretion over account terminations. 

Syedur Rahman C 09551

Syedur Rahman

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syedur.rahman@rahmanravelli.co.uk
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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, civil recovery, cryptocurrency and high-stakes commercial disputes.

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