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The evolving nature of cryptocurrency-related fraud can require innovative solutions

Author: Syedur Rahman  8 June 2022
2 min read

Cryptocurrency fraud cases have been increasingly hitting the headlines over the past few years.

It was only ever going to be a matter of time before such assets with high return potential became an attractive target for fraudsters. The inevitable outcome of this was, therefore, a rise in crypto-related fraud cases in many jurisdictions; with estimates suggesting that hundreds of millions of pounds have been fraudulently acquired.

Given that such cases are a relatively new concept, the law in this area is still developing , with courts having to face numerous new issues. Such issues require resolutions – each of which could potentially establish a precedent for future such cases. Issues such as the legal status of cryptocurrency, the correct process for obtaining freezing orders, and civil search and seizure remedies relating to crypto can all lead to new judgements which then have broad implications for all crypto crime cases.

Further issues arise from the technicalities involved. To take one example, addressing the need to serve a lawsuit on an anonymous defendant.

This was addressed in a very recent judgement from the Supreme Court of the State of New York. The court directed the plaintiff’s legal representatives to serve a pre-trial temporary restraining order to a group of anonymous defendants as a non-fungible token (NFT).

The case had arisen because LCX AG, a cryptocurrency exchange, was hacked early in 2022, with assets worth nearly $8 million being taken. LCX managed to track down and freeze 60% of the assets that had been stolen. With the court’s approval, a hyperlink was added to the documents and sent to the blockchain address. The court concluded that such service constituted ‘good and sufficient service for the purposes of jurisdiction under New York law on the person or persons controlling the Address’.

The approach was a novel one, which was prompted by circumstances that are unique to crypto-related crime. In normal situations, the defendants are served either physically or through platforms through which they can then submit their reply. The difficulty in identifying the defendants in crypto fraud cases can pose problems for plaintiffs, although the New York court was satisfied with the pioneering NFT method proposed in LCX AG’s situation .

This was one case that required – and produced – an innovative approach to circumvent the problem of service on anonymous defendants. It is likely that we will see similar moves being adopted across jurisdictions – and many more innovative approaches being developed to meet the challenges posed by crypto-related fraud.

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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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