Syed Rahman details a recent case that illustrates the value of strategy in asset tracing and recovery.
It has become all too clear that crypto-related crime is often accompanied by the swift movement of the stolen assets.
Whether it be cryptocurrency fraud, hacking or ransomware, the assets involved are quickly dispersed by the offenders, who do all they can to make it difficult for them or their proceeds of crime to be identified or traced. In such circumstances, a quick response can be all-important. But a recent case shows that the powers of UK and US courts to provide injunctive relief and the public nature of blockchain transactions can provide scope for success, even when a length of time has passed.
The case involved the February 2022 hacking of the Wormhole Portal, a blockchain ‘bridge’ that enables wrapped versions of cryptocurrency tokens locked on one chain to be issued on another blockchain. The hacker stole 120,000 crypto tokens, largely in wrapped Ether (known as WETH), that were worth over US $320 million.
This meant that thousands of users of Wormhole wrapped assets were at risk of large losses – and it posed a threat to Wormhole’s future. Tao Mao Shan Limited (TMSL), a Cayman Islands company that wants Wormhole to continue functioning properly, placed120,000 of its own crypto tokens with it to restore the value of the hacked funds.
A successful application was made to the English High Court for an injunction against a UK-operated, third-party decentralised finance application designer, Oazo Apps Limited (Oasis). Oasis’s app, which the hacker used, could be adapted to seize most of the stolen assets from the hacker’s digital wallet on the Ethereum blockchain and then transfer them to a separate digital wallet (which the hacker could not access) pending the case’s resolution.
This led to the stolen assets being seized and secured while proceedings were brought in the Supreme Court of the State of New York to obtain judgment against the hacker and confirm TMSL’s entitlement to the stolen assets. The New York court granted TMSL permission to serve the New York proceedings on the hacker via transmission of non-fungible tokens (NFTs) - containing a link to the relevant documents - to identified public wallet addresses that the hacker had used to carry out the hack.
Judgement was obtained from the New York court in March 2024 that declared that TMSL had a proprietary right, title and interest in the stolen assets. This was followed by an application to the English High Court for recognition and enforcement of the relevant parts of the New York judgment in England and Wales, so that the recovered stolen assets could be transferred to TMSL (the enforcement claim).
Judgment was obtained on the enforcement claim against the hacker. The High Court granted judgment in the UK - recognising and enforcing the relevant parts of the New York judgment - and discharged the injunction relating to Oasis, ordering the transfer of all the recovered stolen assets to TMSL. This was carried out on 19 July 2024; with TMSL recovering tokens that were worth over US $400 million at that time.
