Crypto Fraud & Hacking: Syed Rahman's Landmark Case Gives Victims Hope

A victim of cryptocurrency fraud can now obtain information about the perpetrators from exchanges located abroad, after a landmark case that could have huge implications for the sector.

The case was brought by a UK-based cryptocurrency exchange (“the Exchange”) against six exchanges based abroad - Bitflyer, Binance, Payward, Luno PTE, Coinbase Global and Huobi Global.

The Exchange was hacked in late 2020, with those responsible taking cryptoassets with a total value of $10.7 million. The Exchange initially contacted law enforcement authorities but then decided to pursue the stolen assets itself. It hired crypto tracing experts, who traced US $1.7 million of the assets to 26 accounts, all of which were owned or operated by one of the six exchanges in question.

Application

At the first High Court hearing - held in private so as not to alert the wrongdoers involved – Syed Rahman of Rahman Ravelli made an application on behalf of the Exchange for Bankers Trust orders to be made against the six exchanges, requiring them to disclose information that could help trace and identify those holding the allegedly misappropriated assets.

The High Court said that a further hearing would be necessary, at which all relevant parties should be asked to attend as it would not be appropriate to proceed further without notice being given to the defendants.

The court was persuaded that it could grant such an order even though the exchanges were not UK-based. This was because the circumstances in which the English courts can grant permission to serve civil claims out of the jurisdiction were expanded from 1 October 2022, when paragraph 3.1(25) of Practice Direction 6B of the Civil Procedure Rules 1998 came into effect (the Disclosure Gateway).

That change – which was one of a number introduced by the Civil Procedure Rule Committee - makes it possible to serve certain disclosure orders out of the jurisdiction where the main proceedings have been, or will be, brought in England and Wales. This enables claimants in cross-border fraud claims to obtain the information necessary for their case. Previously, it was much more difficult to do so if the holder of the information was located in a foreign jurisdiction. This previous limitation had become particularly problematic with the rise in cross-border fraud and other crypto-related crime, where crypto exchanges and other relevant third parties are often outside of the UK.

Step Forward

The case is believed to be the first successful application based on the new Disclosure Gateway. The High Court has ordered the exchanges to provide the names of the account holders, all “Know Your Customer’’ information and other documents and information relating to the accounts - including bank account and payment card details, email addresses, residential addresses, phone numbers and bank statements – with the partial redaction of some information. Some of the respondents were also ordered to disclose any available knowledge about what has happened to the relevant cryptocurrency if it has been moved elsewhere.

The case (at which two of the exchanges appeared and participated) is also significant because it represents the first on-notice hearing - a hearing of which notice has been given to the applicant and the respondent in accordance with rules of court - at which the court has considered many of the most important legal issues relating to cryptoasset fraud and tracing. As a result, the judgment can be cited as precedent in future cases.

Syed Rahman said: “The case is a huge step forward for those who are trying to recover assets that have been taken fraudulently and moved across borders.

“This ruling is concrete proof of the value of the change to Practice Direction 6B and the possibilities that it offers to anyone facing the task of tracing and recovering what is theirs.

“The number of cross-border fraud claims continues to increase. Yet the judgement in this case is a sign that the courts continue to respond to the challenges posed by the rapidly-evolving crypto sector.

“This is an outcome that emphasises how a carefully-planned and conducted strategy can bring success when fighting back against fraudsters - wherever they may be.’’

Notes to editors:

• Josephine Davies and Sam Goodman of Twenty Essex chambers were counsel for the Exchange in the case, instructed by Rahman Ravelli.
• Norwich Pharmacal orders (NPOs) have tended to be used by claimants in fraud litigation to obtain information relating to the wrongdoing in question and/or identify those defendants against who a claim should be brought. But while they have been served on domestic financial or corporate services providers who handled assets on behalf of an alleged wrongdoer, English courts have held – until this decision - that there was not an available gateway which would permit NPO’s to be served outside of England and Wales.
• Bankers Trust orders (BTOs), which are similar to NPOs, are used to obtain disclosure of information or documents that can help trace a defendant’s assets. Until now, these have been used in only a very small number of exceptional cross-border cases, most notably the Rahman Ravelli crypto-related case of Ion Science Limited v Persons Unknown.
• The introduction of the new Disclosure Gateway ensures that the courts can now grant certain NPOs or BTOs against foreign respondents.
• The Civil Procedure Rule Committee was set up under the Civil Procedure Act 1997 to make rules of court for the Civil Division of the Court of Appeal, the High Court and the County Court. The Civil Procedure Rules set out the practice and procedure to be followed in these courts.
• The name of the Exchange has been anonymised for the purpose of this judgment.