The Use Of Proprietary Claims & Freezing Injunctions To Protect & Recover Crypto Assets

The alleged returns offered by Cryptocurrency present itself as an attractive investment opportunity. Whilst Cryptocurrency may be able to provide high returns due to its volatility, its lack of regulation exposes users to the risk of fraud.

What are the risks of Cryptocurrency?

A key element of Cryptocurrency is its lack of regulation and its limited traceability, with assets being held in a digital wallet that at face value does not disclose details of its owner. The lack of regulation further allows any person to hold themselves out as an expert and unlike ordinary investments, a person is not required to be a qualified Financial Advisor in order to advise on investing.

The risks set out above have allowed people to hold themselves out as experts with a view to defrauding investors. This is commonly seen where high returns are promised encouraging people to invest with them when in fact the investment is being paid directly to the fraudster. Fraudsters will present the investor with false information regarding the performance enticing further payments to be made and it is only at the point when seeking to withdraw the alleged profits do investors realise that they have been victims of a scam. Herein lies the risks to Cryptocurrency as it exposes investors to an irretrievable loss, however, the Courts are reacting in a way to best protect victims of fraud.

The biggest difficulty in pursuing a claim for any loss is that the fraudster will have concealed their real identity and therefore the victim faces difficulty in issuing a claim against them.

Boonyaem v Pesons Unknown Category A & Ors [2023]

Facts

The recent case of Boonyaem v Persons Unknown Category (A) demonstrates the options available in such circumstances. In this case, the Claimant had been promised that the fraudster would invest their money in Cryptocurrency and make large profits. The Claimant duly purchased Cryptocurrency and transferred this to the fraudster’s digital wallet as directed and only on requesting its return, had learned this was a scam. The Claimant issued a claim for proprietary estoppel against the digital wallet providers and further sought a freezing injunction on the digital wallet providers.

The Court granted the freezing injunctions and ordered the providers of the digital wallet to return the Cryptocurrency retained within them be returned to the Claimant. The Claimant’s claim for compensation and damages was placed on hold as the Claimant needed to identify the fraudster in order to pursue her losses against them. In order to further the Claimant’s claim of compensation the Court ordered disclosure of the fraudster’s details which could be traced through the digital wallets.

Comment

This case confirms Cryptocurrency is treated as property of a person and can therefore be traced for the purpose of recovery. This confirms that the Court is able to adapt in order to protect victims of fraud.

If you have been a victim of Cryptocurrency fraud and would like to take steps to recover those sums, please contact a member of our Private Litigation team who will be able to assist.