How to get your money back in a cryptocurrency demise or cryptocurrency fraud?

Jan 2023


Singapore Court Permits Claim to Recoup Tether

Amanda Lees, Suraj Sajnani and Sarah Jones look at a recent Singapore Court decision which determined that cryptocurrency is property. Introduction On 25 July 2023, the Singapore High Court handed down its decision in the case of ByBit Fintech Limited v Ho Kai Xin and...

With the initial dazzling rise of digital assets, courts had to grapple with how to adapt traditional remedies such as injunctions to assets that are often held and transacted anonymously.  The crypto crash in 2022 has not reduced the importance of injunctions against cryptocurrency for two reasons:

  1. Currently, we are experiencing a cryptocurrency confidence crisis. Creditors in exchanges, or other crypto projects (which have failed either due to heavy reliance on cryptocurrency to support their balance sheets, or for other economic reasons), may want to freeze the transfer of cryptocurrency out of such exchanges / projects, pending resolution of substantive claims for their return, which can take a number of months or years to resolve;
  2. Entirely separate to the above, cryptocurrency is still the flavour of choice for fraudsters. The nature of cryptocurrency and blockchain transactions ought to mean that it can easily be traced and recovered. That is not necessarily the case. While it can be traced, two problems arise: (1) fraudsters have become increasingly sophisticated, with the use of tumblers and spinners to divert cryptocurrency into more accounts than manageably traceable; and (2) even if cryptocurrency can be traced, identifying who owns it, where it is located, and whether it can be frozen, is a complex process. In that context, this post deals with injunctions against persons unknown.

The Injunction, its evolution, and Harry Potter

The injunction itself can be traced back to Roman times in the form of an ‘Interdict’ of the Praetor (the loose equivalent of what is currently a magistrate).  It was said to be called an ‘Interdict’ because it was interposed, in the nature of an interlocutory decree, between two parties until the dispute could be resolved.  Its aim was to ensure that harm such as the cutting down of trees, blocking rivers and the like, would be prohibited in situations where such harm was threatened.  As the courts of chancery developed in around the 1400s, the injunction started to be used more commonly in situations involving torts, particularly where damage or injury was “imminent”.  The principles governing modern injunctions have not swayed too far from those original principles.

Moving to modern times, the unexpected hero who made way for injunctions against cryptocurrency is Harry Potter.  Days before Book 5, the Order of the Phoenix, was about to be released, an unknown character got his hands on three copies of the book and offered it up to three newspapers.  In the case of Bloomsbury & JK Rowling v News Group and Persons Unknown, the publisher and JK Rowling sought an injunction against such unknown persons to deliver up the book and prevent them from disclosing it to any other person.  The English court granted the order, given that a clear description of the target had been provided.  That was the building block to the cases which followed, where the Courts have allowed similar injunctions against “persons unknown” to be made in respect of cryptocurrency and NFTs.

Injunctions against persons unknown in respect of ransom money

In 2017, CMOC was the subject of email fraud.  In essence, a fraudster studied the email style and payment instruction style of a senior executive and issued payment instructions for a total of approximately £6.3 million.  The claimant, CMOC, applied to the court for a worldwide freezing order against persons unknown.  In CMOC v Persons Unknown, the English court granted such injunction, relying on the Bloomsbury decision above, and on the fact that a sufficiently clear description of the perpetrators had been provided.

The third case to highlight in this evolution is PML v Persons Unknown (a 2018 case, still in the UK).  PML’s computer systems were hacked, data stolen, and a demand for ransom issued to its directors:  pay us 300 thousand pounds in Bitcoin, or else…

Given that the fraudster was unknown, PML sought an order against “persons unknown” to prevent the data from being disclosed.  Happily for PML, the Court obliged.

Injunctions against cryptocurrency

Up to this point in the evolution (circa. 2018), cryptocurrency had made a tangential appearance but had not been the subject of an injunction.  One of the first cases in which cryptocurrency was the target of an injunction was Nico Constantjin Antonius Samara v Stive Jean Paul Dan, a case in the Hong Kong courts.  In essence, the claimant had 1000 Bitcoins to offload, the defendant offered to be the claimant’s off-ramp for 3%.  The plan was that the claimant would transfer the Bitcoins to the defendant’s Gatecoin account and the sale money would go into the defendant’s bank account which the claimant had access to.  After the defendant became non-responsive, the claimant sought an injunction to prevent the defendant from removing assets in the amount of what was owed to it from Hong Kong (~US$3m).  The injunction was to be served on Gatecoin and the bank to prevent withdrawal of the Bitcoins and sale proceeds.

While the target assets were cryptocurrency, the actual order sought by the claim was against all types of assets in the amount of ~ US$3m.  As such, the Court did not – at the time – grapple with whether an injunction could be granted against cryptocurrency and granted the asset freezing injunction.

The next stage in the evolution was the case of AA v Persons Unknown in 2019 in the UK courts.  AA was a large Canadian insurer.  Its computer systems were hacked and it was blackmailed for US $1.2m in Bitcoin.  This time (unlike PML above), AA paid the ransom, but then went after the fraudster to trace the cryptocurrency to get it back.  Again, it was an injunction against persons unknown, but this time specifically against cryptocurrency.  The Court allowed it.  In essence, the Court considered that cryptocurrency is the same as any other property, and thus can be the subject of a freezing order against property.  The Court reasoned that cryptocurrency satisfied a classic 1965 criteria of property being: definable, identifiable by third parties, capable in its nature of assumption by third parties and having some degree of permanence.  The Court relied on similar reasoning by the Singapore High Court in B2C2 Limited v Quoine PTC Limited.

AA v Persons Unknown was ground-breaking.  Its reasoning was later accepted in the New Zealand case of Ruscoe v Cryptopia, where liquidators asked the Court to determine if cryptocurrency held by an exchange in liquidation is property.  The Court agreed that it was.

The current authority on the point which leaves no doubt that cryptocurrency is property, and an injunction against persons unknown can be granted in relation to cryptocurrency, is from the Singapore Court – CLM v CLN.  The Singapore courts have gone one step further, and applied that reasoning to NFTs as well, freezing a Bored Ape NFT – we wrote about that decision here.  However, the vast majority of the cases of injunctions against cryptocurrency have been unopposed.  As such, we have yet to see how a well-heeled defendant might argue against treating cryptocurrency as property.

What should creditors seeking to protect their cryptocurrency assets do?

Cryptocurrency can be recouped after a failure or fraud.  But it is critical to act with urgency.

First, and foremost, identify if the cryptocurrency is still at the exchange / target wallet.  Our immediate port of call for such identification is skilled investigators that have expertise in complex cryptocurrency tracing exercises, to identify precisely which wallets the cryptocurrency currently resides in.

Then, seek to identify who is currently in possession of the cryptocurrency.  This is not always a straightforward process, given that a wallet number is not a name, and the identity of fraudsters is often intentionally obfuscated.  If identification is not possible, describe the wallet holder with sufficient certainty.

Last, seek urgent injunctive relief, pending resolution of your substantive claims.

In short: speak to a crypto lawyer!


Amanda leads KWM’s Dispute Resolution Team in South East Asia. Amanda enjoys getting stuck into knotty legal problems and learning all about her client’s businesses and industries. Based in Singapore since 2012, Amanda is at home in hawker markets as much as the arbitration centre at Maxwell Chambers. When not reading arbitration cases or drafting arbitration awards, pre-Covid Amanda used to love travelling with her family across Asia to clamber over temples, spot tigers, watch cricket and get harassed by monkeys. She is still getting harassed by monkeys hiking around Singapore. Amanda is proud her adopted home has the world’s best airport (Changi) and hopes to be flying again very soon.

Suraj is the Editor of KWM Pulse.  A self-proclaimed arbitration geek, he is a Dispute Resolution specialist working across our Singapore and Hong Kong offices.  While ethnically Indian, he was born in Hong Kong, lives in Singapore and is Asian at heart (his Canto is decent, so if you are going to talk about him while he’s in the room, you may want to pick a different language).  When he’s not sourcing full text PDFs of every arbitration treatise for his iPad in his constant effort to go paperless, you’re likely to find him hiking or fawning over the next Apple launch.

Clémence Bernard is a Legal Executive in KWM’s Dispute Resolution Team in Singapore. A third culture kid at heart, Clémence loves the bustling multiculturalism of Singapore and international arbitration. When she is not drafting pleadings for her clients, you can find her running alongside the Singapore river, browsing the French literature section in Kinokuniya or seeking out the best foodie spots in the Lion City.

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