Cryptocurrency fraud is rising and becoming increasingly more sophisticated, risking the loss of potentially huge gains and triggering litigation claims.
As highlighted by a case we are working on, even FCA regulated FX traders can scam investors looking to profit from selling their Bitcoins.
About the case
Devonshires has been instructed by a private investor who has been scammed by an FCA regulated FX trader during the sale of £1 million of Bitcoins. We have since obtained, what we believe to be, the first Bitcoin freezing injunction in the UK courts.
Our client wanted to capitalise on their recent Bitcoin gains and use the proceeds to purchase a London property. Given the daily volatility of a Bitcoin’s value, the client wanted to instruct a specialist broker who could maximise the price obtained.
Following a recommendation, an FCA regulated broker was selected and due diligence carried out. The company had been trading for a number of years, there was no obvious bad press, and a number of successful test transactions were completed.
On the day of the transaction, the broker provided a forecasted sale price less its commissions. The client was satisfied with the price, so transferred the Bitcoins into the broker’s e-wallet and the broker then purported to sell the Bitcoins. However, the sale proceeds were never transferred to the client despite numerous reassurances by the broker.
Working alongside James Ramsden QC of 39 Essex Chambers, we immediately obtained a freezing injunction in the UK courts over the assets of the company and the assets of its director and ultimate beneficial owner this included any Bitcoins. Devonshires instructed Quintel Intelligence Limited, a specialist forensic intelligence company, to assist with tracing the Bitcoins, the proceeds of sale and the assets of the director and ultimate beneficial owner.
The case continues and further updates will be available in due course.
Freezing injunctions: the legal bit
The legal test to obtain a freezing injunction is well established and the court will exercise its discretion to grant a freezing order only where it considers it just and convenient to do so. The following conditions must be established by the applicant:
- A cause of action, that is, an underlying legal or equitable right.
- A good arguable case.
- Assets within the jurisdiction.
- A real risk of the respondent’s assets being dissipated.
In doing so, the applicant has an onerous duty to give full and frank disclosure of all facts even if these are detrimental to the applicant’s claim. A cross undertaking in damages must be given and if an applicant does not have sufficient assets in the UK, the court will order fortification in the form of a bank guarantee, a payment into court or an undertaking by the applicant’s solicitors for such sums as the court orders.
Any delays in this process could increase the risk of the funds being dissipated and the court may be less likely to grant the application.
A freezing order prevents the sale or dealing of any assets, but does not provide any security over the assets. Legal proceedings are therefore necessary to obtain an order from the court which can then be used in enforcement proceedings to recover any sums owing.
What to do if you’ve been scammed
Individuals or owners of companies who are concerned that the sale and/or purchase of Bitcoins or other cryptocurrencies has been compromised should seek immediate legal advice.
As soon as there is any suspicion of foul play, assets can be frozen the same day which will increase the likelihood of recovery.