Digital Asset Fraud: No Final Orders To Be Made Against Unidentifiable ‘Persons

In its recent decision in Boonyaem v. Persons Unknown Category A, Persons Unknown Category B and INGFX Limited,[1] the High Court of England and Wales addressed some of the key issues that have frequently arisen in cases of digital asset fraud. Notably, while the judge granted summary judgment against ‘persons unknown’ who were currently anonymous but identifiable, he refused to enter judgment against ‘persons unknown’ who were both anonymous and unidentifiable.  

Background

Tippawan Boonyaem claimed she had been fraudulently induced to invest her fiat currency in Tether tokens (USDT) and then to transfer 425,836.62 USDT to various wallets under the control of the defendants.

Boonyaem asserted that an individual calling himself Suthep Chansudarat had claimed he had set up an account for her on an online investment platform – INGFX – so that she could trade cryptocurrency. Under his direction, Boonyaem first converted Thai bhat to USDT and then transferred the USDT from her wallet to various wallet addresses given to her by Chansudarat, believing she was depositing her USDT into INGFX wallets for purposes of trading. She then carried out trades under Chansudarat’s instruction.

While the INGFX online platform indicated that Boonyaem’s trades had been very profitable, when she sought to withdraw her USDT, she was unable to do so. INGFX’s ‘customer services’ first required Boonyaem to make significant further transfers purportedly in respect of tax, transfer fees and insurance (which she did), and then made a series of implausible excuses for why the funds could not be transferred.

Realising the fraud, Boonyaem instructed cybersecurity experts, who traced 383,557 USDT of the tokens transferred to identifiable wallet addresses on various cryptocurrency exchanges.[2]

Boonyaem issued proceedings, asserting a proprietary claim against the 383,557 USDT that had been traced and a non-proprietary claim against the balance of tokens that had not been traced. She immediately sought and secured a worldwide proprietary and nonproprietary freezing order and permission for substituted service on the defendants (by Facebook messenger, text and WhatsApp message, and by transferring a non-fungible token to the relevant wallet addresses).

None of the defendants responded to the service of the proceedings. Boonyaem therefore sought summary judgment in respect of her proprietary claims to the traceable proceeds and her claims for deceit, fraudulent misrepresentation and/or unlawful means conspiracy. She also applied for an order continuing the worldwide non-proprietary freezing injunction in support of her non-proprietary claims.

The High Court’s decision

To grant summary judgment in respect of a claim, a court must be satisfied that the defendant has no real prospect of successfully defending that claim. In this case, the court had to be satisfied that:

• Boonyaem had been the subject of a fraudulent scheme to deprive her of her USDT.
• The USDT was property and therefore was subject to equitable rules regarding tracing and recovery of property obtained by fraud.
• The USDT had been correctly traced into the identified wallets.
• Orders sought could properly be made against the defendants.

As to the first point, the judge was satisfied that Boonyaem had been a victim of a fraudulent scheme to deprive her of her USDT.

As to the second point, while the judge acknowledged the ongoing academic dispute as to whether cryptoassets are to be treated as property, he was in no doubt that USDT should be so treated for the following reasons:

• The UK Jurisdiction Taskforce “Legal statement on cryptoassets and smart contracts” concluded that “cryptoassets are … to be treated in principle as property”
• The Law Commissions “Digital Assets: Final Report” concluded that the law of England and Wales treats digital assets “as capable of being things to which personal property rights can relate”
• There is an unbroken line of decisions (albeit on an interim or otherwise uncontested basis) to the effect that cryptoassets are property
• It would be a reproach to the common law were it not capable of affording a remedy to persons in Boonyaem’s position.

The judge noted that USDT, unlike Bitcoin or Ether, is what is known as a “stablecoin”, which is “pegged” to the US Dollar on the basis that Tether promises to redeem USDT on a 1 for 1 basis for US Dollars. In the judge’s view, this made it likely that USDT was properly to be considered as “a thing in action”, i.e., a property right that can be enforced by legal action, rather than by taking physical possession.

As to the third point, the judge held that the reports prepared by the cybersecurity experts provided sufficient…