The High Court of England and Wales recently granted an order permitting the court to serve documents of court proceedings via the transfer of a non-fungible token (NFT) on the blockchain in the case of D’Aloia v. Binance Holdings & Others.
This is the first time in the U.K., and second in the world, that a court is allowed to “serve” documents in a blockchain. A U.S. court also authorized a service via an NFT in June.
“Service” is a legal term used to describe the steps required by the rules of the court to bring documents used in court proceeding to a person’s attention.
In this case, Fabrizio D’Aloia, an Italian engineer and founder of online gambling joint stock company Microgame, filed a claim against four cryptocurrency exchanges — Binance, Polo Digital Assets, Aux Cayes Fintech and Bitkub Online — because Mr. D’Aloia’s cryptocurrency was stolen by unknown persons operating a fraudulent clone online brokerage.
The novelty of the court’s order is that it granted permission for the claimant to notify these unknown persons using alternative methods, including NFTs airdropped to two wallets into which Mr. D’Aloia originally deposited his cryptocurrencies that were subsequently stolen.
“This judgement paves the way for other victims of crypto asset fraud to pursue persons unknown who have misappropriated their cryptocurrency in situations where they otherwise would not be able to,” said law firm Giambrone & Partners LLP representing Mr. D’Aloia. For instance, this method could be used where the contact details for fraudulent platforms are no longer active. It also opens new opportunities to reap the benefits of blockchain technology like immutability and verification for servicing court documents, the law firm argued.
In his complaint, Mr. D’Aloia explained how he fell victim to the embezzlement of some funds in his possession. According to the file, the anonymous scammers used a fraudulent online broker through which they invited investors to deposit crypto assets within two different wallets. Mr. D’Aloia claims that his crypto assets were fraudulently cloned on the brokerages.
It is noteworthy that the two wallets where the crypto assets were deposited were hosted in some centralized exchanges — Binance and the other defendants.
This is important because, in addition to the novelty of servicing using blockchain technology, in this case the court recognized that the cryptocurrency exchange defendants that hold Mr. D’Alaio cryptocurrencies are constructive trustees, and this could make them responsible for the funds stolen and deposited on the exchange.
While the exchanges are not held liable for embezzlement, they may still bear responsibility for these funds. Because they are centralized, the wallets tied to the exchange platforms are hosted. This means that the private keys and the funds deposited within them are managed and secured by their infrastructure, and they have to comply with certain responsibilities as constructive trustees.
Since the fraudsters used their platforms to move the assets — and the exchanges had a commitment not to allow the movement or withdrawal of the stolen cryptocurrencies — they may be responsible for these funds.
Scams are on the rise
Crypto fraud claimed more than $1 billion in losses from consumers in the U.S. between January 2021 and March 2022, according to a press release from the Federal Trade Commission (FTC). Most of the losses reported involved fake cryptocurrency investment opportunities, coming out to $575 million since January of 2021.
Many of the scams center around the idea that victims will be able to get “huge returns” from investing in the criminals’ crypto schemes. However, many victims lose most or all of the money they put in.
Read more: FTC: Consumers Lost Over $1B to Crypto Scams in ’21, Q1 ’22
In the U.K., regulators also warned consumers about the rise in crypto scams. About 3,000 of the almost 16,400 possible scam reports fielded by the Financial Conduct Authority between April 2021 and September were related to cryptocurrency, with the most-reported type of scam involving bad actors trying to push their targeted consumers to buy worthless, overpriced or non-existent shares or bonds over the phone.
See also: Digital Fraud Tracker: Crypto Scams Increased in UK Last Year
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