The largest Offshore finance database for the latest news, courts, MLATs, indictments, complaints, intelligence & investigations for Cayman, BVI, Bermuda Los Angeles, CA, May 18, 2020 (GLOBE NEWSWIRE via COMTEX) — Los Angeles, California /GLOBENEWSWIRE/- May 18, 2020 -KRONOS ADVANCED TECHNOLOGIES, Inc.,… Contrary to “fake news” spreading around which even name-dropped President Rodrigo Duterte, the Philippine government is not enjoining all Filipino citizens to invest in cryptocurrencies, the Department of Finance (DOF) warned on Tuesday. On 8 April 2020, the High Court of New Zealand issued a judgment concluding that cryptocurrencies are a species of intangible personal property capable of being the subject matter of a trust. The j…
May 18, 2020 – Class Action Complaint alleging securities fraud involving cryptocurrencies in Crypto Assets Opportunity Fund LLC, of Illinois, and Johnny Hong, of Solvang, California v. Block.one, described as a Cayman Islands firm with offices in New York, California, and Hong Kong; Brendan Blumer, Daniel Larimer, Ian Grigg, and Brock Pierce at the U. S. District Court for the Southern District of New York.
May 15, 2020 – Blockchain group Uulala, which has operations in Bermuda, Canada, Mexico, and the United States, has claimed in a lawsuit that its future is “at risk” after “multiple” investors asked to withdraw “approximately $800,000” and are threatening legal action due to a “campaign of disparagement” by three former employees.
May 14, 2020 – Complaint alleging “a systematic campaign to disparage Uulala’s reputation with investors and employees” in Uulala Inc., described as a “blockchain technology” company “that has developed a financial solutions banking platform and mobile app that gives the underbanked the ability to send and receive money from anywhere in the world” v. Damiano Raigoza, Andre Urena, and Allan Sheu at the Superior Court of the State of California, County of Los Angeles.
May 07, 2020 – In a lawsuit, Los Angeles-based blockchain investor Michael Terpin has alleged that he lost “nearly $24 million of cryptocurrency” in a hack whose “evil mastermind” was “a then 15-year-old high school student” in New York who “boasted” of stealing “over $100 million worth of cryptocurrency through scores of hacks”.
May 07, 2020 – Complaint alleging the loss of “nearly $24 million worth of cryptocurrency as a result of a hack” by “a then 15-year-old high school student in coordination with and with the active participation of other individuals, including several other minors” in Michael Terpin, of Los Angeles County, California v. Ellis Pinsky at the U. S. District Court for the Southern District of New York.
May 06, 2020 – Plaintiff’s Expedited Motion for Leave to File Combined Memorandum regarding allegations of fraud involving binary options and cryptocurrencies in Commodity Futures Trading Commission v. Daniel Fingerhut, of Miami Beach, Florida; Digital Platinum Inc., of Florida; Digital Platinum Ltd., of Israel; Huf Mediya Ltd., a.k.a. Hoof Media Ltd., of Bulgaria; Tal Valariola, of Israel, and Itay Barak, of Israel, as Defendants, and Aicel Carbonero, of Miami Beach, Florida, as Relief Defendant, at the U. S. District Court for the Southern District of Florida.
May 06, 2020 – Plaintiff’s Motion for Preliminary Injunction in Commodity Futures Trading Commission v. Daniel Fingerhut, of Miami Beach, Florida; Digital Platinum Inc., of Florida; Digital Platinum Ltd., of Israel; Huf Mediya Ltd., a.k.a. Hoof Media Ltd., of Bulgaria; Tal Valariola, of Israel, and Itay Barak, of Israel, as Defendants, and Aicel Carbonero, of Miami Beach, Florida, as Relief Defendant, at the U. S. District Court for the Southern District of Florida.
May 05, 2020 – Complaint alleging fraud involving binary options and cryptocurrencies in Commodity Futures Trading Commission v. Daniel Fingerhut, of Miami Beach, Florida; Digital Platinum Inc., of Florida; Digital Platinum Ltd., of Israel; Huf Mediya Ltd., a.k.a. Hoof Media Ltd., of Bulgaria; Tal Valariola, of Israel, and Itay Barak, of Israel, as Defendants, and Aicel Carbonero, of Miami Beach, Florida, as Relief Defendant, at the U. S. District Court for the Southern District of Florida.
May 01, 2020 – Complaint alleging the sale of unregistered securities involving a cryptocurrency known as ‘XRP’ in Bitcoin Manipulation Abatement LLC, of Puerto Rico v. Ripple Labs Inc., of Delaware; XRP II LLC, described as a New York-domiciled entity based in San Francisco, and Bradley Garlinghouse, described as Ripple’s CEO, at the U. S. District Court for the Northern District of California.
May 01, 2020 – Cayman Islands-domiciled Benthos Master Fund Ltd. has obtained a $5 million arbitration award against New York attorney Aaron Etra regarding “a purported sale of Bitcoin that turned out to be a scam”.
KRONOS ADVANCED TECHNOLOGIES NOW ACCEPTS CRYPTOCURRENCIES THROUGH COINBASE;
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DOF warns about cryptocurrency scam
MANILA, Philippines — Contrary to “fake news” spreading around which even name-dropped President Rodrigo Duterte, the Philippine government is not enjoining all Filipino citizens to invest in cryptocurrencies, the Department of Finance (DOF) warned on Tuesday.
In a statement, the DOF noted of misinformation that the Philippines was supposedly putting up a platform “to start generating income with cryptocurrency.”
“There is no such effort by the government,” DOF Assistant Secretary and spokesperson Antonio Joselito G. Lambino II said.
“Peddlers of such fake news have alleged in an article that the government has created a platform called Bitcoin Lifestyle and that President Duterte is urging all citizens of Philippines to learn about Bitcoin Lifestyle quickly to get involved,” the DOF said.
“We categorically deny that there is such a move, and warn the public against potentially harmful financial transactions with those behind the article,” Lambino said.
“The fake news also suggested that the government of Philippines asserts that tax revenues (from Bitcoin Lifestyle) will be huge and will benefit all citizens, and most of it will go to the financing of the Philippines’ retirement and to counteract the crisis of learning support services,” according to the DOF.
“This is false. We urge the public to exercise caution in their investments, and to keep their expectations of returns realistic,” according to Lambino.
“We warn unscrupulous individuals and groups attempting to lure the public into unauthorized and deceptive investment schemes that the government is monitoring the public space for such schemes, and will take appropriate legal and regulatory action,” Lambino added, urging to report such investment scams to the Securities and Exchange Commission (SEC).
The Washington-based International Monetary Fund (IMF) earlier reported that the Philippines “may become an important market for cryptoassets” as it continued to attract more new virtual currency exchanges (VCEs).
According to an Organization for Economic Cooperation and Development (OECD) report titled “Cryptoassets in Asia: Consumer attitudes, behaviors and experiences” published last December, a majority of Filipinos had been aware of cryptocurrencies even as actual holdings remained low due to perceived risks from these digital assets.
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Author: Ben O. de Vera
GROWING BODY OF COMMON LAW DECISIONS THAT CRYPTOCURRENCIES CAN AMOUNT TO PROPERTY: RUSCOE v CRYPTOPIA LIMITED (IN LIQUIDATION) CIV-2019-409-000544  NZHC 728
On 8 April 2020, the High Court of New Zealand issued a judgment concluding that cryptocurrencies are a species of intangible personal property capable of being the subject matter of a trust. The judgment summarises recent case law from a number of jurisdictions on the proprietary status of cryptoassets and refers to the UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts, the conclusions of which it follows.
The judgment is further evidence of an approach by the courts in various common law jurisdictions to seek to treat cryptocurrencies as property. This case provides a further helpful analysis of the key requirements of property and their application to digital assets. It further provides a pertinent analysis on why cryptocurrencies should be treated differently from mere information. In its findings, the Court of New Zealand heavily relied on a body of case law from common law jurisdictions as well as the UKJT Legal Statement. This decision highlighted the importance of the UKJT statement beyond England and Wales. As did the English Court in AA v Persons Unknown (at an interim stage), the New Zealand High Court relied on the UKJT Legal Statement as the primary source when addressing a number of key questions, such as the definition of cryptocurrency, the importance of its proprietary status, and whether cryptocurrencies satisfy the four requirements to be create a property interest.
While the litigation risk remains high until these principles are confirmed either by the highest courts in the land, or addressed through legislation, this case once again confirms that there is developing a consistent body of case law in common law jurisdictions which seeks to treat cryptoassets as property.
Cryptopia was a cryptocurrency exchange platform established in 2014 in New Zealand. It expanded exponentially from November 2017 reaching over 900,000 users, the majority being from abroad. In January 2019 Cryptopia’s servers were hacked. Somewhere between nine and 14 per cent of its cryptocurrency was stolen, this being valued at around NZD 30 million. Soon after, in May 2019, Cryptopia was placed into liquidation. The liquidators have estimated that the value of the remaining cryptocurrency was about NZD 170 million. A dispute arose over the ownership of the remaining cryptocurrency. The liquidators applied to the Court to determine two main issues:
The Court began its discussion by establishing a definition of cryptocurrency, and referred to the 2019 UK Jurisdiction Taskforce Legal Statement on Cryptoassets and Smart Contracts (“UKJT statement”) for guidance. Further, the Court considered that the definition of “property” in the Companies Act of New Zealand was inclusive and wide, with “property” to include “rights, interests, and claims of every kind in relation to property however they arise”. In addressing why this mattered, the Court again referred to the UKJT statement and quoted that: “It matters because in principle proprietary rights are recognised against the whole world, whereas other – personal – rights are recognised only against someone who has assumed a relevant legal duty. Proprietary rights are of particular importance in an insolvency, where they generally have priority over claims by creditors, and when someone seeks to recover something that has been lost, stolen, or unlawfully taken. They are also relevant to the questions of whether there can be a security interest in a crypto asset and whether a crypto asset can be held on trust…Of particular significance are the rules concerning succession on death, the vesting of property on personal bankruptcy, the rights of liquidators in corporate insolvency, and tracing in cases of fraud, theft or breach of trust. It would, to say the least, be highly unsatisfactory if rules of that kind had no application to crypto assets.” In the present case, the creditors contended that cryptocurrencies were not property, nor were they capable of forming the subject matter of a trust at common law. The accountholders strongly disputed this position as this finding would have significantly affected their priority in liquidation.
The Court then turned to a comprehensive analysis of case law from multiple jurisdictions. It first considered the Singaporean case of B2C2 Ltd v Quoine Pte Ltd  SGHC(I) 3,  4 SLR 17 [B2C2 (SGHC)], which concerned a Singaporean cryptocurrency exchange, Quoine. Due to some errors in the programming, B2C2 sold ethers (the Ethereum cryptocurrency) at about 250 times its market price. Quoine became aware of the mistake and reversed the trades which led to the litigation. B2C2 sued Quoine for breach of the contract and for breach of trust. The High Court upheld both of B2C2’s claims. On appeal, the majority upheld the High Court’s decision on the breach of contract aspect but overturned the decision on the breach of trust.
The Court then considered the English case of Vorotyntseva v Money-4 Ltd  EWHC 2596 (Ch). In that case, the claimant successfully obtained a worldwide freezing order against Nebeus, a cryptocurrency platform. The Court also considered a Canadian decision, Shair.Com Global Digital Services Ltd v Arnold 2018 BCSC 1512, in which the court granted an ex parte preservation order to the plaintiff company against its former chief operating officer with respect to digital currencies that were potentially still in the defendant’s possession. Further, the Court considered the English decision of AA v Persons Unknown  EWHC 3556,  4 WLR 35 (reported on here), which also treated cryptocurrencies as “property” by granting an interim proprietary injunction against a cryptocurrency exchange over bitcoin.
Finally, the Court considered the four requirements for a “property” interest outlined by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth  AC 1175 (HL) at 1247–1248: 1) Identifiable subject matter; 2) Identifiable by third parties; 3) Capable of assumption by third parties; and 4) Some degree of permanence or stability. The Court concluded that cryptocurrencies meet all the criteria and are therefore capable of forming the subject matter of a trust.
The Court also considered and dismissed two arguments that are commonly raised to suggest that cryptocurrencies do not have the status of “property”: (a) the common law recognises only two classes of personal property: tangibles and choses in action. Cryptocurrencies are said to be neither; and b) information is not generally recognised as a form of “property” and cryptocurrencies can be said to be a form of information.
In respect to the first argument, the Court noted that this accords with the well-known dictum of Fry LJ sitting in the English Court of Appeal in Colonial Bank v Whinney (1885) 30 Ch D 261 (CA) at 285, namely that all personal property must either be a chose in possession or a chose in action. However, the Court in the present case emphasised that Fry LJ did not seem to be taking a narrow view of what can be classified as property, but rather he was simply wanting to put all examples of property into one of two categories. The most that could be said is that cryptocoins might have to be classified as choses in action. The Court noted that it would be ironic that something that might be said to have more proprietary features than a simple debt is deemed not to be property when a simple debt qualifies. For these reasons, this argument was dismissed.
The Court noted that the second argument was supported by the 2014 decision of the English Court of Appeal in Your Response Ltd v Data Team Business Media Ltd  EWCA Civ 281,  QB 41, where it was held that there could be no property in a database based on the particular facts of the case. The Court concluded that this decision does not go much further than to make a determination upon the particular facts of that case and therefore considered it to be an inconclusive precedent.
The Court further stated that it is wrong to regard cryptocurrencies as mere information because:
The Court was satisfied that cryptocurrencies are far more than merely digitally recorded information and concluded that the second argument was too simplistic. The argument was dismissed.
The Court had to address the second question on whether any or all of the digital assets were held on trust for accountholders. The Court went on to determine the question whether the cryptocurrencies in issue were held on an express trust by considering the three certainties: certainty of subject matter, certainty of objects and certainty of intention, which reflects a well-established rule within English trusts law on the creation of express trusts.
Subject matter: The Court concluded that all cryptocurrency holdings were held on trust by Cryptopia, although Cryptopia was itself one of the beneficiaries. Cryptopia itself kept and stored the private keys associated with the wallets of each cryptocurrency in this case so that accountholders did not know the private key associated with any particular wallet. The subject matter of the various trusts being the cryptocurrencies was clearly recorded in Cryptopia’s SQL database and this was deemed to provide sufficient certainty of subject matter.
Object: The Court considered that the requirement for certainty of objects was clearly established. The beneficiaries of the relevant trusts were those with positive coin balances for the respective currencies in Cryptopia’s SQL database.
Intention: Finally, the court assessed the requirement of an intention in the settlor to create a trust. The Court held that Cryptopia manifested its intent through its conduct in creating the exchange without allocating to accountholders public and private keys for the digital assets it held for them. The SQL database that Cryptopia created showed that the company was a custodian and trustee of the digital assets. In addition, Cryptopia did not intend to, and did not in fact, trade in the digital assets in its own right. The Court held that a trust came into existence for each of the cryptocurrencies as soon as Cryptopia came to hold a new coin (or part of coin) for accountholders.
The Court distinguished the Singaporean Court of Appeal case, B2C2 Ltd v Quoine Pte Ltd, in which the Court of Appeal overturned the High Court’s finding that there had been a breach of trust, stating that there was insufficient intention to create a trust. In distinguishing the facts of this case, the Court relied on: (i) the express trust provisions in the applicable terms and conditions; (ii) other indicators of a trust from the evidence; (iii) Cryptopia’s internal financial accounts and tax returns demonstrated that it did not assert any ownership in the cryptocurrency beyond its beneficial interest in its own personal cryptocurrency as an accountholder; and (iv) the agency clause in the applicable terms together with material in the customer service manuals and a legal opinion on these issues.
The court concluded that Cryptopia essentially fulfilled the role of a bare trustee in relation to the accountholders and the digital assets were held in multiple trusts. Its principal role was to hold each group of digital assets as trustee for the accountholders, to follow their instructions, and to let individual accountholders increase or reduce their beneficial interest in the relevant trusts.
As noted above, Cryptopia was hacked in January 2019. That cryptocurrency was withdrawn from the exchange using the private keys for the currency wallets in question, and Cryptopia was not able to reverse the transactions. The Court in this case has not been asked to address the relevance of any questions which might arise in relation to Cryptopia’s legal culpability for lost digital assets. However, the Court noted that this issue potentially arises if the digital assets were held on trust. The Court noted that, in principle, where a trustee is one of the beneficiaries of the trust (as Cryptopia was in the present case) and there is a shortfall in the trust assets, the trustee cannot share in any distribution of assets among beneficiaries where the trustee is found to be legally culpable in respect of that shortfall, to the extent of the shortfall. The Court, however, concluded that these comments were made by way of an aside as the issue of trustee-fault was not strictly before the Court.
Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.