Fraud claim for millions in missing crypto launched by NFT in legal first

Assets are held on trust by crypto exchanges, judge finds

The High Court has allowed a man scammed out of millions in cryptocurrency to launch legal action against the alleged fraudsters using an NFT in what his solicitors say is the first case of its kind outside the US.

Mr Justice Trower held it was “appropriate for service to be effected by Non-Fungible Token” in a fraud claim against the unknown operators of a dodgy website.

He also agreed there was a good arguable case that the missing cryptocurrency is held on trust by the crypto exchanges it was diverted to.

The claimant, tech entrepreneur Fabrizio D’Aloia, says he has been “conned” by whoever is behind a website called tda-finan.com. The Hong Kong-registered site held itself out as connected with a legitimate business, TD Ameritrade, which it very much wasn’t. D’Aloia handed over 2.1 million Tether tokens and 230,000 USD Coins, thinking they were going into a trading account, but it eventually became clear that he wasn’t getting any of it back.

Private techo-detectives managed to trace the crypto to digital wallets on Binance and several other exchanges. As part of legal action to recover his assets, D’Aloia asked the court for freezing orders and other relief binding the platforms concerned. He also asked for permission to serve the “persons unknown” who allegedly carried out the scam by an NFT airdrop into their wallets, as well as by email.

Trower found that Binance and most of the other exchanges were likely to hold the crypto on a constructive trust for D’Aloia, whom he accepted was the owner.

He said:

“It is also said that the claimant has a claim in constructive trust, not just against the first defendant but also, such as to give rise to proprietary rights, as against the second to seventh defendant, being those who control or hold the exchanges into which (according to the report produced by Mitmark) it is possible trace the relevant crypto assets. I am satisfied, for present purposes, subject to one issue which arises in relation to the third defendant, that there is a good arguable case to that effect.”

He went on to consider the pitch for what D’Aloia’s barrister described as a “novel” way of notifying the alleged scammers about the fraud case against them. This was “service by what is called the ‘non-fungible token’, which is a form of airdrop into the tda-finan wallets in respect of which the claimant first made his transfer to those behind the tda-finan website”.

The court heard that using an NFT in this way would “embed the service in the blockchain”. Trower admitted that he “may not have expressed that very happily”, but from what he understood of the request, “there can be no objection to it”, as it increased the chances of the “persons unknown” defendants being put on notice of the case against them.

D’Aloia’s solicitors, Giambrone, said this was the first order of its kind outside the US. English courts have allowed service via Instagram and Facebook but never by blockchain. The firm said the case paves the way for other victims of crypto fraud to pursue mystery scammers where their website or email address has gone dead.

Giambrone also lauded the constructive trust finding. Associate Joanna Bailey said: “The importance of the Court’s finding of a good arguable case of constructive trustee liability cannot be overstated. Should cryptocurrency exchanges act contrary to such orders and fail to ringfence the identifiable cryptocurrency, they risk being held liable for breach of trust.”