A Landmark and Innovative Victory in Crypto Asset Recovery – Default Judgment Triumphs: Sutton v. Persons Unknown

In a landmark decision in June 2024, the High Court’s default judgment for the delivery up of stolen digital assets traced to Binance has marked a significant victory for a victim of cryptocurrency fraud. This case highlights both the innovative strategies employed by victims seeking redress and the English court’s willingness to assist them.

The rapid recovery of Ms. Sutton’s stolen digital assets exemplifies the evolving legal remedies available in addressing crypto asset fraud, demonstrating the courts’ adaptability and the cooperative stance of crypto exchanges like Binance.

The Case

The story of Ms. Sutton is a distressingly common one. Between December 2022 and January 2023, Sutton, an elderly and vulnerable woman, fell victim to a scam that wiped out her life savings. While on sick leave, she was targeted on Scrabble Go by a fraudster posing as ‘Michael Moore’. Over several months, he gained her trust and convinced her to invest in a fraudulent cryptocurrency platform named ‘Cloudstaff’.

Under significant pressure, Ms. Sutton opened an account with a cryptocurrency exchange, converted her money to digital assets, and transferred them to the bogus investment platform. As the fraudster demanded more investments under the threat of losing her initial funds, Ms Sutton ended up parting with close to £80,000, including taking out loans when she had run out of money to cover so-called ‘final fees’.

After later realising she had been defrauded, Ms. Sutton reported the scam to the police in early 2023. Fortunately, the Police traced the stolen funds to Binance, which swiftly applied a voluntary freeze on the associated account. The owner of the Binance account and suspected fraudster, a Nigerian national, refused to engage with the police or Binance, which complicated any further action by the Police due to his location in Nigeria outside the jurisdiction.

Innovative Legal Strategy – Default Judgment to the Rescue

Sadly, given the relatively modest sums involved in many crypto fraud cases (below £500k), the costs and risk of pursuing civil action will often be prohibitively disproportionate. As a result, to help Ms Sutton, ingenuity and an innovative (albeit risky) litigation strategy was necessary:

  • Proceedings were issued in the High Court against Persons Unknown in mid-April 2024, pleading typical causes of action in deceit and fraudulent misrepresentation, along with a suite of remedies and the usual orders for service by alternative means.
  • After the defendant typically failed to acknowledge service in May, the Claimant sought a default judgment and, crucially, an order for the delivery up of the stolen assets, pursuant to CPR 12.12(12).

In June 2024, the High Court granted the default judgment and order for delivery up, which was served on the fraudster but also on Binance. Binance then complied with the order, returning Ms Sutton’s stolen life savings and led to an almost complete recovery.

Commentary

Recovering funds in low-value crypto fraud cases remains challenging, due to the pointlessness of Action Fraud, the reluctance of the authorities to intervene and the prohibitively high costs of civil proceedings. With the precipitous increase in crypto frauds, this case underscores the necessity for innovative and cost-effective solutions. Solutions are required if we are to properly tackle this type of fraud for the ordinary victims of crypto frauds, who don’t lose millions, but tens or hundreds of thousands of pounds of life savings. Despite the typical risks and expenses, the approach taken in Sutton’s case may provide a blueprint for similar future actions, offering hope to other victims of crypto fraud.

Ms. Sutton’s Perspective

This scam has been extremely traumatising, and I have lost trust in people in general,” Sutton shared. “I was very surprised when EMM Legal contacted me after Binance inquired about recovering my lost funds. I am both shocked and impressed that Binance kept the fraudster’s wallet frozen for so long. I know I am one of the fortunate few who have managed to recoup a significant amount of their lost funds, and I am deeply grateful to the police, EMM Legal, and Binance for their efforts.”

Edmonds Marshall McMahon in Crypto Asset Recovery

This case was brought by Ashley Fairbrother, Partner, and Ben Siskind, Senior Associate, of Edmonds Marshall McMahon.

Ben Siskind. July 2024.