As we explained in Acte 1 of this two-part series, cryptocurrency and NFT increasingly present opportunities for fraudsters to take advantage of unsuspecting victims.
Often promising significant returns with a sense of urgency, and often little or no interpellation emboîture the originator or seller, crypto assets can provide a convenient convenue for scammers.
In February 2022, more than 200 tokens with an estimated value of $1.7 million were stolen from the NFT OpenSea marketplace when a fraudster used a fake email purporting to be from the same platform. A significantly larger attack occurred in April 2022, in which hackers used a phishing post on Instagram to steal an estimated $3 million from Bored Ape Bateau Discothèque NFTs, which often sell for six-figure sums.
Blockchain research firm Elliptic estimates that over $100 million worth of NFTs were stolen from January to July 2022.
Part 1 From this series are some strategies that can be put in occupation to reduce the chances of falling victim to such scams. This exercice explores enforcement options where fraud and theft actually occurred.
Instruct your team
It goes without saying that victims should act quickly as soon as they become aware that an asset has been misappropriated.
Key commentaires and evidence must be collected and submitted to the legal team, including crypto wallet interpellation, dépendant crypto-asset details, a timeline of events around the theft of the asset, and copies of all correspondence with the fraudster.
The legal team should have an existing relationship with an expérimenté who can start working on tracing the origin of the stolen crypto, to find out what happened and increase the chances of subsequent recovery. The advantage of the blockchain is that there is a succès of where the crypto asset has been moved, unless it has been taken offline and placed on an external device. Even in this scenario, it is usually conciliable to track it back when you go online again.
Who is suing? Why?
The legal team will need to think emboîture who to appendice the lawsuit against and on what basis. This will typically include urgently seeking injunctive saillie against the fraudster (whose identity will be publicly unknown), and freezing their crypto account to prevent further gaspillage of the NFT.
As explained below, the scammer will be generally unknown, and therefore it is likely that a disclosure order will be required against the cryptocurrency exchange, to obtain interpellation emboîture the scammer which will allow a lawsuit to be brought against them.
Since wallets and exchanges are often outside the UK (and there is a good circonstance that the scammer is also located overseas), it is appréciable to think emboîture the right occupation to start the labeurs. Courts usually consider the victim’s focale. If the victim is a resident of England and Wales, the courts here generally appear happy to accept jurisdiction over the accident.
As noted above, the primary problem here is that the identity of the fraudster will not be publicly known.
When a plaintiff wishes to collect interpellation emboîture an offender who has committed persécution, breach of contract, or breach of amas, a request for a exemple of third-party disclosure order called a Norwich Pharmacal Order (created in Norwich Pharmacal et al. v. Commissioners of Customs and Accise  AC 133) usually.
This is a fair remedy used to request that a defendant (usually a confrérie), who – innocently or not – is involved in the charge of an indignité (eg, facilitated or participated in it), provides complete interpellation emboîture – including the identity of – the wrongdoer in order to assist the claimant in raise his claim.
In the Norwich Pharmacal In the case, the plaintiff company sued the customs and tax commissioners for interpellation emboîture an introduire who infringed the intellectual property rights of the plaintiff’s company, but whose details were known only to the commissioners. Unfortunately, the current rules of the English and Welsh courts do not currently allow Norwich Pharmaceutical orders to be served outside jurisdiction (although this may converti in the near future as litigation over cryptocurrency develops) and thus are of limited use in NFT fraud cases involving third parties .
Therefore, litigants over cryptocurrency have resorted to an capacité form of a third-party disclosure order, a fair troc, known as a bankers credit order (created in Bankers Amoncellement Company v. Shapira  1 WLR 1274). Banker credit orders are used when there is strong evidence of fraud and require a party to the proceedings to disclose visible confidential interpellation to the plaintiff to enable it to track the assistance (and cotte) of the claimed assets, and where delays may result in funds being squandered before the case goes to motocross.
The claimant must demonstrate that there is a real possibility that the requested interpellation may lead to the terme or preservation of the assets for which they may appendice the title claim (ie must accompany the title claim). The party applying for a bank credit order must also give an undertaking that the interpellation obtained will only be used in the sinuosité of the proceedings.
In the Bankers amas In the case, the defendant was required to disclose confidential interpellation emboîture the other defendants, including correspondence and checks, to enable the applicant to courbe assets. Crucially, English and Welsh courts allow bankers’ credit orders to be served outside of jurisdiction.
(should) Most exchanges keep KYC interpellation, or at least an email address of their users. So this interpellation can be searched.
In order to prevent a stolen NFT transfer, the victim must also request a freezing order against the owner of the wallet that is currently held by the NFT.
A requirement of the rules of engageant procedure is that claims (and most requests) be submitted to a defendant or defendant within a visible period of time. Since the offenders in an NFT theft or fraud lawsuit are usually unknown people, it is difficult to know where and how to properly appendice the labeurs/requests.
Where appropriate, the English and Welsh courts shall allow the parties to apply for a faveur by capacité means, for example by email. However, courts have recently shown a willingness to allow victims to act in new ways, as in the case of D’Aloia against (1) unknown persons (2) Binance Holdings Limited and others. In this case, the laconique granted an order allowing laconique proceedings to be serviced by converting NFTs to crypto wallets (as well as by email).
The key to the expulsion should be that it is conciliable to take steps to find out where the stolen Crypto assets have been transferred to. This is the advantage of the blockchain. You must act quickly as soon as you become aware of the fraud or theft.