Can You Recover Stolen Crypto?

If your digital assets have been stolen, recovering them can be stressful and a lengthy process, but there are a few practical steps you can take to improve your chances of a successful recovery.

First, let’s take a look at a couple of key cases, which help shed some light on the legal position.

In a key English case, the High Court ruled that blockchain developers had no legal obligation to crypto investors in the recovery of lost or stolen Bitcoin. The Claimant, TTL, lost private keys to Bitcoin (BTC) worth in excess of £3billion in 2020 as a result of a hack. TTL brought a claim against software developers arguing that there was a fiduciary duty and common law duty, and that the developers should have programmed a patch to the blockchain, which would have enabled TTL to recover lost or stolen BTC. This was a very intriguing proposition to put to the Court and one which would have had wide ramifications for software developers in the web3 space.

In giving Judgment, the Court found that the developers did not owe a fiduciary duty or a common law duty of care to investors stating that it would not be practical for the Court to impose a duty on developers, given that a key feature of BTC, and in fact the greatest attribute of BTC, is anonymity, and the fact it uses open source software. The outcome is probably not that surprising, but it does at least provide some clarity and reiterates that the keyholder alone is responsible for their respective crypto wallet(s), and they cannot rely solely on the exchanges or the software that was developed underpinning the blockchain.

In another key English High Court case, where an investor (Sally Danisz) fell victim to a crypto investment scam, the Court clarified a number of practical remedies which can be utilised, including a worldwide freezing injunction. Ms Danisz transferred over £26,000 to Matic Markets, a London and Swiss cryptocurrency investment platform. When she tried to withdraw her investment and profits, her request was denied. She commissioned an expert to trace what had happened to her BTC, and found that shortly after she had acquired BTC, it was misappropriated by an unknown individual and transferred to an unknown wallet without her consent. The expert evidence concluded that Matic Markets was likely a sham operation set up by organised criminals.

Whilst useful remedies were applied, such as service by alternative means outside the jurisdiction, injunctions, and a disclosure order, ultimately it’s unlikely Ms Danisz will ever see her investment or profits recovered in full.

A UK-based crypto asset tracing company I work closely with, called Wealth Recovery Solicitors, have had their own successes. Josh Chinn, the co-author of this article, is the man at the helm of WRS, and he provides his first-hand experience below.

WRS are one of the only UK regulated Law firms that have invested in a sophisticated software that enables them to trace where cryptocurrency has been sent to. WRS will need the wallet transaction history (which can never be deleted) and one of their experts will be able to trace where the cryptocurrency has been sent and find the end destination.

The crux of a normal cryptocurrency scam is that, somehow the scammer has coerced a victim into purchasing legitimate cryptocurrency, which they held and had control of and have ultimately sent the cryptocurrency to a wallet address provided by the scammer and no longer controlled by the victim. The scammer think they have done enough to hide this property but WRS are one step ahead and should be able to find where the scammers hold the victim’s property, along with normally thousands more victims’ property.

WRS were one of the first law firms to be successful in Court, and are responsible for the result in Lynda King et al v. Blockchain.com Inc. et al.

What steps should you take if you fall victim to a Crypto scam?

Time is of the essence, and you need to move swiftly:

1. First, hire a legal team. Rizwan will be able to advise you and you can also instruct WRS to help devise a strategy. If you have the wallet addresses associated with your stolen crypto, WRS can monitor the blockchain to see if the thief tries to move the assets. This may allow us to trace the stolen crypto and potentially recover it for you.

2. You should also try to contact the exchange or platform where your crypto was being stored. They may be able to provide you with some insights or guidance but if no such luck, then we can contact the exchange on your behalf.

3. Contact the police or other relevant authority (such as Action Fraud in the UK) as they may be able to open a case file and investigate matters, or may already have an investigation open. This is also important because in jurisdictions where crypto is a taxable asset, you will want to evidence the theft as a loss to try to avoid paying tax on the stolen asset (if allowable).

WRS typically take three weeks to undertake the trace, and this is mainly down to the fact that this is highly complex work and the scammers use all sorts of tactics, such as tornado mixer, to try and make the trail harder to follow. This is something WRS are used to and can get through. To date, WRS have completed around 400 successful traces.

Depending on the outcome, there are a range of possible scenarios following a trace, which includes pursuing the person, or persons, responsible for the theft. If their identity is known, or becomes known through investigation, then we can take affirmative steps via the Courts, which could include criminal prosecution; private prosecution; injunctive relief; declaratory relief; and enforcement action. We will consider the most appropriate tactics on a case by case basis and there is no one-size-fits-all approach.

It is important to keep in mind that once cryptocurrency has been stolen, it can be very difficult to recover it, and there is no guarantee that you will be able to get your assets back. This is why it is so important to take steps to protect your cryptocurrency, and take precautions such as keeping it in a secure (ideally cold) wallet, using strong passwords, enable two or even three-factor authentication, and not sharing the passwords/wallet keys with anyone.

To improve prospects of recovery, you should always keep a paper trail, retain emails and messages, and be able to explain things coherently and logically. We need accurate information, evidence to substantiate the claim, and prompt instructions from you.

(Remember, if you're unsure about investing in cryptocurrency, don't invest, and if you do, never invest more than you can afford to lose!).

Contact either of us for further information, and if you happen to fall victim to a crypto scam, please act fast and don't delay contacting us. Use the enquiry form to get in touch.

Rizwan Mughal - Mezzle Law

Josh Chinn – Wealth Recovery Solicitors

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