Does the Cryptocurrency sector finally face Regulation?

The collapse of FTX Trading Ltd. (FTX) and the subsequent arrest of Samuel Bankman-Fried, the founder, has yet again highlighted the significant risk that trading in cryptocurrency poses. Cryptocurrency enjoys a reputation of being the “wild west” of financial investment sector. The regulating bodies in both Europe and the U.S.A have been murmuring about the need for regulation in this sector for some time and the domino effect of the FTX collapse has sharpened the need.

This comes at a time when there is about to be a change of leadership in the Financial Conduct Authority (FCA) in the UK. Ashley Alder, the incoming chair, has forcefully indicated that the crypto sector will face stringent regulation that may impede the somewhat slack attitude to accountability seen in some sections of this unique financial sector, which is in stark contrast to the wider financial industry that is subject to extensive regulation. Mr. Alder will leave his current post of chief executive of Hong Kong’s Securities & Futures Commission to assume the new role in February 2023.

Joanna Bailey, a partner in the banking and financial fraud department, commented “the FCA may face a challenge when attempting to stringently regulate the crypto sector to force accountability, as the Government’s declared aim is to further expand the UK’s financial market by developing a world leading innovative crypto hub.” Joanna pointed out that “if and when changes to the regulatory framework for crypto come into force and prove to be less than vigorous, it will fall to the courts to continue to deliver verdicts that have powerful consequences for the wrongdoer.”

Giambrone & Partners’ groundbreaking case, D’Aloia v Persons unknown [2022] EWHC 1723, where the courts permitted the service of a world-wide freezing order by NFT airdrop, the second such case worldwide, has also resulted in the crypto exchanges being regarded as constructive trustees, which imposes a heavy burden of responsibility on them. Our lawyers have noted that the case and its innovative method of service have further led to a summary judgment served by NFT airdrop in the case of Jones v Persons unknown [2022] EWHC 2543 (Comm). 

The lawyers in Giambrone & Partners’ banking and financial fraud litigation departments believe that the court’s decision to hold the exchanges accountable for the funds held in wallets as constructive trustees is one of the most important legal interpretations in the fight against crypto fraud, coupled with service of legal documents by NFT airdrop which unerringly targets the perpetrators of the alleged fraud, even if they attempt to hide behind anonymity. Previously, the unidentified wrongdoers made service of documents impossible, thereby preventing accountability.

Alan Alder has acknowledged that the FCA suffers from a reputation of failure to adequately protect consumers from financial fraud in general and crypto fraud in particular, as well as questions about efficiency. It remains to be seen whether he can succeed in walking the tightrope between in making the regulatory changes to protect individuals from fraud and mismanagement without suppressing the legitimate crypto market.

In the meantime, Giambrone & Partners highly skilled banking and financial fraud litigation department continue to lead the legal battle against cryptocurrency fraudsters, developing exceptional strategies to defeat them and reclaim our clients’ lost funds. Our lawyers have a high level of success in retrieving both fiat money and cryptocurrency our clients' have lost to scam investment schemes.

Joanna Bailey heads our banking and financial fraud litigation department.

Joanna frequently leads the litigation against financial institutions involved in cryptocurrency trading disputes, as well as Forex investment issues and regulatory investigations and has some considerable success in retrieving our clients' funds lost in fraud.

She has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.

Joanna led the first case in Europe where proceedings were served on Persons Unknown connected with two digital wallets over the blockchain by non-fungible token or ‘NFT’ in a cryptocurrency fraud. Following this ground-breaking case Joanna was named as Lawyer of the Week in the Financial Times.

Joanna is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.

If you believe you have been targeted by cryptocurrency scammers and would like to know more about how Giambrone & Partners can assist you please contact at clientservices@giambronelaw.com or click here.