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.

Demetri Bezaintes, an associate 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.” Demetri 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.

Demetri Bezaintes is an associate based in the London office within the financial services and crypto litigation department. He is an SRA-regulated Registered Foreign Lawyer (RFL) in England & Wales and a qualified Greek Lawyer (dikigoros).

Demetri has a thorough knowledge of investment fraud and fund tracing. He works tenaciously for our clients, advising on cryptocurrency, Forex trading disputes and regulatory investigations. He draws his expertise in investment law from his experience in the banking sector and his studies in banking and financial services regulation. Before joining Giambrone & Partners Demetri worked at an international bank, where his main focus was the enforcement of freezing orders and third-party debt orders.

He approaches cross-border jurisdiction matters with a comprehensive view, based on his knowledge of both civil and common law. After qualifying as a lawyer in Greece, he obtained a Graduate Diploma in Law from the University of Westminster and is currently studying for the LPC at the University of 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 Demetri's clerk Sam Groom on SG@giambronelaw.com or please click here.