Fabrizio D'Aloia v Persons Unknown Category A & Ors

USDT is property under English law. It is neither a chose in possession nor a chose in action, but a distinct form of property to which property rights may attach. The Ainsworth criteria are satisfied because USDT is definable, identifiable, transferable and sufficiently permanent.

USDT may in principle be followed through mixed wallets where its identity is preserved and the exercise is properly evidenced. Common-law tracing through a mixed fund remains unavailable, while equitable tracing remains possible. The methods used to trace fraudulently obtained assets are not confined to FIFO, pari passu distribution and rolling charge, but any alternative must be methodologically sound, impartial and properly evidenced.

A cryptoexchange may rely in principle on change of position, ministerial receipt and bona fide purchase defences. Actual knowledge of suspicious activity and failure to investigate may defeat those defences.

The claimant alleged that he had been induced by a cryptocurrency fraud to transfer USDT which passed through multiple blockchain wallets and was ultimately deposited into a custodial wallet operated by Bitkub. He claimed proprietary relief, constructive-trust relief and unjust enrichment.

The trial principally concerned whether any of the claimant’s USDT reached Bitkub’s 82e6 wallet, whether the pleaded case permitted reliance on tracing and constructive-trust principles, and whether Bitkub could rely on defences based on good faith, change of position, ministerial receipt and bona fide purchase without notice.

The court also had to determine the legal status of USDT and the permissible methods of following or tracing cryptoassets through mixed funds.

1. Claim dismissed. The claimant failed to establish, on the balance of probabilities, that any of his USDT reached Bitkub’s 82e6 wallet. That failure was fatal to the proprietary and unjust-enrichment claims against Bitkub.
2. USDT attracts property rights under English law. It is neither a chose in action nor a chose in possession. It is a distinct form of property comprising the token, its data and associated transactional functionalities. The Ainsworth criteria are satisfied. The property attaches to the USDT itself, rather than merely to a right to control a private key.
3. Following and tracing are distinct. Following identifies the same asset as it moves between hands; tracing identifies a substitute asset. The pleaded claims, although using the word following, sufficiently encompassed tracing.
4. English law continues to recognise separate common-law and equitable tracing regimes. Tracing through a mixed fund is unavailable at common law, but remains available in equity.
5. FIFO, pari passu distribution and rolling charge are not the only possible tracing methods. In fraud cases another method may be used if it treats innocent claimants comparably and is methodologically sound and properly evidenced. The expert methodology relied on here was contradictory, insufficiently explained and mathematically unreliable.
6. A constructive trust arose over the claimant’s funds in the hands of the fraudsters because the agreement with the fraudsters was itself an instrument of fraud. No constructive trust was established against Bitkub. The pleaded case did not allege a Bitkub constructive trust based on its own conduct, and no knowing-receipt claim was pursued.
7. Change of position and ministerial receipt are in principle available for cryptoasset claims. A provisional account credit was insufficient for ministerial receipt; payment away was required. Bitkub had actual notice of suspicious activity and failed to investigate, so neither defence was available. Bona fide purchase without notice was also unavailable, although the court declined to determine the required standard of notice because actual notice had been established.