Digital assets are not just the playthings of the uber rich. Cryptocurrency, in particular, is forming an increasing part of asset portfolios around the world.
When things go wrong, knowing how to monetise any claim where such assets are involved is just as important as if it involved hard currency. There are four key steps to ensuring you are in the best position to recover stolen digital assets or losses made as a result of investments in digital assets:
1. Choose the right team
Determining the correct strategy from the beginning is paramount and therefore choosing the right team with the requisite experience in pursuing digital assets claims is key. Digital assets tend to know no geographical boundaries and therefore the ability to work seamlessly with other lawyers and professionals in other jurisdictions is a must to be able to move quickly to seize/ freeze assets and make recoveries.
It is highly likely that you will need to employ the skills of experts to trace the movement of assets, identify the targets and confirm their location. Knowing who to go to for this expertise is important.
2. Ensure you have the necessary funding
It is a truth universally acknowledged that resolving disputes can be very expensive, especially if court proceedings are required across more than one jurisdiction. That coupled with the costs of the initial investigation to trace the assets and identify targets can cause cashflow issues and hinder your ability to recover stolen cryptocurrency or recover your losses. Understanding the funding options available and who has the appetite for risk in this space can be a very important consideration.
Gateley has a proven track record for acting on a contingent basis, we have access to our own litigation funding facility, and we have excellent relationships with other contacts who can provide access to alternative sources of funding.
3. Identifying the “bad actors”
Establishing who has stolen your cryptocurrency or is responsible for your losses is a critical step on the path to recovery. However, how can this be achieved, particularly in circumstances where a key part of digital assets and cryptocurrency is that it is decentralised and pseudo - anonymous? This is where your forensic team can really add value. From tracing the movement of assets through exchanges and identifying accounts to using open-source intelligence to crack aliases and find that offshore account or property in the Caribbean. They may only require what looks like a bunch of numbers and letters as a starting point but that can give us the springboard to identify which platform(s) have been used to move funds so that disclosure requests for KYC and other information can be made.
Such steps will usually tell you where the assets went but may not give you the name or names of those responsible. However, combining these investigations with applying to the court for the disclosure of who owns the wallets through which cryptocurrency has passed or may even still be held to uncover their identity and even freeze digital assets which have not been converted to fiat, may provide that information.
4. Obtaining control of digital assets and monetising them to make a recovery
Whether you have been the victim of a theft or a scam or have fallen victim to a ransomware attack, it is possible that the digital asset still remains in the hands of the perpetrator unconverted to fiat. If that is the case, you may need to move quickly to get it secured pending a court order requiring it to be turned over to you particularly as it can be moved on extremely quickly. Also the use of mixers (designed to obfuscate the flow of funds/assets) and the dark net can make valuable assets disappear at the click of a button.
Don’t automatically assume that the bad actors will have converted illicit funds to fiat immediately. There may be a number of reasons as to why the asset remains digital for some time after the event. For example, they may think that they have done enough to obscure the flow of the assets between linked accounts. The volatility of value may mean that they cannot cash out everything at once, equally for fear of drawing attention to themselves.
If we can identify it, it can be frozen and/or seized providing a pathway for recovery. The multi-jurisdictional nature of cryptocurrency in particular means that you need to consider very carefully where to obtain any freezing order and what other jurisdictions it can be enforced in.