
Crypto Caselaw Minute — 8/31/2018
Welcome to crypto-case law in a nutshell. Each week I’ll cover 2 or 3 interesting opinions or legal developments in the world of Blockchain and virtual currencies and try to do so in 2 to 3 minutes or less.
This was a particularly busy week, and I’ve selected cases that cover garnishing bitcoin, crypto-plaintiff personal jurisdiction perils, and CFTC spot market jurisdiction over crypto trades (along with the perils of social media for crypto-fraudsters). Here we go!
No personal jurisdiction over Japanese bank in Mt. Gox related lawsuit. Pearce v. Mizuho Bank, Ltd., 2018 U.S. Dist. LEXIS 146005 (E.D. Pa., August 27, 2018).
Plaintiff sued Mizuho Bank for its role in providing banking services to failed crypto-currency exchange Mt. Gox. Defendant filed a Motion to Dismiss for lack of personal jurisdiction. The Court found that there was neither general nor specific jurisdiction over Defendant and granted its rule 12(b) motion. In doing so, the Court applied a fairly standard personal jurisdiction analysis, consistent with International Shoe and its progeny.
First, there’s no general jurisdiction because “Mizhuo is a Japanese financial institution that is not ‘at home’ in Pennsylvania nor has any ‘continuous contact’ with the forum.” The fact that a subdivision of the company had an office in Philadelphia didn’t matter.
Second, no specific jurisdiction either. Oversimplifying the three part test the court applied, what seemed to matter most for the Court was that plaintiff had no “transactional contact” with the Bank (as opposed to a plaintiff in another case who had received wire transfers). Trading Bitcoin on a platform with which the bank had a relationship was not enough.
In short — new tech, pretty traditional personal jurisdiction analysis.
You can garnish bitcoin held on an exchange … but only if you follow the rules! Currier v. PDL Group, 2018 U.S. Dist. LEXIS 145127(E.D.Mich. August 27, 2017).
Plaintiff sued Defendant and got a $22,500 judgment in his favor. In post-judgment collection proceedings, he sought to satisfy that amount by garnishing bitcoin and ether in a Coinbase account.
Under Michigan law, the Court said that “as a garnishee, Coinbase is generally liable for all tangible and intangible property belonging to a defendant in its possession when a writ is served.” Cryptocurrency, per the court is intangible personal property. Plaintiff messed up procedurally, because Defandant’s domicile was in New York, not Michigan, so the judgment needed to be registered in New York and collection remedies pursued there.
This case is interesting for two reasons: (1) while not a surprise to any lawyer who has tried to collect a judgment, it shows that crypto is an asset like any other for judgment collection purposes; (2) the dicta that Bitcoin is intangible personal property may show up in another case, at some time — it shows that Courts can put the asset into recognizable categories, they don’t need to create new ones.
CFTC has jurisdiction over fraud/misconduct in spot market crypto trading or we haz all your DMs. Cftc v. Patrick K. McDonnell, 2018 U.S. Dist. LEXIS 146576 (E.D.N.Y, August 23, 2018).
This was a regulatory enforcement action by the Commodities Futures Trading Commission (“CFTC”) against Patrick McDonnell and CabbageTech Corp., aka Coin Drop Markets.
The Court described McDonnell’s conduct as involving a “boiler room” scheme, in which he defrauded the public into “conning them” into thinking they were getting expert advice about virtual currency trading and that he was trading virtual currencies on their behalf when in fact he was simply stealing their money.
I can’t do justice here to the Court’s 52 page opinion, which is forensic in its factual detail. This includes screen shots of direct message email alerts from 2017, detailed financial and account records. In short, this exactly the kind of evidence you would expect a government agency to be able to collect when investigating someone for fraud — crypto-currency related or not.
The significance of this from a legal standpoint is whether the CFTC does actually have jurisdiction over spot market transactions that involve fraud. This defendant was pro se and the Court thus only the benefit of briefing from the Government. The Court previously concluded in its Preliminary Injunction ruling that while CFTC jurisdiction is usually restricted to futures and derivatives markets, Dodd Frank had extended this to fraud and manipulation in underlying markets.
It is possible that a different court, presented with different arguments, might rule otherwise. But if this Court is right, the CFTC is one more regulator with authority over spot market cryptocurrency misconduct.
Disclaimer: Any opinions expressed here are mine alone, aren’t legal advice, and may not be shared by my current employer, colleagues, clients or fishing companions. Also, I may change my mind: “I contain multitudes.”
