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Bybit's payroll manager was sued for abusing their power and secretly transferring USDT, an analysis of the Singapore court's verdict.

23-07-28 11:22

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Original Title: "Bizarre Case: Bybit Payroll Manager Steals Large Amounts of USDT, Singapore Court Explains Cryptocurrency Property"

Original Translation: Wu Shuo Blockchain

Cryptocurrency exchange Bybit sued Ms. Ho, who is responsible for paying salaries within the company, for abusing her power and transferring a large amount of USDT to an address secretly owned and controlled by her. The Singapore High Court upheld the ruling on July 25th, stating that cryptocurrency is generally recognized as property, and holders of cryptocurrency have intangible property rights recognized by common law. As an item in the lawsuit, it can be enforced in court. The court ruled that Ms. Ho must immediately pay all transferred funds and interest to Bybit.

Here is the full translation of the judgment, with the original link:

https://www.elitigation.sg/gd/s/2023_SGHC_199

Introduction

1. This case involves a type of cryptocurrency called Tether, which is an example of a stablecoin. This means that its issuer claims to support each stablecoin issued with the equivalent value of fiat currency or other reserves. The issuer typically provides terms of service, under which verified holders of stablecoins have the right to exchange them for fiat currency from the issuer. This link to fiat currency (in this case, the US dollar) is reflected in the common name for Tether, which is USDT, representing US dollar Tether. In this ruling, I will use this abbreviation.

2. In this application, ByBit Fintech Limited ("ByBit") seeks judgment against the first defendant, named Ho Kai Xin ("Ms. Ho"). She is accused of violating her employment contract, abusing her position, transferring some USDT to an "address" secretly owned and controlled by her, and transferring some fiat currency to her own bank account. The main relief sought is to declare Ms. Ho as holding the USDT and fiat currency in trust for ByBit. Therefore, ByBit seeks the return of the same or traceable profits, or payment of an equivalent amount.

3. Singaporean and other courts have recognized, when granting interim injunctions, that there is at least one serious issue to be resolved or a good arguable case that cryptocurrency assets can be held in trust. In doing so, it is not necessary to determine whether these cryptocurrency assets are things in action or a new form of intangible property. In order to grant judgment and ultimately declare a trust, this court must further determine whether the cryptocurrency assets in question in this case, namely USDT, are indeed property that can be held in trust and, if so, what type of property they are.

4. In this case, I found that USDT, even without the help of a legal system, can be transferred from one holder to another through cryptography, but it is still an asset in action. In this ruling, I mostly use the phrase "asset in action", which means the same as "asset in action". Although USDT also has the right to exchange for equivalent US dollars from Tether Limited, a company in the British Virgin Islands ("BVI"), which makes it more like a traditionally recognized asset in action, I do not believe that this feature is a necessary condition for classifying a cryptocurrency as an asset in action. Like any other asset in action, USD can be held in trust.

5. I further believe that ByBi has demonstrated its case seeking judgment, and therefore I grant the declaration sought on the basis of constructive trust establishment system.

6. Now I will explain the reasons why I came to these conclusions.

Background

7. Seychelles-based company ByBit operates a cryptocurrency exchange named after itself. ByBit pays its employees in traditional currency, cryptocurrency, or a combination of both. Singaporean company WeChain Fintech Pte Ltd ("WeChain") provides payroll services to ByBit and its affiliates. Ms. Ho is an employee of WeChain and is responsible for processing payroll calculations for ByBit employees.

8. As part of her duties, Ms. Ho maintains a Microsoft Excel spreadsheet that records the cash and cryptocurrency payments (referred to as "fiat Excel file" and "cryptocurrency Excel file," respectively) that should be paid to ByBit employees each month. The cryptocurrency Excel file lists the "addresses" that ByBit employees use to receive cryptocurrency payments. An "address" can be understood as an encrypted digital "folder" that can "receive" and "store" cryptocurrency. Each address is a unique alphanumeric string. The corresponding "private key" is required to access and authorize transfers between addresses. These private keys are in turn stored in "wallets," which can be understood as a way to interact with cryptocurrency. Wallets hosted online by service providers (usually cryptocurrency exchanges) are called "custodial wallets." Custodial wallets typically exist in the form of a user interface application. Offline wallets are called "self-custodial wallets" and may be a simple piece of paper with the private key written on it, or a complex encryption software that restricts access to the private key. In short, accessing a wallet means obtaining the stored private key, thereby controlling the address and the cryptocurrency stored therein. ByBit employees can and do change their designated addresses by conveying new addresses to Ms. Ho, who then updates the cryptocurrency Excel file. Only Ms. Ho can update the cryptocurrency Excel file, and only she can access these files, except for the monthly requirement to submit the cryptocurrency Excel file to her direct supervisor, Casandra Teo, for approval.

9. On September 7, 2022, ByBit discovered eight unusual cryptocurrency payments ("abnormal transactions") that occurred between May 31, 2022 and August 31, 2022, involving the transfer of large amounts of USDT to four addresses (which I will simply refer to as addresses 1, 2, 3, and 4). A total of 4,209,720 USDT ("cryptocurrency assets") was transferred. USDT is named because its value is pegged to the US dollar, and each USDT gives its holder (i.e. Tether Limited's "verified customers") contractual rights to exchange their USDT for US dollars. These abnormal transactions were compiled into an Excel spreadsheet ("reconciliation Excel file"), and Ms. Ho was assigned to explain these discrepancies. Ms. Ho initially attributed the abnormal transactions to inadvertent errors or technical errors, and proposed that the amount to be recovered from ByBit's employees should be calculated.

10. From September 9 to 22, 2022, Ms. Ho still could not provide any explanation for the abnormal transactions. When asked why the amounts paid to different employees were sent to the same address, address 1, Ms. Ho suggested that it may have been a mistake on her part. Ms. Ho continued to provide status updates in the reconciliation Excel file, describing the abnormal transactions as "overpayments" to ByBit employees.

11. On September 27, 2022, ByBit contacted a hypothetical recipient of abnormal transactions. 1.3 million USDT was paid to an address under his name. However, according to ByBit, the employee denied ever having designated an address, as he had only been paid in traditional currency and did not know who owned address 1. ByBit's internal investigation found that Ms. Ho's work email sent an email containing address 1 to herself on May 19, 2022. Ms. Ho's work email also received an email containing all four addresses on August 29, 2022, this time from her personal email. These emails were recovered by ByBit as they had been deleted.

12. ByBit also discovered that Ms. Ho caused 117,238.46 US dollars ("fiat assets") to be paid into her personal bank account in May 2022. It is undisputed that Ms. Ho has no right to the fiat assets and she expressly acknowledges that she holds the fiat assets in trust for ByBit. However, to date, Ms. Ho has not taken any steps to return the fiat assets.

13. On September 29th and October 4th, 2022, ByBit held meetings with Ms. Ho. In the first meeting, Ms. Ho claimed that she could not remember the details of the abnormal transactions. In the second meeting, Ms. Ho was confronted with the investigation results by ByBit. Ms. Ho told ByBit that she did not own the wallets associated with four addresses, which belonged to her cousin and she could not access them. Ms. Ho said it was her cousin who proposed that she help him transfer cryptocurrency and she had CCTV footage recording him conducting abnormal transactions at her home. Ms. Ho admitted to being involved in this plan before the meeting three months ago and told ByBit that she wanted to report to the police because she did not own any cryptocurrency assets. After the meeting, Ms. Ho refused to sign the single-page statement that recorded the incident. However, it is indisputable that Ms. Ho made these statements to ByBit. Subsequently, Ms. Ho lost contact with ByBit and WeChain and did not attend any further meetings.

14. ByBit initiated this lawsuit on October 12, 2022. ByBit successfully obtained several interim reliefs, including a global freezing order against Ms. Ho and an injunction against the ownership of cryptocurrency (i.e. digital assets) in four addresses and fiat assets in Ms. Ho's bank account. On October 18, 2022, Ms. Ho personally accepted the original claim and order. On October 31, 2022, Ms. Ho disclosed in an affidavit that the wallets associated with the four addresses were owned by her cousin Jason Teo ("Jason"). Ms. Ho claimed that she had no access to any of the wallets, deleted text message records with Jason before accepting the service of the order, and did not keep the circuit surveillance footage as it would be automatically deleted after seven days. Ms. Ho submitted her defense on November 11, 2022, and served a third-party notice on Jason.

15. Ms. Ho fully accepts that the encrypted assets belong to ByBit and she has no right to own them. Ms. Ho's main defense is that Jason stole ByBit's encrypted assets without her knowledge. She did not benefit from it because the wallets associated with the four addresses were owned and controlled by Jason alone. Her case is that starting from May 2022, she had asked Jason to help check the cryptocurrency Excel file "many times" when he visited her home. Later, Jason accessed her work laptop without her knowledge or consent, which Ms. Ho discovered by viewing the closed-circuit monitoring video at home after ByBit reminded her to pay attention to abnormal transactions. Then she questioned Jason, who admitted to intentionally replacing several addresses designated by ByBit employees with four addresses. Despite her repeated requests, Jason refused to return the encrypted assets. Ms. Ho's position is that she still did not know the reason for the abnormal transaction on September 9, 2022, which was more than seven days after the last abnormal transaction (dated August 31, 2022). She did not explain how she could see the charged video.

16. ByBit sought and obtained an order for wider disclosure of Ms. Ho and some third parties, including her father and husband, on December 7, 2022, due to dissatisfaction with Ms. Ho's disclosure. This is because ByBit found that Ms. Ho had made some large-scale purchases since July 2022, including a top-level permanent property right apartment purchased with her husband, a brand new car, and several Louis Vuitton products. It is worth noting that although Ms. Ho initially denied owning any real property, she later explained that she purchased the top-level permanent property right apartment with the money earned from cryptocurrency transactions on MetaMask and crypto.com. This is contrary to her previous claim that her MetaMask account was completely unused. Ms. Ho did not provide her MetaMask and crypto.com addresses, nor did she provide account transaction statements. According to Ms. Ho, she lost access to her crypto.com account because it was registered to her personal email, which has been disabled for unknown reasons. Similarly, she cannot access her MetaMask account because she purchased a new phone in October 2022 and cannot obtain the necessary password from her previous device. I also noticed that, contrary to the disclosure order, Ms. Ho initially failed to disclose all of her assets, such as her bank account, which required further inquiry by ByBit.

17. At the same time, Ms. Ho applied for and obtained a license for substitute service for Jason. Strangely, Ms. Ho stated in her supporting affidavit that it was Jason who deleted their text message history after she told him she had been served with the lawsuit. Jason did not appear in this lawsuit.

18. On March 30, 2023, ByBit filed this application for summary judgment. Ms. Ho did not file an affidavit in opposition pursuant to Rule 17(3) of the 2021 Court Rules. On April 18, 2023, prior to the hearing, Ms. Ho took over her own defense. Ms. He did not attend any of my previous hearings or file any submissions.

19. For completeness, ByBit has also applied to modify their claim and submit further submissions, which I have specified to be submitted by May 19, 2023. ByBit initially advocated for Ms. Ho to hold cryptocurrency and fiat assets through remedial constructive trusts. Therefore, ByBit seeks to modify in order to present an alternative argument based on institutional constructive trusts. I have allowed Ms. Ho to provide her views on the modification and extended the deadline for her to submit her views on the summary judgment by May 26, 2023. As before, Ms. Ho did not submit any views or oppose the modification application.

20. ByBit stated that the revision was only clarifying and did not introduce any new facts. The complaint has already clearly stated that Ms. Ho's error caused the abnormal transaction, and Ms. Ho's defense will not be affected by the revision. On the contrary, the revision enables the real disputed issues to be determined, and Ms. Ho will not suffer any damages that cannot be compensated for by cost.

21. I agree that the proposed revision is clarifying in nature, adding alternative legal conclusions based on the facts already stated to enable the true dispute to be fully and finally determined through the establishment of a trust for institutional construction. Therefore, I allowed the modification on June 30, 2023, and initiated the application for summary judgment pursuant to ByBit's complaint (Second Amended) submitted on July 5, 2023.

当事人案件

translates to

Party Case

Ho 女士的案例

translates to

Case of Ms. Ho

in English.

22. As mentioned earlier, Ms. Ho's main point is that Jason should bear full responsibility (see paragraph [15] above). From the affidavit, it appears that Ms. Ho claims she has no way of determining Jason's identity, personal information, or address. In addition, Ms. Ho believes that Jason accessed her work and personal emails, sent and then deleted emails stating four addresses (see paragraph [11] above). Jason did so without her authorization, and Ms. Ho denies deleting these emails. Furthermore, Ms. Ho claims that she implied she lied to ByBit during an interview on October 4, 2022 (see paragraph [13] above). According to Ms. Ho, ByBit warned her that her behavior was criminal and insisted that she was responsible for the abnormal transactions. Ms. Ho responded in this way because she wanted to protect Jason, with whom she has a close relationship, and because she needed to take care of her sick two-year-old son. Due to her son's condition, she refused to sign a one-page confirmation form after the interview because she did not have time to review its contents and also refused to participate in subsequent interview meetings.

23. As for legal assets, Ms. Ho stated that she accidentally input her own data into another employee's data while preparing the legal Excel document, resulting in incorrect payment.

ByBit Case Study

24. ByBit has proposed that, according to Rule 17(1)(a) of the 9th Rule of the 2021 Court Rules, it is entitled to a summary judgment as it has demonstrated a prima facie case and Ms. Ho has not defended the claim. ByBit's statement focuses on the cryptocurrency assets, as Ms. Ho holds ByBit's legal assets in trust.

25. First of all, ByBit claims that "Jason" is completely fictional. Ms. Ho has no evidence to support the existence of Jason, and her description of the incident is essentially unbelievable. At the same time as the abnormal trading, Ms. Ho also indulged in a suspicious luxury spending spree. She spent about $362,000 on a new car, $30,000 on Louis Vuitton products, and suddenly canceled her existing pre-sale HDB apartment to buy a top-floor apartment worth about $3.7 million. In addition, ByBit obtained criminal information from the service provider of the wallet associated with address 1. This proves that Ms. Ho owns the wallet, including her ID card and selfie, which she provided during the account registration process. The public transaction records also match the abnormal transactions flowing into address 1, and the amounts transferred on certain dates seem to indicate that the USDT transferred to addresses 2 and 3 was quickly transferred to address 1. This proves that Ms. Ho owns and controls the wallet associated with address 1, and may also own and control wallets associated with other addresses.

26. Secondly, ByBit proposes that cryptocurrency assets are composed of options and can therefore be considered as property that can be held in trust. This is because USDT grants certified customers of Tether Limited the right to exchange USDT for legal currency equivalents. ByBit suggests that address 3 is associated with a self-custodial wallet, which means that Ms. Ho can directly access the relevant private keys and therefore control address 3 and its USDT, which can be held as an option in trust. For addresses 1, 2, and 4, they are associated with custodial wallets. In the case of custodial wallets, the permission to access private keys is held by the service provider, not the user of the custodial wallet. Instead, the user of the custodial wallet has contractual rights to instruct the service provider to transfer cryptocurrency between addresses. ByBit compares this to a bank account, where the cryptocurrency balance declared in the custodial wallet (equivalent to the account balance) is an option for the service provider (equivalent to the bank). Therefore, the related property is also an option, which is the right to instruct the service provider regarding the USDT credit balance.

27. Thirdly, ByBit argues that Ms. Ho held cryptocurrency and legal assets in a constructive trust, or alternatively, that Ms. Ho was unjustly enriched in the total amount of cryptocurrency and legal assets. ByBit alleges that Ms. Ho obtained cryptocurrency through fraudulent means by manipulating a cryptocurrency Excel file, which resulted in ByBit mistakenly paying cryptocurrency to four addresses controlled by Ms. Ho, thereby creating a constructive trust. Alternatively, ByBit argues that a remedial constructive trust should be recognized in this case, as there has been fraud or wrongdoing and Ms. Ho's conscience has been affected. Therefore, ByBit submits that I should grant a tracing order, as Ms. Ho traded cryptocurrency and legal assets in breach of the freezing order. For the alternative claim of unjust enrichment, ByBit relies on the factually mistaken unjust factor that ByBit was misled into believing that cryptocurrency payments should be made to its employees at the four addresses. Therefore, ByBit submits that it is entitled to compensation for the value of the cryptocurrency.

待确定的问题

translates to

待确定的问题

in English.

28. There are two issues that need to be determined in this case:

(a) Can USDT be held in trust as property;

(b) Does ByBit have the right to obtain summary judgment.

Question 1: USDT can be held as property in trust

29. Despite the novelty of cryptocurrencies, they have not only been used for value transfer, but also appear on the balance sheets of companies that hold them, as the accounting industry is developing standards for valuing and reporting these assets. The Monetary Authority of Singapore ("MAS") recently published a consultation paper on proposed amendments to the Payment Services Act, which will implement segregation and custody requirements for digital payment tokens: MAS, "Response to Public Consultation on Proposed Regulatory Measures for Payment Token Services" was released on July 3, 2023. The proposed amendments reflect the reality of identifying and segregating such digital assets in practice, thus supporting the view that they should be able to be held legally as trusts.

30. In addition, the court rules have given widespread recognition to cryptocurrencies as property. In Rule 22 of the 2021 court rules, this relates to the enforcement of judgments and orders, where O 22 r 1(1) defines "chattels" to include "cash, debts, deposits, bonds, shares or other securities, membership interests in clubs or associations, and cryptocurrencies or other digital assets" [emphasis added]. Therefore, cryptocurrencies are explicitly recognized as a form of property that can be the subject of enforcement orders. Although those who drafted the 2021 court rules did not specify the specific methods for enforcing such orders (see the Report of the Civil Justice Council (29 December 2017) (Chair: Mr Justice Birss)), it should be noted that the procedures for serving a notice of seizure on an individual or entity that owns or controls chattels (O 22 r 6(4)(b)) or registering ownership of intangible chattels (O 22 r 6(4)(g) of the 2021 court rules) could logically be extended to cryptocurrencies or other digital assets.

31. Cryptocurrencies are not classified as physical assets because we cannot hold them like we hold cars or jewelry. They do not have a fixed physical identity. However, cryptocurrencies do manifest in the physical world, albeit imperceptibly to humans. The combination of private and public keys unlocks the previous password lock and locks the unspent transaction output of the cryptocurrency to the holder's public address on the blockchain. Professor Kelvin Low believes that the right of the private key holder to hold the private key is "conceptualized correctly as a narrow right to the unspent transaction output (UTXO) of the cryptocurrency locked to the holder's public address on the blockchain": see Kelvin FK Low, "Trusts of Cryptoassets" (2021) 34(4) Trust Law International 191. This physical manifestation at the level of digits and bytes is not permanent and changes with each transaction. Nevertheless, we identify the specific digital tokens that are being transacted, much like we name rivers even though the water in the riverbed is constantly changing.

32. Although some people are skeptical about the value of encrypted assets, it is worth remembering that value is not inherent in the object itself. Although we say that some materials are expensive, such as gold being more valuable than wood, this is a judgment made by collective human thinking. This is also a judgment that changes with the environment. On a sunken ship, a floating wooden chair is more valuable than a golden throne.

33. The description of encrypted assets indicates that modern humans can define and identify them, making them tradable and evaluable as holdings. They undoubtedly conform to the maxim frequently cited by Lord Wilberforce in the case of National Provincial Bank v. Ainsworth (1965, 1 AC 1175, page 1248).

Before a right or interest can be included in the category of property, or before it can affect property rights, it must be definable, identifiable by third parties, capable of being assumed by third parties, and possess a certain degree of persistence or stability.

34. The next question is whether USDT can be classified as a chose in action. The argument that cryptocurrency assets should not be classified as choses in action is based on the origin of this category, which is the right enforced against a person through litigation (in court), such as the right to receive payment of money or debt, or contractual rights. There is no separate right of action against a cryptocurrency holder. However, over time, the category of choses in action has expanded to include ownership documents for intangible property rights, as well as ultimate intangible rights such as copyright: see W.S. Holdsworth, "The History of 'Choses' in the Common Law" (1920) 33(8) Harvard Law Review 997. As Holdsworth points out in the introduction to his authoritative article on page 998, the category of choses in action has expanded over time.

Obviously, the diversity of things that fall under the category of action things will inevitably lead to the diversity of legal events for each category of action things. In fact, their legal events are indeed very different; because they are different in themselves, they must be treated differently in courts and legislative bodies. It is impossible to comprehensively deal with the legal issues of action things; the various categories of action things are usually not dealt with in this overall category, but in their more appropriate legal branches. For example, if we want to understand the law about bills and notes, stocks, copyrights, or patents, we will not look for it in the discussion of action things, but in books on commercial law, company law, or specialized monographs on these specific things.

35. Holdsworth's historical survey demonstrates the diversity of intangible assets classified as actionable things. This diversity indicates that the category of actionable things is broad, flexible, and not closed. It is these characteristics that explain and prove the maxim frequently cited by Fry J in Colonial Bank v Whinney (1885, 30 Ch D 261, p. 285): "All personal things are either held or acted upon. The law knows no tertium quid between them."

36. Therefore, my conclusion is that, in principle, holders of encrypted assets have an intangible property right that can be recognized as an action thing in common law, and can therefore be enforced in court. Although some may argue that this conclusion has elements of circular reasoning, as it can also be said that the right to enforce in court is what makes it an action thing, this mode of reasoning does not differ significantly from the way the law deals with other social structures, such as currency. It is only because people generally accept the exchange value of shells or beads or differently printed paper money that they become currency. The acceptance of currency is due to collective trust behavior. This is reflected in the famous observation of Lord Mansfield in the case of Miller v. Race (1758, 1 Burr 452, p. 457), where he noted that something that is "universally accepted by all mankind" as currency is endowed with "the credit and circulation of money in all intents and purposes".

37. ByBit also relies on the current service terms of USDT, which stipulate the contractual right of redemption. Article 3 includes the following provisions regarding the right of redemption:

Tether issues and exchanges Tether tokens. Tether tokens can be used, held, or exchanged online as long as someone is willing to accept them. Tether tokens are 100% backed by Tether's reserves. Tether tokens are priced in a range of fiat currencies. For example, if you purchase EURT, your Tether tokens will be pegged to the euro at a 1:1 ratio. If you issue EURT worth 100.00 euros, Tether will hold reserves worth 100.00 euros to support these Tether tokens. The composition of the reserves used to support Tether tokens is entirely controlled and determined by Tether. Tether tokens are supported by Tether's reserves (including fiat currency), but Tether tokens themselves are not legal tender. Tether will not issue Tether tokens for consideration consisting of digital tokens (such as Bitcoin); only fiat currency will be accepted at issuance. To directly issue or exchange Tether tokens, you must be a verified customer of Tether. This requirement will have no exceptions. The right to exchange or issue Tether tokens is your personal contractual right. If the liquidity of any reserves held by Tether to support Tether tokens is insufficient, unavailable, or lost, making it necessary to delay the exchange or withdrawal of Tether tokens, Tether reserves the right to delay the exchange or withdrawal of Tether tokens, and Tether reserves the right to exchange Tether tokens for physical assets by redeeming securities and other assets held in reserves. Tether makes no representation or warranty as to whether Tether tokens will be tradable on the website at any time in the future, or even whether Tether tokens will be tradable on the website.

38. The service terms are governed by BVI law. ByBit has submitted a legal opinion from qualified BVI lawyer Sam Goodman, which states that under BVI law, the "accredited customers" of Tether Limited have the contractual right to redeem USDT by suing Tether Limited. ByBit relies on this to support its argument that USDT is a movable property.

39. In my analysis, this feature of USDT may constitute another type of action that USDT holders may possess, but its existence is not necessary for the conclusion that the rights represented by USDT are themselves action items.

Question 2: ByBit has the right to obtain a judgment.

40. ByBit has submitted that it has established a preliminary case that has overcome the hurdle of needing to prove a good arguable case in order to obtain a worldwide freezing order. In contrast, Ms. Ho has failed to demonstrate a genuine or sincere defense with a fair or reasonable prospect of success.

Jason does not exist

41. The most likely scenario that I accept, based on all the evidence, is the conclusion that ByBit drew, which is that Jason does not exist (or at least did not play the role that Ms. Ho claimed he did). There is indeed convincing evidence that Ms. Ho fraudulently transferred both cryptocurrency and fiat assets to her own name. As stated in [25] above, there is direct evidence that Ms. Ho owns the wallet associated with address 1, as well as indirect evidence of her unexplained spending behavior. Using her employment relationship at WeChain, which was hired to handle ByBit's payroll account, Ms. Ho abused the trust placed in her and manipulated the cryptocurrency Excel file to steal both cryptocurrency and fiat assets.

Presumed Trust

42. In the theft of assets, a constructive trust of an institutional nature was created, and for the stolen assets, a remedy of fair tracing can be used. As Lord Browne-Wilkinson pointed out in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 1 AC 669 at 716:

I agree that stolen funds can be traced through equity. However, in this case, the proprietary interest enforced by equity arises under a resulting trust rather than a presumed trust. Although it is difficult to find clear authority for this proposition, when property is obtained by fraud through equity, the recipient of the fraud is presumed to trust that the property is recoverable and can be traced in equity. Therefore, infants who obtain property by fraud have an obligation to restore the property: Stocks v. Wilson [1913] 2 KB 235, 244; R. Leslie Ltd. v. Sheill [1914] 3 KB 607. Funds stolen from a bank account can be traced in equity: Bankers Trust Co. v. Shapira [1980] 1 WLR 1274, 1282C-E. See also McCormick v. Grogan (1869) LR 4 HL 82, 97.

43. I should also add that even if Ms. Ho mixes USDT from her online custodial wallets with USDT balances from other custodial wallets, or mixes fiat assets with other money in her bank account, constructive trust may still apply: Foskett v McKeown [2001] 1 AC 102.

44. In light of my investigation results, I declare the establishment of a constructive trust for both cryptocurrency assets and fiat assets. ByBit is the legal and beneficial owner of the cryptocurrency assets. Given the relief granted to me based on the institutional constructive trust, I do not need to deal with remedial constructive trusts or alternative bases for unjust enrichment.

45. ByBit has conducted an investigation and sought a series of assets and personal orders. I now grant them as follows:

(a) Announce the constructive trust for encrypted assets and fiat assets.

(b) Command Ms. Ho to immediately pay 647,880 US dollars to ByBit (i.e. the value of encrypted assets in wallets 3 and 4);

(d) Order Ms. Ho to immediately transfer all remaining funds in Wallet 1 to ByBit until the total amount reaches 3,561,840 US dollars (i.e. the value of the encrypted assets transferred to Wallets 1 and 2).

(i) Command Ms. Ho to transfer the remaining amount, or the money or funds representing the value of the remaining amount that she already owns or has received, or any account representing them or received by a person on their behalf, as instructed.

(ii) Regarding the order for the recovery of the remaining amount or any part thereof, so that ByBit can recover and restore the converted assets or their proceeds (if any).

(iii) After the clearing account, Ms. Ho shall issue instructions to pay all amounts determined to be due to ByBit to ByBit.

46. I will also calculate the interest at the standard annual interest rate of 5.33% from the date of transfer of the problem assets from Ms. Ho to the date of judgment, and these assets will be paid in [45(b)] and [45(c)].

Conclusion

47. After making a simple judgment against Ms. Ho on ByBit, I also awarded ByBit a fee of $45,000.00 (including the cost of the novel legal issues involved and the work done in seeking interim relief) and expenses of $11,500.00.

Philip Jeyaretnam

High Court Judge

Quek Wen Jiang Gerard, Kyle Gabriel Peters, Ling Ying Ming Daniel, Mato Kotwani, and Chua Ze Xuan (PDLegal LLC) represent the plaintiffs as legal counsel.

The first to sixth defendants were absent and not represented.