CRYPTO FRAUD. Dismissal of crypto fraud in Court

Por 20 octubre, 2022 No Comments

In June 2021 a court order attracted our attention. We were mostly attracted not for the verdict itself but for the valuation of the crypto market in court. In the case CCC27281/2019/CA1, Courtroom 5 of the Correctional and Criminal Chamber of Appeals ruled on the lack of evidence to convict the defendants for fraudulent conduct with crypto investments on the grounds of “the market volatility” (among others). It is obvious that it is a quite risky investment and that investors should make a thorough research before entering the market but we’d like to approach some interesting aspects relatedto this case. The complainant (who declaredto have been defrauded) argued that the defendant (the assumed fraudster)cheated on him with false investments to get money from him.
The defendant offered, in 2017, a bimonthly profitability (18% in dollars approx., 100% yearly) to lure investors for crypto trading and offered this business to the complainant for profit and to lure more investors. Transactions were made through some companies without available data. The only available information shows that the company was based in Catamarca (non-financial company) and that transactions were presumably backed by two promissory notes (which originals do not appear on the record, only copies).
The defendant is said to have declared that the business involved no risks and the complainant lured new investors including friends and acquaintances, even when the defendant never paid the agreed amounts. Moreover, the narration of the facts shows some clues of illegality (or, at least, a bit of sloppiness) in the transactions like, for instance, “that the trader’s account with 500 Bitcoin in USA had been frozen, leading him to keep on taking investments outward to cover the
profits of previous plans…”
A total negligent conduct by the complainant upon making investments is evidenced in the court judgement, regardless of the type of investment: bonds, shares, cryptoassets or goods. The complainant failed to check the involved parties’ identities (indicating that the company was managed by an unknown person); failed to manage investments properly with the required supporting documentation, did not keep proper purchase/sale records and, even worse, promoted this scheme among his acquaintances. The Court concluded that, if defendants were convicted, the complainant was likely to be prosecuted as abettor in this case.
We are also concerned for the legal implications of being a professional involved in any investment, since educated professionals are supposed to be acquainted with the risks involved. The court order stated that “the complainant is liable for misconduct in conducting businesses and he, as a lawyer, should have known the risks involved.” In this case, the Judge considered that complainant, in his condition of lawyer, should have been properly engaged with the risks associated to these investments due to the lack of proper legislation. In addition, he could have been convicted for money laundering and/or for financing illegal activities within the framework of his professional activity.
We insist with this aspect of the Judge’s decision: “This case does not appear to be fraud, at least regarding the defendant’s conduct, but a high-risky investment connected to virtuality and lack of legislation.” The four magistrates -the lower court Judge and the appellate Court- stressed the type of asset involved and the lack of proper conduct by complainant.
Due diligence and a reasonable degree of care in conducting businesses stand for as general principles of law and apply to all parties dealing with businesses and/or investments.
The fact of transacting with cryptocurrencies makes matter more interesting but, upon evaluating the evidence, the following facts were somewhat disregarded: the inexistence of a 100% yield per year in dollars constantly, the participation in a pyramid scheme and the promotion thereof acting as claimant and promoter, lack of commitment with companies and operators, lack of proper supporting documentation, lack of traceability and/or investment information, lack of market assessment, lack of compliance with obligations and program promotion in presence of
suspicious activities, lack of knowledge of the parties involved, etc.
In my opinion, the above misconduct, which was evidenced in the court file is more severe upon evaluating the victim’s liability than the fact of transacting in the crypto market; therefore, finally agree with the verdict. From the legal point of view, it is a “healthier” solution for crypto litigation where the same concepts, criteria and principles of the Roman law are applied. A new regime for these technologies is not necessary; the current regime with some adjustments is enough.
To conclude, I invite colleagues, doctrinal experts and fans of the crypto ecosystem to reshape
rules and interpretations to be applied to these new technologies and to think on the application of to-date legislation and jurisprudence to these matters aiming to legal security and to a better
universal crypto adoption.

Diego J. Nunes
Estudio Nunes & Asoc.