"I lost my money in a cryptocurrency scam. My financial firm should have warned me." Which case won?
May 24, 2023 at 03:37 pm
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The Facts
Cryptocurrency trader falls victim to scam
During the 2021-2022 financial year, a cryptocurrency trader had a trading account with a financial company. He used the company's platform to transfer bitcoin worth the equivalent of A$119,550 to an organisation called Company K.
The investor was under the illusion that he was transferring money to a legitimate organisation. However, this was not the case. The investor was in fact duped by an initial coin offering (ICO) scam that Company K was running.
Funds disappear and scammers stop responding
After the investor had transferred the funds, they became irretrievable and Company K stopped responding to his communications.
The cryptocurrency trader took the view that the financial firm where he held his trading account should have alerted him to the possibility that Company K was fraudulent and should have prevented the transfer of his bitcoin.
Consequently, the investor argued, the financial firm should compensate him for the $119,550 he had lost.
The financial firm disagreed, claiming it provided appropriate security recommendations to its clients.
CASE A
The case for the cryptocurrency trader
CASE B
The case for the financial firm
I thought I was transferring bitcoin to a legitimate company.
The financial firm had an obligation to act with due care and skill. This includes being alert to the possibility of scams.
The transfer represented unusual activity on my account - this was another factor which should have acted as a red flag for the financial firm.
If the financial firm had done its job properly, it would have prevented the transfer of my bitcoin to Company K.
As it failed to prevent the transfer, the financial firm should compensate me by the amount of $119,550, which represents the value of my losses.
Cryptocurrencies are anonymous because of their encrypted nature. This means we cannot identify who owns cryptocurrency addresses and we cannot identify the recipients of cryptocurrency transfers unless they are using our platform.
We are not the investor's fiduciary. While we provide an investment platform, it is not our role to give him investment advice or conduct investigations of the investment opportunities he is contemplating.
The security warnings we provide to our clients are appropriate and adequate. Specifically, we warn our clients of the dangers of making transfers to recipients they do not know.
We do routinely monitor and act upon fraud alerts, such as those provided by scamwatch.com.au, as part of our normal process of conducting our work diligently. Company K was not mentioned in any such alert at the time of the investor's transactions.
When the investor asked us about Company K, we told him we had no knowledge of it and advised him to conduct his own due diligence. His failure to do this does not make us responsible for his losses and his complaint should be dismissed.
So, which case won?
Cast your judgment below to find out
Bill Akhurst Risk management Stacks Law Firm
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr Bill Akhurst
Stacks Law Firm
17 Wharf Street
Forster
NSW
2428
AUSTRALIA
Tel: 28276 2500
Fax: 28276 2555
E-mail: elonergan@stacklaw.com.au
URL: www.stacklaw.com.au/web/page/stackstv
Company K Partners Limited is a small and medium sized and start-up investment company mainly providing investment financing for small and medium sized venture companies. The Company is engaged in businesses including investment in founders of small and medium sized enterprises, the formation of start-up investment associations and execution of businesses, and the investment in venture companies to foster venture companies.