A leading fraud expert has highlighted the practice of “pump and dump’’ as the latest tactic being used by hackers to make cryptocurrency gains.
Traditionally, pump and dump was the term used for artificially inflating the price of a stock or security through fake recommendations before selling it when the hype has raised the price.
In a case in which cryptocurrency specialist Syed Rahman represented an applicant, fraudsters hacked their way into his client’s cryptocurrency accounts that were held on the Binance exchange. But while they were unable to remove the assets from the accounts, the bad actors were able to trade the assets to a third party linked to themselves at a fraction of their true value. By then selling those assets at their proper value, the hackers were able to take their illegal gains out of the exchange, leaving the genuine owners of the hacked accounts facing losses estimated at over $2.6 million.
The applicants successfully sought various forms of relief from the court on an urgent ex-parte basis for:
- A proprietary injunction, a worldwide freezing order and an ancillary disclosure order against the first respondent.
- A disclosure order pursuant to the Bankers Trust jurisdiction and/or pursuant to CPR 25.1(g) against the second and third respondents.
- Permission to serve out of the jurisdiction and by alternative means
Mr Rahman said: “While restrictions on the exchange accounts that were hacked made it impossible for the hackers to simply take what was in the accounts, it did not prevent them abusing the trading system to create illegal gains which they then kept for themselves.
“This pump and dump is a practice that has not previously come before the courts. This appears to be a step forward in terms of crypto-related crime. It shows the degree of sophistication that is being employed by those looking to make such gains.
“The imagination and planning of those involved in such crime is constantly evolving – which highlights the need for robust action. Any combination of greater oversight from regulators, better communication from crypto exchanges to their users and a willingness to learn from what has happened is essential if the scope for such problems is to be limited.’’
In this latest case, Fetch AI Limited, Fetch AI Foundation PTE v Persons Unknown, Binance Holdings and Binance Markets Limited, the judge agreed with the ruling in the previous case of Ion Science v Persons Unknown that the location of the cryptocurrency was important in considering whether a court has jurisdiction over the persons unknown, whose location is unknown. The judge in this case also followed the earlier case in stating that a Bankers Trust order can, in principle, be served out of the jurisdiction against the cryptocurrency exchange, compelling it to release details about accounts used in this fraud. Both decisions will aid parties that are attempting to recover assets lost to an unknown person in an unknown location.
Syed Rahman added: “This particular case is a novel one to come before the courts. But it has shown the flexibility and willingness of the courts of England and Wales to assist victims of crypto frauds in their attempts to recover their property.’’