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Last week, I received a press release from a law firm proclaiming: “New York Supreme Court Awards $13.8 Million to Bitcoin Fraud Victims.” So far, so ho-hum: There are plenty of bitcoin-related frauds and scams out there, and plenty of judgments awarding damages to their victims or reaching settlements with alleged perps.
But as I continued reading, I realized this wasn’t just another successful lawsuit against a scammer. It was, apparently, a successful judgment against bitcoin itself. (Spoiler alert: not quite.)
“The State of New York Supreme Court has awarded more than $13.8 million to a Trust whose beneficiaries are Bitcoin fraud victims,” the announcement from law firm Global Attorneys began. The defendant in the case is officially “The Bitcoin Voluntary Associations,” which the plaintiff’s lawyer, Dr. Jonathan Levy, claims is “the same as the crypto enterprise ‘Bitcoin.’”
I’m unaware of any previous successful legal proceedings against an operational cryptocurrency network. Many have argued that that’s kind of the point of truly decentralized crypto: there’s no central authority to sue, and no practical way to interfere with operations.
The plaintiffs here argue otherwise. They allege that because “Bitcoin is an association that has rules” and because its miners charge a transaction fee, each of its “nodes”–computers and administrators participating in the bitcoin network–“each are jointly liable for the New York judgment.” The lawyers say they plan to pursue damages against node operators, including the miners who maintain bitcoin.
This settlement is even stranger because the core claims are not even against ‘bitcoin’ as such. The victims, represented by a trust, had lost bitcoin to wallet hacks and Ponzi schemes. Those are tragedies, but they’re specific crimes with specific perpetrators. A U.S. court granting a claim against bitcoin for crimes that merely involved bitcoin would seem truly radical.
So, should you, a bitcoin investor, user, or entrepreneur, be panicking? Are a wave of subpoenas about to impoverish thousands of bitcoin miners across New York, and the globe? Has the New York Supreme Court upended everything you thought you knew about crypto?
Short answer: No.
First of all, describing what happened as a court “awarding” any damages might be misleading.
Instead, the proceedings involved what’s known as a “judgment by confession.” A man named Frank M. Pohole signed an affidavit stating that he was “the Representative of a Full Node of the Bitcoin Voluntary Associations.” In his capacity as a bitcoin node operator, Pohole officially confessed that bitcoin owed the victims represented by Global Attorneys $13.8 million. There does not seem to have been any trial, just a few pieces of paperwork.
Any attempt to collect those damages from node operators would likely be mired in court proceedings to prove those parties’ actual liability.
There’s reason to believe those actions might not be too difficult to fend off. The representative of the victims’ trust here is one Christopher Earl Strunk, a New York-based man who has been previously disciplined as a filer of nuisance lawsuits. In 2013, a New York state judge reportedly fined him $177,000 for trying to remove Barack Obama from the presidential ballot, apparently based on the “birther” conspiracy theory. The judge at the time described Strunk’s filing as “fanciful, delusional, and irrational.”
And then, the chaser: Records show that Christopher Earl Strunk employed one Francisco M. Pohole–the same man who confessed on behalf of bitcoin–as a process server in a 2019 filing. Global Attorneys acknowledges that Strunk knows Pohole, a possible conflict of interest which casts doubt on Pohole’s “confession.”
All of this may add up to an attempt to get money out of individual node operators by brandishing a court document that might not be as powerful as it seems. So bitcoin miners, if a subpoena shows up on your doorstep: call a lawyer.
David Z. Morris
DECENTRALIZED NEWS
This edition of The Ledger was curated by David Z. Morris. Contact him at david.morris@fortune.com.
Credits
Jay Powell says the U.S. Federal Reserve is closely examining the idea of a digital dollar ... IBM and Tata join the governing council of the Hedera Hashgraph distributed ledger … Varo, a fintech startup, gets approved for FDIC insurance on deposits ... The new Trump budget proposal includes initiatives to increase crypto-crime enforcement … But blockchain analytics firm Chainalysis already books millions in government contracts ... the crypto news site CoinTelegraph launches a prestige long-form magazine.
Debits
European challenger bank Revolut is coming to America, but it’s already crowded … Rana Yared, who has led crypto efforts at Goldman Sachs, leaves to join a fintech-focused VC firm ... Circle divests yet another arm, this time its retail trading business, as it focuses on the USDC stablecoin ... JPMorgan wants to divest its blockchain unit, in a blow to 'Enterprise Ethereum' ... Ponzi schemes were the leading form of cryptocurrency crime in 2019 … Cash is still in high demand, but nobody's quite sure why ... Hong Kong crypto conference Token2049 has been postponed over coronavirus concerns … Altsbit, a cryptocurrency exchange that only opened last October, will reportedly close after the hacking theft of more than $70 million in cryptocurrency.
BRAINSTORM A.I. 2020
If you’re interested to learn how some of the biggest, most influential companies are strategizing about artificial intelligence, come to Fortune’s Brainstorm A.I. conference in Boston on April 27-28, 2020. A.I. is a game-changing technology that promises to revolutionize business, but it can be confusing and mysterious to executives. The savviest leaders know how to cut through the deluge of A.I. buzzwords and reap the technology’s benefits.
Attendees of this invite-only confab can take part in cutting-edge conversations with top corporate execs, leading A.I. thinkers, and power players. Among them: United States Chief Technology Officer Michael Kratsios; Accenture CEO Julie Sweet; Land O’Lakes CEO Beth Ford; Siemens U.S. CEO Barbara Humpton; Royal Philips NV CEO Frans van Houten; Landing AI founder and CEO Andrew Ng; Robust.AI founder and CEO Gary Marcus; and top machine learning experts from Bank of America, Dow, Verizon, Slack, Zoom, Pinterest, Lyft, and MIT. You can request an invitation here.
FOMO NO MO'
The best practice for securing modern technology, Albert suggested, is to work with security researchers rather than referring them to law enforcement ... “Voters would have good reason to be nervous about a voting infrastructure that isn’t cooperating with security researchers who are trying their best to find holes before elections are tampered with.”
Timeless wisdom from Harvard Law lecturer Kendra Albert. Albert was addressing the decision by voting technology startup Voatz to refer to the FBI a student researcher who was apparently hoping to participate in a bug bounty program. A deep dive into the situation by reporter Yael Grauer found significant inconsistencies in the behavior of Voatz, which is pursuing the controversial goal of putting voting on the blockchain.
BUBBLE-O-METER
$10,350
The market price of one bitcoin in USD, as of Wednesday morning (EST). The cryptocurrency also broke the psychologically important $10,000 line on Sunday, before wavering. Some reports pegged the price rise to coronavirus, adding to the increasingly self-fulfilling idea that bitcoin is a 'safe haven' in times of uncertainty.
Bitcoin previously traded above $10,000 from July-September of 2019, and from December 2017 to March 2018, when a speculative frenzy spiked the price to just short of $20,000.
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MEMES AND MUMBLES
