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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.
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.
