Hong Kong court order sent to cryptocurrency wallets, setting new precedent

A Hong Kong court order related to a fraud claim has been “successfully executed” with the assets involved “effectively suspended” after being sent to two cryptocurrency wallets using tokenisation technology, a novel approach that experts predict will set a precedent for other jurisdictions and boost the city’s appeal as a tech hub. The injunction order, which prohibits disposal of assets “worldwide and in Hong Kong”, was served to the unknown holders of two wallet addresses on the Tron blockchain after a Hong Kong company fell victim to a false representation scam and lost more than US$2.6 million. The civil claim’s plaintiff is Worldwide A-Plus, a marketing consultancy that transferred US$2.66 million worth of Tether, a stablecoin pegged to the US dollar, to two wallets controlled by scammers that purported to be salespeople from a hacked online marketing platform. The order, which listed the unknown holders of the two wallets as the case’s defendants, was granted by High Court Deputy Judge Douglas Lam on December 5 and subsequently served by law firm Ravenscroft & Schmierer in the form of a “tokenised legal notice”. Public records retrieved on blockchain scanner platform Tronscan on January 17 show that both wallets contain a token named “2-Jan25-Notice”, which was transferred on January 3 and carried a message that stated the initial court order remained in effect. “Please refer to the hyperlink in our previous legal notice dated Dec 9 2024 for a copy of the relevant court order and the plaintiff’s statement of costs, which has now been served on you, by way of Tokenised Legal Notice,” the message read. The record also indicates that one of the wallets still contained about US$1 million worth of Tether two weeks after receiving the legal notice, while the other account only had US$1.28 in it. Joshua Chu Kiu-wah, a technology lawyer who acted as a cybersecurity consultant of blockchain solution provider Macro Systems in the case, told the Post the order had been “successfully executed” and the “assets in question are effectively suspended”, with operational details subject to confidentiality. He said while the wallets were still functioning, the token worked like a “police cordon tape” for compliant cryptocurrency exchanges and law enforcement agencies to identify illicit wallets and take action. “What we did this time is similar to a tape, but it is a digital version. We dropped a notice saying that this is an account with money-laundering assets. Even if it is not frozen, anyone transacting from the [address] will become an accomplice according to the notice,” Chu said. Chu said he believed this was the first time among major common law jurisdictions that a court order was effectively served by way of tokenisation. Courts in the United Kingdom have used non-fungible tokens (NFT) to serve orders before. But NFTs were not as effective as a law enforcement tool as the Tron token used in this case, Chu said. The lawyer said not only had Hong Kong set a precedent for other jurisdictions, the technical know-how of technology solution providers from the city also had the potential to attract business from around the world. “Many tokenisation ideas the industry talks about are just theories, but scam victims are real, so it’s all about real world applications. Hong Kong is the only place in the world that has real-world applications using this technology, which is asset recovery,” he said. Gilbert Ng Man-him, a lawyer specialising in virtual assets, said the wallet owners might still be able to move the assets through decentralised exchanges and other protocols, and it remained a question how to bring contempt of court charges when only the wallet addresses were known. “It may still take time to bridge the traditional industry with the innovative technology, but it is on the right track,” he added. But Chu said the combination of the court order’s “unique provisions” and the technology had crippled the ability to use the wallets for transactions, as evidenced by the “substantial” amount of Tether remaining in one. Hong Kong’s judiciary also grabbed the attention of the international legal community last year when the Court of First Instance handed down a ruling over a 2023 order that required a “decentralised autonomous organisation”, or DAO, to disclose financial information. Legislator Johnny Ng Kit-chong, a virtual assets investor, said the use of tokenised legal notices opened up an avenue to recover lost funds even without knowing the identity of those who controlled the wallets in question. He noted the development was another forward-looking initiative of the city’s judicial system. “Alongside the world’s first DAO ruling by a Hong Kong court half a year ago, this is conducive to the development of the entire Web3 industry of Hong Kong because the court has shown its ability to support novel operation models. It is very positive for Hong Kong,” he said. While Hong Kong’s institutional set-ups on the Web3 ecosystem might be slightly ahead of others, the city was “certainly” falling behind Singapore, Japan and South Korea in terms of public knowledge of virtual assets, Ng said. He also urged the government to loosen some regulations to attract more professional investors and overseas operators. The Post has reached out to the Hong Kong judiciary for comment.

Hong Kong court order sent to cryptocurrency wallets, setting new precedent

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Lawyer says this is first time among major common law jurisdictions that court order effectively served by way of tokenisation

Lawyer says this is first time among major common law jurisdictions that court order effectively served by way of tokenisation