Crypto platform not liable for scam victim’s losses

According to the court’s decision, Xu initially invested small amounts with an unnamed fraudster, who repaid those investments with healthy returns, before enticing her to make a large crypto investment, with a promise of returns of 1% per day. 

To finance the investment, she remortgaged her house and borrowed money from a friend, the court said. 

She then opened an account on NDAX and deposited $671,000, which she converted into the cryptocurrency Ether, before she began transferring the crypto to an external wallet.

The court noted that when she first sought to transfer some of the crypto to an external wallet, the platform provided her with online warnings and risk disclosures, which she acknowledged by clicking to confirm that she read and understood the warnings.

Additionally, she received calls from two NDAX employees warning her that she was likely being scammed and shouldn’t proceed with the transaction.

“I find that the defendant’s warnings to the plaintiff could not have been clearer,” the court said.

Despite these warnings, Xu sent a number of emails insisting that the platform proceed with the transaction, and threatening legal action, if it didn’t go ahead.

Eventually, the platform relented and processed the transaction, which was followed by two further transfers to the same external wallet, again despite automated warnings about these transactions. 

After her crypto was lost to the scammer, Xu sued the platform, alleging that it breached a duty of care that was owed to her, by failing to warn her that the external wallet was controlled by a scammer. 

The court disagreed, finding that the platform “satisfied any standard of care” in its dealings with Xu. 

Among other things, the court noted that the platform provided her with repeated specific warnings that she may be being scammed, and discouraging her from going ahead. It also attempted to get information from her to identify the owner of the external wallet, but she “provided false and misleading information … including advising the defendant that the recipient wallet was owned and controlled by her, which was false.”

And, even after she threatened legal action if the platform didn’t process the first transaction, it attempted to warn her again, the court noted — but she insisted that “she knew what she was doing” and approved the transaction.

“Other than refusing to process the first transaction, something the defendant was not entitled to do, I find there is nothing further the defendant could have been expected to do to prevent the loss the plaintiff suffered,” the court noted, adding that she continued to ignore subsequent warnings too, resulting in her losses.

“The plaintiff has failed to establish that the defendant breached its duty of care and I find that, in any event, the defendant did not cause the losses experienced by the plaintiff,” the court concluded in dismissing the case.