Amidst the increase in fraudulent NFT transfers, the American legal system has taken steps towards recovering stolen assets.
Last March, the Ronin Network, a popular DeFi platform was hacked and had approximately $540 million in assets stolen. The United States Treasury’s Office of Foreign Assets Control (OFAC) attributed this hack to the North Korean APT group through the group’s Ethereum address. Law enforcement has seized more than $30 million of the stolen assets, according to a report from Chainalysis, a blockchain research company.
Six months later, in September 2022, Wintermute, a cryptocurrency company, reportedly was hacked for approximately $160 million, and in December 2022, BIT Mining, one of the largest crypto mining companies in the world, reportedly was hacked for approximately $3 million in a cyberattack. Earlier this year, NFT Investments, a British investment company, reportedly was hacked and lost $250,000 of assets in a cyberattack. NFT Investments engaged its US legal team and successfully obtained a temporary restraining order (“TRO”) from a Delaware court. This TRO froze the online wallet containing NFT Investments’ stolen assets and prevents the offending party and/or defendants from transferring the stolen assets. While there remains several steps for NFT Investments’ legal team to have the assets returned, the TRO issued by Delaware is a crucial step.
A New York court has also issued a TRO, in LCX AG v. John Does Nos. 1-25, to prevent hackers from transferring the stolen assets it held across several wallets on the Ethereum blockchain. In New York, to obtain a TRO when seeking a preliminary injunction, the party seeking the TRO must show that it will suffer immediate and irreparable injury if a TRO is not granted before the requisite hearing on their application for a preliminary injunction.
The New York court can issue the TRO and preliminary injunction to freeze accounts only if the court has jurisdiction. For example, if the stolen assets are stored in a wallet maintained by an American-based crypto company, then the New York court may have jurisdiction over the assets. However, what happens if the wallet or assets are maintained or issued by a foreign company? Do courts in the US have jurisdiction to issue and enforce TROs and preliminary injunctions?
A United States District Court Southern District of Florida found that unidentified hackers are guilty of stealing approximately $970,000 of USDT (Tether) from Rangan Bandyopadhyay’s Coinbase wallet in December 2021 and must pay back the amount stolen plus interest. However, because Tether, which issued the USDT in Bandyopadhyay’s wallet, is a Hong Kong based company, US courts may have difficulty enforcing its TROs and preliminary injunctions without cooperation from the foreign company.
While huge strides have been taken by the American legal system, much remains to be done.