Globix Freeze Order Shows Courts Can Provide Crypto Solutions

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Following the collapse of crypto trader Globix amid heavy losses, a court in Gibraltar has granted injunctions to liquidators working to recover assets from the closed company. As a result, Binance and several other high-profile crypto exchanges have been ordered to identify users of Globix-linked wallets, as well as freeze all currencies held in the wallets.

The liquidators had sought the injunction as part of their effort to find about $43 million in missing funds, following the decision by Globix’s sole shareholder and director to put the company into liquidation in March. Globix operated from Gibraltar but was not licensed by local regulators, leading to criticism that the British Overseas Territory had failed in its much-vaunted effort to tighten scrutiny of the data sector. cryptography.

In 2018, Gibraltar became one of the first jurisdictions to adopt regulations governing crypto investments, leading to an influx of crypto companies who found it easier to attract investors and customers given the protection afforded by the rules. In 2022, the scope of regulation was expanded to include restrictions against market manipulation and insider trading to better protect market integrity in the industry, which provided further reassurance to consumers transacting with approved companies.

Investors in Globix were not covered by the regulatory framework, since the company had not obtained a license from the national financial regulator, despite its day-to-day business of managing client funds. However, some consolation could be drawn from the fact that the court is handing over these powerful recovery tools to the liquidators.

Crypto Victims Gain Confidence

The courts’ decision to grant these injunctions reflects the increasing ease with which victims of fraud and liquidators can obtain asset freezing and disclosure orders in a growing number of jurisdictions. Growing judicial familiarity with the crypto industry and heightened victim awareness that court orders represent a viable recovery mechanism have resulted in similar orders, helping to turn the tide in the often difficult fight to trace assets. digital.

As a result, much-needed confidence will no doubt have been injected into a sector that has been rocked by controversy in recent years. With little to no crypto regulation in many jurisdictions, theft and fraud have become synonymous with crypto investing, acting as a powerful deterrent to many consumers and investors considering entering the arena.

The failure of regulators to take strong enough enforcement action for years has led to criminals flooding the crypto space, operating increasingly sophisticated systems and causing massive losses to individual and institutional investors and traders. The onset of the crypto winter last year, in which cryptocurrency prices crashed across the board, further exposed the perilous nature of the industry and the weak protections afforded crypto consumers to the time.

The collapse of FTX and other major players in the crypto space has since given regulators and courts additional impetus to take stronger action to protect actual and potential victims of crypto-related crimes. There have been numerous recent cases where English courts have ordered crypto exchanges to provide information to help identify fraudsters, locate missing funds and freeze assets in their possession.

The courts offer solutions

English courts have paved the way for such actions, with reasoned judgments now available to provide a roadmap for claimants and judges facing similar issues in other jurisdictions. Some of the first possible obstacles to courts granting disclosure and freezing orders have been overcome, and plaintiffs’ obligations have been reaffirmed. As a result, countries such as Gibraltar with legal and historical ties to Britain appear increasingly likely to successfully accommodate local requests for asset freezing and disclosure orders.

There has undoubtedly been a reputational fallout for countries hosting collapsed crypto exchanges, as well as scrutiny of the regulatory framework within which these firms operated. However, the willingness of courts to provide robust asset tracing solutions is likely to increase confidence in these jurisdictions and provide appropriate recourse for customers and shareholders.

The courts’ willingness to provide such a remedy will likely indicate whether investors and advisers decide that a crypto exchange or trading platform is safe to use or invest in. Such investment decisions are likely to encompass not only the regulatory requirements of the jurisdiction, but also whether if things go wrong there is clear recourse to the courts to try to recover.

Time will tell if Globix’s liquidators are able to track down and recover the missing millions from its accounts, but the courts in Gibraltar have joined the judicial cohort signaling that times are changing in terms of attitudes towards crypto companies.

The ability to acquire information about account holders and freeze assets will make it harder for perpetrators of fraud and crypto crimes to protect themselves from restorative legal action. It can also, in some cases, deter malicious actors from committing the types of fraud that have become common in crypto investments. The Gibraltar Courts ruling in the Globix case is a boost for crypto consumers and will no doubt be replicated in future cases as regulators and lawmakers expand their efforts to take concrete steps to clean up the sector.

This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Nicola McKinney is a partner at Quillon Law and a commercial lawyer with nearly 20 years of experience, specializing in complex commercial and interjurisdictional litigation, particularly relating to digital asset fraud and crypto exchanges.

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