Paradigm Ltd/ Sideshift v ByBit Fintech Limited & Anor (MA251 of 2024 (Arising from MC54 of 2023)) [2024] SCSC 190 (16 December 2024)

                                               SUPREME COURT OF SEYCHELLES

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   Reportable

              [2024]

              MA251 of 2024

              (Arising from MC54 of 2023)

 

In the matter between:

PARADIGM LTD/SIDESHIFT Applicant

(Rep. by F.Elizabeth)

and

ByBit Fintech Limited 1^st Respondent

(Rep. by A.Govinden)

And

THE RECEIVER 2^nd Respondent

(Rep. by S. Dennys)

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Neutral Citation: Paradigm Ltd/Sideshift v Bybit Fintech Ltd & Anor (MA251/2024 arising from MC54/2023) [2024] (16 December 2024).

Before: A. Madeleine, J

Summary: Proceeds of Crime (Civil Confiscation) Act 2008 – Application for Discharge Interlocutory Order -

Heard: Affidavit

Delivered: 16^th December 2024

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ORDER

1. The Interlocutory Order made on 10^th November 2023 in MC54/23 The Government of Seychelles v. Bybit Fintech Limited is hereby discharged. All cryptocurrencies transferred to the 2^nd Respondent pursuant to, or following, the said Order should be returned to the Applicant.

2. A copy of this Order is to be served on the 1^st and 2^nd Respondents forthwith.

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ORDER

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A. Madeleine, J

Background

1. This is an application by Paradigm Ltd/Sideshit for the discharge of the Interlocutory Order granted by this Court on 10^th November 2023 in case MC54/2023 The Government of Seychelles v. Bybit Fintech Limited. The Applicant also seeks an order that the Receiver returns to the Applicant the sum of USD973,539/- for the improper conversion of its digital currency, as well as any consequential damages.

2. The orders of this Court prohibited the 1^st Respondent – Bybit Fintech Limited – from disposing or otherwise dealing with or diminishing the value of the whole or any part of the below described cryptocurrencies –

Items	UID	Description	Estimated Value
1.	[REDACTED]	ETHERUM (ETH)	62.266478563 USD120,249.64
2.	[REDACTED]	TETHER (USDT)	184, 823.92 USD184,832.92
3.	[REDACTED]	BITCOIN (BTC)	4.4549409776215 USD134,482.14
Total			USD 439,564.70

 

3. The Court also appointed a receiver to the above-described cryptocurrencies and ordered service on the 1^st Respondent.

4. The orders of this Court were made on the application of the Government of Seychelles (the “GOS”) supported by the belief of Sergeant Hamzah Majah, as contained in his affidavit dated 18^th July 2023, that the specified cryptocurrencies constituted direct or indirect benefit from criminal conduct; that the 1^st Respondent was in possession or control of specified property being the proceeds of criminal conduct, namely unauthorised interference with computer data, electronic fraud, theft and money laundering.

5. Sgt. Majah’s belief was based on investigations carried out by the Federal Bureau of Investigation of the United States (the “FBI”) into a series of waves of cryptocurrency theft involving wire fraud between 20^th February 2023 and 31^st March 2023 leading to the 1^st Respondent in Seychelles. The details of the FBI’s investigations are contained in the statement of Special Agent Roderick Coffin that was produced in the Sgt. Majah’s Affidavit. The matter had been referred to the Financial Crime Investigation Unit of Seychelles (the “FCIU”) for seizure of the assets found in Seychelles and their transfer to the United States. The FCIU also conducted its own investigations leading to the belief set out under paragraph [4] herein.

6. It is noted that the interlocutory order was preceded by an interim order made on 14^th July 2023.

7. Now, the Applicant seeks a discharge of the Interlocutory Order and the return of USD 973,539/- (being the value of the cryptocurrencies as at July 2024) by the Receiver for the alleged improper conversion of the digital cryptocurrency.

8. The application is made under section 4(3) of the Proceeds of Crime (Civil Confiscation) Act (“PCCA”) and is supported by the Affidavit of Andres Bekken, the founder of the Applicant.

9. The gist of the matters stated in the supporting Affidavit are as follows.

10. The Applicant company was registered on the 1^st Respondent’s trading platform on or about 10^th October 2022 to trade digital currency in accordance with the agreed terms and conditions.

11. As of May 2023, the Applicant held 4.4534957 BTC, 62.2646785 ETH and 424,272.8065 USDT in its account with the 1^st Respondent and which were used to hedge against other positions that the Applicant maintained on other platforms.

12. It was discovered that the 1^st Respondent had, without permission, consent or authorisation of the Applicant or its founder, improperly frozen the Applicant’s account including all digital currency and options therein, on the grounds that the funds were suspected to be proceeds of criminal activity.

13. Requests were made in November 2023 to unfreeze the account and release the funds. On 10^th November 2023, 1^st Respondent sent three test transactions to an individual named Hamza Majah after which the Applicant was locked out of its account and unable to access its funds or otherwise view its positions. These acts were purportedly carried out pursuant to an Interlocutory order. The Applicant received copies of the Interim order on 10^th January 2024 and the Interlocutory order on 1^st July 2024.

14. After due diligence, the Applicant confirmed that a majority of its funds could not be traced to the relevant criminal addresses provided by law enforcement.

15. It is averred that to the extent that funds were received from those ultimately engaged in criminal conduct, the Applicant conducted appropriate due diligence with Chainalysis prior to executing the transactions and was unaware it was transacting with criminal proceeds and is thereby a bona fide purchaser for value.

16. The Applicant was not involved in, let alone had no knowledge of any of the purported criminal conduct. The property, rightfully belonging to the Applicant, is therefore not “benefit from criminal conduct” and was not “obtained or received by, or as a result of, or in connection with the commission of criminal conduct”.

17. There were interactions between the Applicant and Special Agent Coffin - the FBI agent who referred the case to the FCIU regarding the seizure of its assets at the 2^nd Respondent on 19 January 19, 2024 and 26 January, 2024 and FBI requested additional information to help to evaluate and understand the situation.

18. It is further averred that on January 29, 2024, the Applicant received 156,000 ALGO (about US$25,000) from 16 separate deposits that originated from an address that is flagged as part of the MyAlgo Hack and was included in the list of addresses provided by the FBI. ALL ALGO deposits around that time, except for the final deposit that was caught and seized, were swapped to Ethereum and sent to a new address. The Applicant informed the FBI of all of the above information and let them know they were collating all the remaining information.

19. In view that the above-described ALGO was received on January 29, 2024, it could not form part of the initial seizure of the Applicant’s account in May 2023.

20. On February 7, 2024, the Applicant sent the FBI the remaining information, including a CSV report with the data compiled for the ALGO deposits received that the Applicant believed were associated with the My Algo wallet hack, as per the information the FBI provided.

21. On March 6, 2024, the Applicant received a multiple withdrawal- confirmation emails from 1^st Respondent even if the Applicant had not made a single withdrawal request and was still not able to access its account. One withdrawal was for 424,170.0165 USDT, another was for 4.45126097 BTC, and the final was for 62.21377856 ETH. ID. The withdrawals were sent to the same addresses as those used from the test transactions on November 10, 2023, which is believed to be the addresses controlled by the Receiver, Sergeant Hamzah Majah.

22. The Applicant’s funds are not property to which section 4(1)(1) of the POCCCA applies. The property concerned does not constitute, directly or indirectly, benefit from criminal conduct, nor is it property that was acquired, in whole or in part, with or in connection with property that directly or indirectly, constitutes benefit from criminal conduct. Rather, the Applicant is a bona fide purchaser for value with no knowledge or involvement in any purported criminal conduct. Even if the property were proceeds of crime, the Interlocutory Order causes injustice to the Applicant as a bona fide purchaser who conducted proper due diligence. The Applicant is the owner or has an interest in the property to which the Oder applies and the property is essential to the Applicant for carrying on a lawful business.

23. Regardless of the legality of the property frozen and transferred pursuant to the order, 1^st Respondent unlawfully and improperly transferred an additional 240,000 USDT to the 2^nd Respondent which were not the subject of the order. Between test transactions on 10^th November 2024 and second transaction on March 6^th 2024, the 1^st Respondent sent 424,2728065 USDT rather than the 184,823.92 USDT demanded by the Interlocutory Order as a result of which the Applicant suffered loss or injury.

24. The Applicant now seeks relief against the Respondents in the sum of 4.4534597 BTC, 62.2646785 ETH, and 424,2728065 USDT.

25. It is further averred that the Applicant is not a terrorist group, and that it is just and necessary for the court to make the orders prayed for.

1^st Respondent’s position

26. The 1^st Respondent filed Affidavit in response to the application for discharge. It is averred that they stand guided by the Court’s decision to discharge the interlocutory order but deny that it had improperly frozen the Applicant’s digital currency. It is also averred that UID [REDACTED] was frozen in compliance with the Interlocutory order granted by the Court in MC54/2023 on application of the GOS. The 1^st Respondent takes no position on the Applicant’s request for an order that the 2^nd Respondent returns the sum of USD973,539/- but denies all allegations of improper conversion of the Applicant’s digital currencies. It is further averred that the transfer of UID [REDACTED] was done in pursuance to the Court Order and upon request and/or authorisation by the Receiver.

2^nd Respondent’s position

27. The 2nd Respondent did not file any response to the application but appeared in Court through Counsel and stated that he holds no objections to the application.

Decision

28. In terms of section 4(3) of the POCCCA, the Court may discharge an interlocutory order, on application of the Respondent or a person interested in the specified property. The Court must, first, be satisfied that the specified property does not constitute, directly or indirectly, benefit from criminal conduct or was not acquired, in whole or in part, with or in connection with property that, directly or indirectly, constitutes benefit from criminal conduct or that the order causes injustice to any person –

(3) Where an interlocutory order is in force, the Court, on application to it in that behalf at any time by the respondent or any other person claiming an interest in any of the property concerned, may —

 

(a)if it is shown to the satisfaction of the Court, that the property or any part of the property is property to which paragraph (a) of subsection (1) does not apply; or

 

(b)that the order causes any other injustice to any person (the onus of establishing which shall be on that person),

 

discharge or, as may be appropriate, vary the order, and the Court shall not decline to make the order in whole or in part to the extent that there appears to be knowledge or negligence of the person seeking to establish injustice, as to whether the property was as described in subsection (1)(a) when becoming involved with the property.

 

(Emphasis added)

29. The present application is not opposed by the Respondents, except that the 1^st Respondent denies any improper conversion or transfer of the Applicant’s digital currency. Thus, the Respondents do not dispute that the Applicant has an interest in the cryptocurrencies specified in the Interlocutory Order. The Respondents also do not dispute that the said cryptocurrencies as specified in the Interlocutory Order do not constitute, directly or indirectly, benefit from criminal conduct or were not acquired, in whole or in part, with or in connection with property that, directly or indirectly, constitutes benefit from criminal conduct.

30. In view that there are no objections to the application for the discharge of the Interlocutory Order, subject to the 1^st Respondent’s Affidavit in response denying improper conversion, and considering that the present application is made in terms of section 4(3) of POCCCA I hereby discharge the Interlocutory order made on 10^th November 2023 in accordance with the same section 4(3) of the POCCCA. In consequence, the cryptocurrencies transferred to the Receiver pursuant to or following the said Order should be returned to the Applicant.

Order

31. I hereby make the following orders -

3. The Interlocutory Order made on 10^th November 2023 in MC54/23 The Government of Seychelles v. Bybit Fintech Limited is hereby discharged. All cryptocurrencies transferred to the 2^nd Respondent pursuant to, or following, the said Order should be returned to the Applicant.

4. A copy of this Order is to be served on the 1^st and 2^nd Respondents forthwith.

Signed, dated and delivered at Ile du Port on 16^th day of December 2024.

 

 

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A. Madeleine, J