• USDT attracted Property Rights: The High Court confirmed that stablecoins can constitute a distinct form of property under English law, satisfying the Ainsworth criteria.
• Constructive Trusts Apply: The court accepted that a constructive trust potentially arises over crypto assets obtained by fraud.
• Opaque Evidence Can Be Fatal: The claim failed because the cryptocurrency expert’s methodology could not be verified or explained step-by-step.
• Transparency is Crucial: This judgment suggests that courts will rigorously scrutinise forensic reports to ensure they allow for a “mathematical audit” of the flow of funds, particularl;y where commingled funds exist.

Case Citation & Jurisdiction

• Case Name: Fabrizio D’Aloia v Persons Unknown Category A and Others
• Neutral Citation: [2024] EWHC 2342 (Ch)
• Jurisdiction: High Court of Justice of England and Wales, Business List (Chancery Division)
• Date of Judgment: 12 September 2024

Factual Background

The Claimant, Mr D’Aloia, was the victim of a sophisticated cryptocurrency investment scam involving a platform known as “td-finan”. He was duped into believing he was investing through a legitimate cryptocurrency exchange, leading to the theft of approximately 2.1 million USDT.

The legal action against the Sixth Defendant, Bitkub, focused on one specific tranche of 400,000 USDT. The Claimant asserted that these funds were traced through the blockchain to a wallet hosted by the Thai-based exchange.

Bitkub defended the claim on the basis that they never received the Claimant’s specific crypto assets. Consequently, the case turned on the reliability of the tracing evidence used to link the theft to the exchange. [J. 1-2]

Can Legal Liability Exist Without Transparent Tracing Evidence?

The central challenge in D’Aloia was whether established legal principles could succeed when the underlying forensic evidence was opaque. The Claimant successfully argued the theoretical points regarding property and trusts. However, the claim failed because the expert’s methodology could not be verified to prove the USDT in question reached the defendant.

The High Court’s Findings

Issue 1: Is USDT Property under English Law?

The court addressed the foundational question of whether stablecoins attract property rights [J.106]. It ruled that USDT is a distinct form of property under English law, satisfying the classic Ainsworth criteria. This finding rejected the argument that crypto-assets are merely information incapable of being owned.

We examine the full implications of this property ruling in our detailed breakdown: Is USDT Property Under English Law?

Issue 2: Constructive Trusts and VASPs

The judgment confirmed that a constructive trust may arise over assets obtained by fraud [J. 19-21]. However, the claim against the exchange failed on the facts because the VASP was not found to be shown to hold any trust funds. Without proven receipt, the exchange could not be liable as a constructive trustee.

We analyse the court’s refusal to impose a trust on the exchange in our focused article: Constructive Trust Claims Against Cryptocurrency Exchanges.

Issue 3: The Flaw in Tracing Methodology

The dismissal of the claim hinged on the rejection of the claimant’s expert evidence. The court found the expert’s methodology to be “chaotic” and contradictory, lacking a transparent, replicable method [J. 58]. This failure to verify the flow of funds meant the necessary legal link to the defendant was missing.

We detail the specific methodological errors that proved fatal to the claim in our expert review: Cryptocurrency Tracing Methodology Scrutinised.

Analysis & Strategic Implications: A Forensic Case Study

While D’Aloia is a UK High Court decision and not binding in other jurisdictions, it illuminates a challenge relevant to litigators globally. The judgment offers an insight to how courts may approach the gap between legal theory and forensic evidence. It highlights that establishing property rights is effective only if the underlying tracing data is accepted by the court.

Litigators may find the court’s focus on the “verifiable audit trail” of the tracing report particularly noteworthy. The case illustrates that defendants can successfully challenge claims by scrutinising the expert’s ability to explain their methodology. This suggests that defensibility often hinges on a clear, replicable explanation of fund movements.

Ultimately, while specific to English law, the ruling typifies a broader tension between automated tools and forensic rigour. An expert witness was required to articulate their logic clearly, rather than relying solely on software outputs. This focus on transparency provides a useful reference point for future cross-jurisdictional disputes.

The post D’Aloia v Persons Unknown Judgment Analysis: Implications for Tracing and VASP Liability appeared first on Captura Cyber.

This judgment provides three clear implications regarding the admissibility of expert evidence in crypto-asset related matters.

• Transparency is Mandatory: Courts will reject expert evidence if the cryptocurrency tracing methodology cannot be clearly explained or verified by the opposing party [J.55].
• “Black Box” Evidence is Fatal: An expert cannot rely on proprietary software or “investigative experience” as a substitute for a principled, reproducible method [J.60].
• Mathematical Rigour is Required: If the numbers do not add up during a judicial “mathematical audit,” the evidence will be dismissed as unreliable [J.67].

Case Citation & Jurisdiction

• Case Name: Fabrizio D’Aloia v Persons Unknown Category A and Others
• Neutral Citation: [2024] EWHC 2342 (Ch)
• Jurisdiction: High Court of Justice of England and Wales, Business List (Chancery Division)
• Date of Judgment: 12 September 2024

Factual Background: D’Aloia vs. Persons Unknown

The Claimant, Mr D’Aloia, was the victim of a sophisticated cryptocurrency investment scam that began in July 2021. He was duped into believing he was investing through a legitimate cryptocurrency exchange. This conviction led to the transfer of a substantial quantity of digital assets.

In total, approximately 2.1 million USDT, a stablecoin, was stolen across multiple transactions. The core of the legal action focused on one specific tranche of 400,000 USDT.

The fraudulent transactions were traced to a specific wallet address controlled by the anonymous fraudsters (Persons Unknown). The central factual issue was the subsequent movement of those specific funds.

The Claimant asserted that the 400,000 USDT were moved through the blockchain and ultimately reached an account held at the Sixth Defendant, Bitkub. Bitkub is a registered VASP (Virtual Asset Service Provider) based in Thailand. The entire case against Bitkub hinged on establishing this final link via cryptocurrency tracing evidence.

Can a “Black Box” Tracing Methodology Support a Claim?

The central evidentiary challenge was whether an expert’s tracing methodology could be relied upon when it lacked transparency and consistency.

The Claimant’s expert purportedly applied a First-In-First-Out (FIFO) methodology to trace funds from the point of Loss to Bitkub’s Wallet address. However, he admitted in cross-examination that he had “refined” this approach based on proprietary software training [J.245].

This created a “black box” scenario. The court was asked to trust the expert’s findings without being able to mathematically verify the flow of funds [J.259].

Key Findings

The Rejection of the Expert Evidence

The Court found the expert’s evidence to be “chaotic and, ultimately, contradictory” [J.58]. While the expert claimed to use FIFO, the court found he had applied a subjective methodology that cherry-picked transactions to maximise the Claimant’s recovery [J.262].

Crucially, this methodology ignored the funds of other potential innocent victims. By disregarding pre-existing balances and intermediate incoming funds, the expert violated the principle of treating innocent contributors equally [J.262].

The Necessity of a Transparent Methodology

The court emphasised that while English law permits tracing methods beyond strict FIFO (such as pari passu or rolling charge), any alternative must be “methodologically sound and properly evidenced” [J.7iii].

In this instance, the lack of a coherent, explainable method meant the court could not perform a mathematical audit of the flow of funds [J.67].

Consequently, the court held that the Claimant had failed to prove, on the balance of probabilities, that any of his funds reached the Defendant’s wallet [J.264].

Analysis & Implications

Litigators cannot rely on an expert’s credentials or the reputation of their proprietary software alone. Defensibility requires transparency. Experts must be able to open the “black box” and explain, step-by-step, how the software reached its conclusion.

If the methodology cannot be replicated or mathematically audited by the court, the evidence risks being ruled inadmissible. When instructing a blockchain expert, insistence on a defensible methodology is critical, rather than accepting a simple software printout.

Experts must be capable of explaining their logic to a layperson, and their chosen method of accounting for sommingled cryptocurrencies (whether FIFO, pari passu or otherwise) should be applied consistently, rather than conveniently.

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