In the U.K., it’s okay to sue other people by airdropping their digital wallets with NFTs.
Yes, you read that right. A judge in the U.K. granted permission to serve a person a lawsuit using a blockchain ledger via a non-fungible token — marking the first time an NFT gained the status of legal documentation in court proceedings in the country, according to court documents initially reported by Bloomberg.
A U.S. court made a similar decision to authorize lawsuit filings via NFTs in June. As such, NFTs are becoming more normalized in court proceedings on an international basis.
How to sue with NFTs
This comes on the heels of a case brought to the U.K. courts by Fabrizio D’Aloia, the founder of online gambling company Microgame, who is suing the cryptocurrency exchange Binance Holdings in addition to other platforms. D’Aloia filed his claim after crypto assets appeared to be cloned in a fraudulent manner on the brokerages. The court also found that the exchanges were responsible for ensuring that stolen crypto isn’t removed from their systems.
So how does it work? In the U.K., the lawsuit will be airdropped, with legal documents deposited via NFT into two wallets initially used by D’Aloia and then stolen by those accused of fraud. “There can be no objection to it,” said Justice Trower in an interim relief hearing last month, according to a report from The Law Society Gazette.
“Rather it is likely to lead to a greater prospect of those who are behind the tda-finan website being put on notice of the making of this order, and the commencement of these proceedings,” added Trower, in the report.
This is the latest in a series of increasingly innovative steps taken to assist victims of crypto fraud worldwide. Indeed, the U.K. ruling is “a welcome example of a court embracing new technology,” said D’Aloia’s representative legal firm, Giambrone & Partners. “It is also a significant judgment as it demonstrates how England and Wales is one of the best jurisdictions in the world, if not the best, when it comes to protecting the victims of cryptoasset fraud.”
Could NFTs help regulate themselves in legal disputes?
As NFTs have gained more mainstream endorsements, the frequency of misuse has become a growing concern. In March, an NFT project dubbed Frosties was revealed to be a scam in the wake of its developers absconding with more than $1 million in ETH — just hours after launching the project.
In other words, it was a major rug pull.
The two men allegedly behind the rug pull — Ethan Nguyen and Andre Llacuna — were arrested and charged with wire fraud and money laundering in the Southern District of New York, on March 24 of this year. Before the arrests, the two were allegedly getting ready to launch another scam NFT project, dubbed “Embers,” which would have garnered another $1.5 million in primary sales for the duo.
This was just one project, but what happens when a major NFT platform is implicated in criminal activity? Early in June, the FBI charged a former OpenSea employee with insider trading. This is one of the oldest and most ubiquitous white-collar crimes in history, which puts the misuse of NFTs on par with some of the oldest industries in existence.
The former Product Manager of OpenSea Nathaniel Chastain was arrested in New York for misusing confidential knowledge he got while working in the marketplace — with one count of wire fraud and another of money laundering. In both instances, Chastain “[used] his knowledge of confidential information to purchase dozens of NFTs in advance of them being featured on OpenSea’s homepage,” said FBI Assistant Director-in-Charge Michael J. Driscoll, in a release from the U.S. Justice Dept.
Notably, not all rug pulls and borderline-fraudulent activity surrounding NFT trading classifies as illegal — which some might argue is a testament to the need for more regulations in the space. But whether or not stricter laws are put in place to restrict NFT trading in a bid to avoid scams, one thing’s for sure: the advent of NFTs as a legal means of serving lawsuits means that they are capable of adapting to misuse and serving a greater good.
Correction: An earlier version of this article suggested the U.K. court accepted payment via NFT. This has been updated to reflect that the lawsuit was merely recorded and served via NFTs, on the blockchain.