Paradigm Ltd/ Sideshift v ByBit Fintech Limited & Anor ((MA 251 of 2024 (Arising from MC 54 of 2023))) [2024] SCSC 190 (16 December 2024)

SUPREME COURT OF SEYCHELLES Reportable [2024] MA2510f2024 (Arising from MC54 of 2023) In the matter between: PARADIGM LTD/SlDESHIFT (Rep. by F.f':iizaheth) and ByBit Fintech Limited (Rep. by A. Govinden) And THE RECEIVER (Rep. by S. Dennys) Applicant 1st Respondent 21ld Respondent Neutral Citation: Paradigm Ltd/Sideshift v Bybit Fintecb Ltd & Anor (MA25112024 arising Before: Summary: Heard: Delivered: (16 December 2024). from MC54/2023) P024] A. Madeleine, J Proceeds ofCrime (Civil Confiscation) Act 2008 - Applicationfor Discharge Interlocutory Order - Affidavit 161h December 2024 ORDER (i) The Interlocutory Order made on 10lh November 2023 in MC'5-1-23 the Government of Seychelles v. Bybit Fintech Limited is hereby discharged. All cryptocurrencies transferred to the 211(1 Respondent pursuant the said Order should be returned to the to, or following, Applicant. (ii) A copy of this Order is to be served on the pi and 2nd Respondents forthwith. ORDER A. Madeleine, J Background [I] This is an application by Paradigm Ltd/Sideshit for the discharge of the Interlocutory Order granted by this COUIi on 10lh November 2023 in case MC5-1 2023 The Government of Seychelles II. 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 pI 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 Esti mated Value I. 2. 'l .). Total ETHERUM (ETH) 62.266478563 USD120,249.64 TETHER (USDT) 184,823.92 USD184,832.92 BITCOIN (BTC) 4.4549409776215 USD134,482.14 USD 439,564.70 [3] The Court also appointed a receiver to the above-described cryptocurrencies and ordered service on the 1sr Respondent. [4] The orders of this COUli 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 181hJuly 2023, that the specified cryptocurrencies constituted direct or indirect benefit from criminal conduct; that the Ist 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 Investigati on of the United States (the "FB I") into a series of waves of cryptocurrency theft involving wire fraud between 20111February 2023 and 31s1 March 2023 leading to the pi 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 "FClU") for seizure of the assets found in Seychelles and their transfer to the United States. The FCru 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 14111July 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 pi Respondent's trading platform on or about 10111October 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 pi Respondent and which were used to hedge against other positions that the Applicant maintained on other platforms. [ 12] It was discovered that the I st Respondent had, wi thout perm issi on, consent or authori sati on 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 10lh November 2023, 1xt Respondent sent three test transactions to an individual named Harnza 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 10lh January 2024 and the Interlocutory order on pi 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 regardi ng the seizure of its assets at the 2nd 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 ALGa (about US$25,000) from 16 separate deposits that originated from an address that is flagged as part of the My Algo Hack and was included in the list of addresses provided by the FBI. ALL ALGa 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 collatinz all the remaininz ;:, ;:, 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 1st 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. Il). 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 cri minal 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] Regardl ess of the legal ity of the property frozen and transferred pursuant to the order, pi Respondent unlawfully and improperly transferred an additional 240,000 USDT to the 2nd Respondent which were not the subj ect of the order. Between test transactions on 101h November 2024 and second transaction on March 61h 2024, the 151 Respondent sent 424,2728065 USDT rather than the 184,823.92 DSDT 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 BIC, 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. lSI Respondent's position [26] The 1st 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 DID was frozen in compliance with the Interlocutory order granted by the COUI1in on application of the GOS. The I" Respondent takes no position on the Applicant's request for an order that the 2nd 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 ofUID was done in pursuance to the Court Order and upon request and/or authorisation by the Receiver. 2nd Respondent's position [27] The 2nd Respondent did not tile any response to the application but appeared in COUl1 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 inforce, the Court, on apvlication to it in that behalf' at any time b)! the respondent or any other person claiming an interest in any o(the property concerned, may (alifi! is shown to the satisfaction ofthe Court, that the pl'Opertv or anv part o(the propert)! is propertv to which pamgmph (a) o(subsection (l) does not appl )I; or the order callses anv other injllstice to anv person (the onus <?f (b) that establishing which shall be on that person), discharxe 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 10 be knowledge or negligence ofthe 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 JSI 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 1SI Respondent's Affidavit in response denying improper conversion, and considering that the present application is made in terms of section 4(3) of PO CCC A I hereby discharge the Interlocutory order made on 10111November 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. [31] I hereby make the following orders - (iii) The Interlocutory Order made on IUh November 2023 in MC5-123 the Government of Seychelles I'. Bybit Flntech Limited is hereby discharged. All cryptocurrencies transferred to the 2nd Respondent pursuant to, or following, the said Order should be returned to the Applicant. (iv) A copy of this Order is to be served on the Ist and 2nd Respondents forthwith. Signed, dated and delivered at lie du Port on 16th day of December 2024. 8