Court Rulings On Blockchain-Related Crimes
Court Rulings on Blockchain-Related Crimes
1. United States v. Sam Bankman-Fried (FTX Fraud Case, 2023)
Facts:
Sam Bankman-Fried (SBF), founder of the FTX cryptocurrency exchange, was accused of misusing customer deposits, commingling funds with a hedge fund (Alameda Research), and misleading investors and customers. The collapse of FTX caused billions of dollars in losses.
Legal Issue:
Whether misuse of customer cryptocurrency funds, false statements to investors, and deception regarding the solvency of the exchange constitutes criminal fraud under U.S. federal law.
Judgment:
The U.S. federal jury convicted SBF on multiple counts of wire fraud, securities fraud, and conspiracy.
He was sentenced to 25 years imprisonment for defrauding customers and investors.
The court emphasized that blockchain or crypto-based operations do not exempt operators from existing fraud laws.
Principle Established:
Mismanagement and intentional deception in cryptocurrency platforms constitute traditional fraud.
Blockchain technology does not create immunity from criminal liability.
2. Do Kwon / Terraform Labs Fraud Case (2025)
Facts:
Do Kwon, founder of Terraform Labs, issued the stablecoin TerraUSD (UST) and token Luna. When the stablecoin collapsed, investors lost billions. Kwon was charged with securities fraud, commodities fraud, and conspiracy for misleading investors about the stability and operation of his blockchain products.
Legal Issue:
Whether misleading statements and hidden manipulations in a blockchain ecosystem constitute criminal fraud.
Judgment:
Kwon pled guilty and was sentenced to 15 years imprisonment.
Court noted that false claims regarding blockchain technology and investor risk amount to criminal conduct, even in decentralized environments.
Principle Established:
Blockchain-based products can be treated like securities or commodities when marketed to investors.
Fraudulent misrepresentations in the crypto space are prosecuted under existing financial fraud laws.
3. United States v. Gratkowski (Bitcoin Privacy Case, 2019)
Facts:
Gratkowski’s Bitcoin transactions were traced via Coinbase in a child pornography investigation. He argued that Bitcoin records were protected by the Fourth Amendment.
Legal Issue:
Do Bitcoin transaction records have privacy protection under constitutional law?
Judgment:
The Fifth Circuit ruled that Bitcoin records with third-party exchanges do not have a reasonable expectation of privacy.
The court likened blockchain transaction records to bank records, which are not protected under the Fourth Amendment.
Principle Established:
Transaction data on public or third-party controlled blockchains can be accessed by law enforcement.
Privacy expectations are limited when data is voluntarily exposed to third parties.
4. Osbourne v. Persons Unknown & Others (UK, NFT Theft, 2023)
Facts:
An individual’s NFTs were stolen from their crypto wallet. The defendant was unknown. Osbourne sought a court order to freeze the NFTs and prevent further transfers.
Legal Issue:
Can blockchain assets like NFTs be recognized as legal property, and can courts grant injunctions against unknown parties?
Judgment:
The court recognized NFTs as property under law.
Injunctions were granted to freeze the stolen NFTs.
Service of proceedings could be adapted, including via NFTs themselves, to notify unknown parties.
Principle Established:
NFTs and cryptoassets are recognizable as property.
Courts can grant proprietary remedies and innovative service methods for blockchain-related disputes.
5. MIT Brothers Ethereum Exploit Case (2025)
Facts:
Two brothers exploited a vulnerability in Ethereum blockchain software to extract $25 million in cryptocurrency. Prosecutors charged them with wire fraud and money laundering.
Legal Issue:
Does exploiting a technical vulnerability in a blockchain constitute criminal fraud, or is it a legitimate competitive strategy?
Judgment:
The case ended in a mistrial because the jury could not reach a unanimous decision.
Defense argued the exploit was a legal use of competitive blockchain mechanics; prosecution claimed it was fraudulent.
Principle Illustrated:
Blockchain technical exploits create novel legal challenges.
Courts are still defining the line between legitimate blockchain activity and criminal conduct.
6. Adnan Nisar v. Directorate of Enforcement (India, Crypto and Money Laundering)
Facts:
Funds from fraudulent crypto operations abroad were funneled into India. Authorities invoked the Prevention of Money Laundering Act (PMLA).
Legal Issue:
Can cross-border crypto theft be treated as a predicate offense under money laundering laws in India?
Judgment:
Court confirmed that crypto fraud can trigger money laundering charges if proceeds enter India.
Cryptocurrency does not fall outside Indian financial regulatory laws.
Principle Established:
Crypto-based frauds can constitute money laundering offenses.
Existing statutes like PMLA apply to blockchain assets.
7. Ajay Bhardwaj v. Union of India (2021, Gain Bitcoin Scam)
Facts:
A Ponzi-style cryptocurrency platform defrauded thousands of investors. Accused sought anticipatory bail.
Legal Issue:
Can courts grant bail for large-scale crypto scams?
Judgment:
Bail was denied due to the scale and severity of the fraud.
Court highlighted that blockchain-based scams cannot be treated lightly, regardless of technological complexity.
Principle Established:
Serious crypto frauds are treated as major financial crimes, akin to traditional Ponzi schemes.
Courts focus on investor protection and deterrence.
Key Takeaways from Blockchain Crime Cases
Traditional Laws Apply – Fraud, conspiracy, and money laundering laws are enforceable even in blockchain ecosystems.
Blockchain Assets as Property – Courts recognize NFTs and crypto tokens as legal property, enabling injunctions and restitution.
Privacy Limits – Blockchain transactions, especially via third-party exchanges, have limited constitutional privacy protection.
Novel Technical Exploits – Courts are still developing standards for distinguishing legal blockchain activity from criminal exploitation.
Global Jurisdiction – Cross-border crypto fraud can trigger enforcement under multiple jurisdictions and statutes like PMLA in India.
Investor Protection is Key – Large-scale crypto scams are treated like traditional financial crimes, emphasizing deterrence and restitution.
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