Enforcing Crypto-Litigation Orders: Practical Difficulties Seen in Cicada 137 LLC v. Medjedovic

The enforcement of court orders that are designed to preserve, trace or track crypto-assets within North America is often limited in practice. As seen in the recent Ontario decision of Cicada 137 LLC v. Medjedovic (“Cicada”),^[1] mechanisms by which legal enforcement principles can be effectively applied against stolen or misappropriated crypto-assets are constrained. Cicada emerges as a leading decision by the Ontario Superior Court of Justice (the “Court”) on how the application of freezing or preservation orders can often pose difficulty in real-world scenarios involving online assets or funds. This case comment both summarizes the factual background present in Cicada and provides readers with helpful tips for insolvency and civil litigators on how to actually enforce and recover against stolen crypto-assets.

Cicada Factual Background

In Cicada, the Court had previously granted an Anton Piller order – the right to search premises and seize evidence without prior warning – related to roughly C$15 million in crypto-assets that the defendant, Andean Medjedovic (“Medjedovic” or the “Defendant”), was accused of having acquired unlawfully from an online crypto trading platform. Medjedovic, a 19-year-old mathematics student, lived with his parents until disappearing at a later date. Despite urges from the Court to “participate in this process voluntarily” and the prior granting of the Anton Piller order,^[2] Cicada 137 LLC (the “Plaintiff”) was still searching for whereabouts to even find the passwords and other necessary information to freeze the disputed cryptocurrency at the time of the Cicada motion.

In light of Medjedovic’s disappearance, the Plaintiff accordingly sought a case conference to discuss the effect of a separate motion, as requested by an intervenor party, to compel the attendance of Medjedovic’s parents for examination as to the Defendant’s whereabouts.^[3] In response, Medjedovic’s parents delivered a notice of motion to set aside the Anton Piller order.^[4] Previously, the Court had also issued a warrant for the Defendant’s arrest, which was ignored.^[5]

Under the original Anton Piller order, access was granted for the purpose of, inter alia, “searching for or retrieving,” among other assets, “any electronic device that may have been used by the Defendant to facilitate the Token Theft.”^[6] The Court commented that the practicality of implementing the Anton Piller order was challenging in view of the “volume of material located during the search.”^[7] Despite submissions by the Plaintiff that Medjedovic’s parents’ motion was frivolous and an attempt to “protect their son,” the Court also declined to make an initial finding on the propriety of the parents being a moving party.

Legal Significance

In Cicada, the Plaintiff had previously established the requisite elements required for an Anton Piller order, including showing a strong prima facie case of unlawful conduct by the Defendant. Accordingly, the Court ordered the Defendant to turn over the disputed cryptocurrency tokens to be held by a neutral officer, pending a legal determination of the crypto-assets in question. As stated by the Court, “the defendant has shown that he is not willing to comply with the court’s order; that he will hide himself to avoid accountability; that he is not willing to stand up responsibly to establish the lawfulness of his conduct; and that he is willing to move the disputed tokens.”^[8]

The purpose of the Anton Piller order was not simply to preserve evidence, but also to enable parties to “find the disputed cryptocurrency tokens and preserve them in the hands of a court officer.”^[9] As commented by the Court, the underlying motive was to place all disputed property “with a neutral custodian pending the outcome of the action.”^[10] Despite this intent and the granted Anton Piller order, enforcement was practically moot due to the fleeing of the Defendant. In addition, while the Court determined that the motion to examine the Defendant’s parents could be reviewed and resolved in writing for purposes of expediency, judicial comment was made that the execution of the Anton Piller order and the parents’ challenge will require judicial management “in real time.”^[11]

Analysis

Traditionally, Anton Piller orders authorize plaintiffs to enter the premises of defendants to seize evidence or property claimed to belong to the plaintiff.^[12] In contrast, a Mareva injunction – another common remedy at-law – restrains a defendant from dissipating assets or from conveying her or his property pending the result of proceedings.^[13]

The actual, practical enforcement of these orders to the world of online assets appears to be significantly constrained by the North American civil asset recovery system. As seen in Cicada, without the participation of the Defendant and the provision of required passwords, materials and accounts cannot be appropriately seized and searched in a timely manner. This raises significant, pressing concerns about the ability of the judicial system to enforce against wrongdoers committing crimes or fraud in online spaces.

To avoid the situation faced by the Plaintiff in Cicada, parties should consider the following:

• service providers should first be contacted through legal counsel rather than the initiation of traditional legal processes, and notice via enforcement should only be given to wrongdoers once the location or passwords associated with online assets are reasonably recoverable;
  
• private recovery specialists, such as asset tracing agents or consultants, should be hired in conjunction with legal professionals to investigate the movement of funds, such as through investigative due diligence or public records sourcing on both the general and dark web;
  
• relevant courts should be petitioned for the release of know-your-client information from cryptocurrency exchanges on ex parte bases, rather than traditional, slower civil processes; and
  
• only once both the location and holder of the online assets are reasonably identifiable should clients consider implementing lawsuits to freeze and/or recover assets.
  

To conclude, the efficacy of Anton Piller orders against fleeing defendants holding misappropriated online assets remains disputable, and litigants will likely struggle with enforcement of these orders.

Instead, legal counsel should advise their clients that as the dissipation of digital assets constitutes new legal territory for courts, the recovery of online crypto-assets via traditional insolvency and litigation enforcement mechanisms should be supplemented with additional tracing exercises to effectuate practical, real-world recoveries against online funds or assets.