A $5 billion Bitcoin fortune is at stake, but UK court says being defrauded isn’t enough to claim it

A London judge rejected Chinese fraud victims' bid to use English law to claim more than 61,000 seized Bitcoin.

In an Oct. 12 ruling, High Court Justice Mark Turner sided with British prosecutors, determining that Chinese law must govern ownership claims over the cryptocurrency, currently worth approximately $5 billion.

“The applicable law is Chinese law,” Turner wrote in the judgment, rejecting arguments that English property and trust principles should determine the investors' entitlement.

The decision leaves thousands of victims facing a potentially difficult recovery battle, as proving they lost money to the fraud does not automatically establish ownership of the Bitcoin acquired with its proceeds.

How a Chinese investment fraud became a $5 billion Bitcoin dispute

The case stems from investment schemes operated by Zhimin Qian through Tianjin Lantian Gerui Electronic Technology and associated businesses between 2014 and 2017.

According to the judgment's agreed factual background, the schemes collected approximately 40.23 billion yuan (£4.1 billion) through at least 128,409 investment contracts.

However, the court cautioned that the number of contracts should not be mistaken for the number of individual victims.

The records also revealed substantial repayments to some participants. Approximately 34.1 billion yuan (£3.4 billion) flowed back to investors during the scheme's operation, although others received nothing.

Qian converted part of the proceeds into Bitcoin, including purchases of more than 100,000 BTC through an account on cryptocurrency exchange Huobi, alongside over-the-counter transactions conducted in China.

After fleeing China in 2017, she relocated to Britain, where authorities subsequently seized devices, private keys and other assets linked to more than 61,000 Bitcoin.

The recovered cryptocurrency became the subject of civil recovery proceedings initiated by Britain's Director of Public Prosecutions under the Proceeds of Crime Act 2002.

Chinese investors later sought to establish ownership of the coins, arguing that English legal principles could let them trace their stolen investments into the cryptocurrency Qian acquired.

They argued that fraudulent investment contracts could be rescinded, creating trust-based ownership interests that followed the money into Bitcoin.

British prosecutors opposed that approach, maintaining that the original transactions and alleged acquisition of ownership rights occurred in China.

Turner agreed, finding that the investors, perpetrators, payments and cryptocurrency purchases were overwhelmingly connected to China.

The judge also rejected the argument that Bitcoin's eventual presence in Britain should determine which country's property laws applied.

Instead, he focused on the legal relationships established when the investors collected the investments and later converted them into cryptocurrency.

That conclusion defeated the investors' attempts to rely on English law or combine English and Chinese legal principles to establish their claims.

Victims must now prove ownership as recovery battle enters next stage

The next proceedings will determine whether Chinese law recognizes the ownership interests investors assert in the recovered Bitcoin.

Under Section 281 of Britain's Proceeds of Crime Act, claimants must establish a proprietary interest in assets targeted for recovery, rather than merely demonstrate that criminals owe them compensation.

Turner emphasized that the provision “does not create any broader compensation scheme” for people who suffered financial losses through criminal conduct.

Consequently, investors may need to establish how Chinese law treats fraudulent investment contracts, whether ownership rights survive the conversion of stolen funds into cryptocurrency and whether those rights extend to the particular assets held by British authorities.

The scale and structure of Qian's operation could complicate those proceedings. The scheme involved multiple bank accounts, investment arrangements and repayments, leaving individual claimants with potentially different financial histories.

The judgment also leaves the precise operation of Chinese law unresolved.

Although Turner decided that Chinese law governs the underlying claims, the court has yet to receive evidence establishing its relevant provisions or the factual basis of each investor's asserted ownership.

The victims advanced an alternative argument that English law should apply until Chinese law was formally established.

Turner rejected that submission, distinguishing the choice of governing law from the evidence needed to establish its contents.

“The two should not be conflated,” he wrote.

The litigation also involves receivers appointed to Tianjin Lantian Gerui at the initiative of one alleged victim. Those receivers have asserted separate claims over assets held by British prosecutors.

Turner described the validity of that route as “a question for another day,” leaving another potential complication for the eventual distribution of the cryptocurrency.

Lawyers representing the fraud victims plan to appeal the ruling, according to the Financial Times, potentially prolonging the dispute over the seized assets.

For British authorities, the decision removes one proposed route investors sought to use to establish ownership under English law. It does not determine how much Bitcoin, if any, will ultimately remain available for government recovery.

Turner said he would hear further submissions on the precise order implementing his judgment.

The court will need to establish the applicable Chinese property rights and examine individual claims before it can determine which portions of the cryptocurrency belong to successful applicants.