Ryan Dellone, a healthcare worker from Fresno, California, is taking legal action against an unknown holder of a cryptocurrency wallet that contains his stolen funds after falling victim to a SIM-swapping attack in 2021 that resulted in a loss of $100,000. This case is considered the first time a federal court has recognized the use of information contained in a bitcoin transaction as a means to provide notice of a lawsuit to a defendant, potentially simplifying the process for victims of cryptocurrency theft to recover their stolen funds through the legal system.
Dellone’s ordeal began on December 14, 2021, when he became the victim of an unauthorized SIM-swap, allowing cybercriminals to gain control of his phone number and subsequently breach his account at Coinbase, siphoning approximately $100,000 worth of cryptocurrencies. Alongside the unknown holder of the cryptocurrency wallet, Dellone’s lawsuit also implicates Coinbase, alleging that the company overlooked numerous warning signs and should have taken action to prevent the theft. Despite multiple attempts to obtain comment, Coinbase has not responded to the lawsuit.
Working closely with legal experts specializing in tracking the flow of stolen cryptocurrency funds, Dellone’s lawyer, Ethan Mora, identified a bitcoin wallet as the final destination of his client’s stolen cryptocurrency. However, the identity of the account holder remains unclear, with Mora revealing that the wallet in question is reportedly linked to an ongoing federal investigation into a cryptocurrency theft ring. The unique legal strategy pursued by Mora allows Dellone to serve notice of the civil suit to the bitcoin address without needing to identify the perpetrators. Moreover, a default judgment may result in the seizure of Dellone’s stolen funds if the cybercriminals fail to dispute the claim.
In a significant development, a federal judge in the Eastern District of California granted Dellone permission to serve the lawsuit directly to the suspected hackers’ bitcoin address, appended with a short message via a $100 bitcoin transaction. This message is enabled via the “OP RETURN,” a feature of the Bitcoin scripting language that authorizes the attachment of metadata to a transaction, thus saving it on the blockchain. The message contains a short link to a copy of the lawsuit hosted on Google Drive, thus serving notice of the lawsuit.
Former federal prosecutor, Mark Rasch, expressed support for Mora’s innovative approach, positing that it may compel the government to disclose relevant information about the case, thus aiding Dellone in his pursuit to recover his stolen funds. In the event of the cybercriminals’ failure to dispute the claim, the funds could potentially be seized by cryptocurrency exchanges if they are subsequently moved or spent.
Security researcher Nick Bax welcomed the potential implications of Mora’s strategy, suggesting that it could enable more victims to pursue legitimate legal claims to recover stolen funds. He emphasized the need to make civil cases more efficient, enabling victims to take action without solely relying on law enforcement.
While Dellone’s case appears to be the first instance of using bitcoin to notify another party of a civil action in a federal court, similar techniques have been utilized in unrelated cases involving other cryptocurrencies, including Ethereum and NFTs. Notably, a federal court in Florida previously authorized the service of a lawsuit seeking the recovery of stolen digital assets via non-fungible tokens (NFTs) containing the text of the complaint and summons. This demonstrates a growing trend in leveraging cryptocurrency transactions to serve legal notices.
Ultimately, this legal development could transform the landscape for victims of cryptocurrency theft, potentially streamlining the process for recovering stolen funds through the legal system. As cybercrime in the cryptocurrency space continues to pose significant challenges, innovative strategies like the one employed by Dellone and his legal team showcase the evolving nature of legal recourse for victims seeking redress. Although the recovery of stolen funds remains uncertain, these developments serve as a beacon of hope for victims seeking justice in the face of cryptocurrency theft.