Saskatchewan court splits $240,000 between fraud victim, cryptocurrency exchange

Representations of cryptocurrencies including Bitcoin, Dash, Ethereum, Ripple and Litecoin are seen in this police illustration. (File photo/Supplied/Royal Canadian Mounted Police)

A Saskatchewan man, who was the victim of various online scams, will keep $100,000 of an original $240,000 purchase following an extended legal battle with a cryptocurrency exchange.

In her ruling, Justice Charlene Richmond described the case as an “internet fraud [that] left two innocent victims in its wake.”

A 66-year-old retiree from a community in southwest Saskatchewan was the first victim – while the second was HoneyBadger Enterprises Ltd. – a cryptocurrency exchange based in Vancouver, B.C.

The complicated sequence of events began in 2022 when the Sask. retiree invested in cryptocurrency with an entity by the name of “Main Bit Ltd.”

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In her ruling, Justice Richmond described the victim as having been “lured into a virtual den of thieves” as the entity turned out to be a scam.

The victim lost his initial investment of $53,873.

Later, in September, the victim would lose a further $190,506.61 by an entity claiming to be the “Ministry of Justice at the United Kingdom.”

Finally, in mid-2023, the victim was contacted by an individual who claimed they were a member of the “FBI.” Through a Gmail account, the individual confirmed to the retiree that he had fallen victim to numerous scams through the aforementioned entities and requested he take part in a “dummy money transfer” to help dismantle the illegal operation.

The scammers provided the victim with a bitcoin wallet – which he provided to HoneyBadger to purchase cryptocurrency shortly after.

The victim signed a pre-authorized debit agreement (PAD) that would allow the company to withdraw money from his Innovation Credit Union bank account to make purchases. The victim would authorize two purchases from HoneyBadger at the direction of the “FBI.” Through the process, the victim also gave the scammers remote access to his computer.

After acquiring $40,000 from the exchange through the two purchases – two more purchases were made on May 31 and June 1, 2023 – for a total of $200,000.

According to court documents, the victim claimed he had no knowledge of the last two purchases, so he contacted his bank.

The funds, totalling $240,000, were seized and preserved as the legal battle of who was entitled to the money was carried out.

So, who is at fault?

In her decision, Justice Richmond criticized the victim’s willingness to share information and computer access, with the scammers.

“[The victim] not only left the door unlocked, he welcomed the robbers in the door and gave them full access for thievery,” she wrote. “Allowing the fraudsters full access to his computer and having told no one of his plight despite having already been the victim of previous frauds defies belief but for the fact that he has clearly been defrauded several times over.”

However, the justice also pointed to the fact that if HoneyBadger had abided by the terms of the PAD agreement and issued the victim a password or another means of authorizing each specific purchase – the fraud could have been stopped in its tracks before the exchange parted ways with its cryptocurrency.

To that effect, the initial $40,000, which the victim authorized, was awarded to HoneyBadger.

“Of the remaining $200,000, both [the victim] and HoneyBadger share equally in the resulting loss; [the victim] for allowing the thieves access and HoneyBadger for failing to utilize a verification process as outlined in the PAD Agreement,” the decision wrote.

Richmond concluded her decision by saying that since both of the parties had achieved “a measure of success” in the proceedings – no additional costs would be awarded to either side.