Crypto platform not liable to fraud victim who remortgaged her house, lost $670K, B.C. court rules

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

A cryptocurrency trading platform did everything it could to stop a B.C. woman from transferring $671,000 to a fraudster, a judge has found.

Yan Li Xu sued NDAX Canada, arguing that the company had caused her losses by failing to meet the duty of care it owed her.

In a decision issued Monday, B.C. Supreme Court Justice Lindsay R. LeBlanc dismissed Xu’s claim, finding “no liability rests with the defendant” in the case.

“If an investment proposal sounds too good to be true, it probably is,” LeBlanc’s decision begins.

“That was the case for the plaintiff who found herself to be the unfortunate victim of a cryptocurrency scam.”

‘Generous returns’

The decision includes a general outline of the investment scam to which Xu fell victim.

“The plaintiff testified that she was befriended by someone she cannot name,” it reads. “This person initially convinced the plaintiff to send him relatively small amounts ($500 and $1,000). These initial small investments were returned to the plaintiff along with generous returns.”

After a while, the scammer asked the plaintiff to purchase “a large sum of cryptocurrency,” which, if she transferred it to the scammer, would purportedly yield “a significant return, in the range of one per cent per day,” according to the decision.

Xu remortgaged her home and borrowed money from a friend in order to raise enough money to buy the cryptocurrency, the decision indicates.

She opened her account with NDAX on April 10, 2023, and made multiple deposits over the next month, purchasing the equivalent of $671,000 worth of Ethereum.

Four warnings

On April 18, 2023, Xu attempted to make the first transfer to the scammer, triggering a series of warnings from the platform, which are detailed in the decision.

First, NDAX showed Xu a “crypto risk disclosure statement,” which she had to accept to proceed. Among the warnings in the document, according to the decision, were: “Only send cryptocurrency to trusted wallets,” and, “Beware of common cryptocurrency scams, such as high-return investments, Ponzi schemes, social engineering, take giveaways, and take ISO’s.”

The next screen contained a second warning, which took the form of a box Xu was required to check, and is reproduced in the court decision.

“I confirm the information I’ve provided is accurate, correct, and complete,” it read, according to the decision. “I understand crypto asset withdrawals are final and irreversible. NDAX will not be liable for losses from my inaccurate information or for delays from network issues outside NDAX’s control.”

In addition to these written warnings, Xu received a phone call from an NDAX employee, a recording of which was played in court.

The employee asked Xu for more information about the transaction and warned her that she was likely “being scammed,” according to the decision.

“I find that the defendant’s warnings to the plaintiff could not have been clearer,” LeBlanc’s decision reads.

After the phone call, Xu “sent a number of emails to the defendant demanding they proceed with the withdrawal without delay,” according to the decision.

“The plaintiff’s tone escalated to where she was threatening legal action against the defendant if they did not proceed.”

At that point, Xu received a second phone call, this time from a compliance officer from NDAX, who again warned that she might be being scammed and sought to confirm that she wanted to go through with the transaction anyway.

“The plaintiff confirmed her instructions for the defendant to process the first transaction and the defendant followed the instructions,” the decision reads.

Xu ultimately made two additional transfers to the same cryptocurrency wallet, each time re-receiving and re-acknowledging the two written warnings, according to the decision.

False claim of ownership

Xu alleged that NDAX had breached the duty of care it owed to her.

“The plaintiff says that the defendant ought to have advised her that the recipient wallet was a ‘scammer,’” the decision reads.

LeBlanc found that NDAX did not know that the recipient wallet belonged to a scammer when Xu asked the company to initiate the transaction.

Moreover, when NDAX tried to get more information from Xu about the destination to which she was sending funds, she misled them.

“The defendant attempted to obtain further information from the plaintiff to assist her in identifying the recipient wallet and the plaintiff provided false and misleading information in response to the defendant’s questions, including advising the defendant that the recipient wallet was owned and controlled by her, which was false,” the decision reads.

“The defendant identified the potential that the recipient wallet may be held by a scammer and notified the plaintiff of this information. The plaintiff ignored the defendant. There is no evidence or basis to conclude that further warnings by the defendant would have convinced the plaintiff or had any effect beyond the warnings already received.”

While Xu’s submissions did not provide specific evidence about what the standard of care was that NDAX had a duty to meet, LeBlanc concluded the company had met it, whatever it was.

“The defendant satisfied any standard of care that would have been applicable,” the decision reads.