Koziar v. Blammo, Ltd.

Background

Oleg and Rimma Koziar alleged that Blammo, Ltd. and “Jack Stars,” also identified as “Evgeny Melnik,” operated or used a fake cryptocurrency trading website to defraud them. The Koziars said Blammo presented itself as a reputable cryptocurrency exchange with extensive assets, offices, employees, and relationships with legitimate companies and investors. After the Koziars made an initial investment, people claiming to represent Blammo directed them to move money through cryptocurrency accounts and wallets.

The Koziars alleged that their online accounts displayed false profits and that the defendants demanded fabricated margin fees, taxes, processing fees, and other charges before allowing withdrawals. Between February 15 and August 9, 2023, the Koziars paid the defendants a total of $669,400.10. They alleged that they could not withdraw their funds. They later received $25,000 from a settlement with Alamas Group Europe OU and Andrii Suslenko, who were voluntarily dismissed from the case.

Procedural history

The Koziars filed the action on September 5, 2023, and filed an amended verified complaint on January 8, 2024. The amended complaint asserted claims under the Computer Fraud and Abuse Act, a federal computer-access statute, and state-law claims for conversion and fraud. Blammo and Melnik were served but did not answer or appear. Judge Koeltl granted default judgment against Blammo and Melnik on June 4, 2024, and referred the matter to Magistrate Judge Robert W. Lehrburger to determine damages and other appropriate relief.

A default judgment is entered when a properly served defendant fails to defend the case. In this setting, well-pleaded factual allegations about liability are accepted as true, but the plaintiff must still provide evidence establishing the amount of damages. The court determined that a damages hearing was unnecessary and considered the parties’ written submissions.

Liability analysis

The report did not further analyze the Computer Fraud and Abuse Act claim because the Koziars had not identified or briefed a specific statutory violation or specific facts showing unauthorized access to a protected computer. The report concluded that the requested damages could be awarded under the conversion and fraud claims instead.

For conversion, the report explained that the plaintiffs had to show a possessory right in the property and that the defendants exercised control over or interfered with that property. The report found that the allegations established that the Koziars had invested funds into cryptocurrency wallets and had transferred funds to accounts controlled or manipulated by the defendants. The defendants allegedly retained the funds and did not return them despite the Koziars’ requests and payments of supposed fees and taxes.

For common-law fraud, the report explained that the plaintiffs had to show a material misrepresentation or omission, knowledge that it was false, an intent to induce reliance, reasonable reliance, and resulting injury. The report found that the allegations met those requirements. The alleged misrepresentations included claims that Blammo was a legitimate trading platform, had substantial assets and offices, was connected to recognized companies and investors, that its representatives had particular backgrounds, that the Koziars’ accounts were profitable, and that the Koziars could withdraw their funds.

Damages

The report recommended $644,400.10 in out-of-pocket damages. That amount represents the $669,400.10 in listed payments minus the $25,000 received through the settlement with Alamas and Suslenko. The report excluded a Bitcoin transfer listed in the amended complaint because it did not appear in later damage summaries and the Koziars did not provide a dollar value for it.

The report also recommended pre-judgment interest under New York law. It applied the statutory rate of 9% simple interest and selected May 13, 2023, as a reasonable midpoint of the Koziars’ investment period. The recommendation states that interest should run from that date until judgment, with the amount calculated by the Clerk of Court.

Recommendation and objections

Magistrate Judge Robert W. Lehrburger recommended that Judge Koeltl award the Koziars $644,400.10 in damages and 9% pre-judgment interest beginning May 13, 2023. The document is a report and recommendation rather than the stated final ruling by Judge Koeltl. The parties were given 14 days to file written objections, and the report states that a failure to object on time would waive the right to object and prevent appellate review.