Shin v. ICON Foundation

Background

The ICON Network uses a blockchain protocol that allows creation and transactions involving a cryptocurrency called ICX. In August 2020, Mark Shin discovered a software glitch that allowed him to generate and deliver nearly 14 million ICX tokens to himself. The ICON Foundation asserted that the tokens were worth nearly $9 million at the time.

The parties did not dispute that Shin generated the tokens using the glitch. Their federal case concerned who legally owned them. Shin brought claims for conversion and trespass to chattels. The Foundation asserted counterclaims for money had and received, unjust enrichment, and declaratory relief.

Shin was also being prosecuted in Colorado. The Colorado case resulted in a mistrial after a deadlocked jury, and a new trial was scheduled for November 14, 2023. The Federal Bureau of Investigation was holding approximately $7 million in cryptocurrency and fiat currency that the Foundation said was traceable to the ICX tokens. The Colorado court had ordered the FBI to freeze or hold certain assets seized from Shin.

The Stay and the Motion

The parties had agreed to stay the federal case. Their agreement required Shin to notify the court and the Foundation if he sought the release, return, or transfer of seized assets, or learned that the assets might be released. It also stated that the stay did not prevent the Foundation from seeking provisional relief, including appointment of a trustee or receiver, concerning the seized or disputed assets.

The Foundation moved to appoint a receiver. A receiver is a person appointed by a court to hold or manage property during a case. The Foundation sought an order requiring the FBI, if it released the seized assets, to deliver them to the receiver or deposit them in the court registry while the federal case continued.

Court’s Analysis

The court rejected Shin’s argument that the motion was premature or barred by the stay. It interpreted the notice provision and the provision allowing provisional relief as addressing separate matters. The court concluded that the Foundation’s motion fell within the provision allowing it to seek a receiver.

The court also rejected Shin’s claim that deciding the motion before the Colorado case ended would uniquely prejudice him. Because the assets were frozen and would not be in Shin’s possession whether the motion was decided immediately or later, the court found no unique prejudice from deciding the motion at that time.

Under federal law, appointing a receiver is an extraordinary equitable remedy that must be used cautiously, although district courts have broad discretion to do so. The court considered factors including whether the requesting party had a valid claim, whether the property might be lost or concealed, whether ordinary legal remedies were inadequate, the comparative risk of harm, and whether a receivership would protect the requesting party’s interests.

The court found that several factors supported appointment. The Foundation had asserted counterclaims, and it alleged that Shin had moved ICX tokens through accounts, exchanges, other cryptocurrencies, fiat currency, and relatives overseas. The court found these allegations supported a risk that the seized assets could be concealed or moved if released. It also found that ordinary legal remedies would be inadequate compared with preserving the unique assets, that the risk to Shin was limited because the receiver would hold only the seized assets, and that the Foundation would face greater harm without a receiver.

The court further noted evidence concerning Shin’s financial position, including a charging lien placed by his former lawyers and his retention of new lawyers on limited grounds. It found that this supported concern that some seized assets might be used to pay legal fees and be dissipated.

Disposition

The ICON Foundation’s motion to appoint a receiver was GRANTED. The court directed the parties to meet and confer about the receiver’s qualifications and try to agree on a candidate. If they could not agree, they could file competing proposed appointment orders by July 10, 2023. The order appointed a receiver to hold the seized assets if and when the FBI released them; it did not decide who legally owned the tokens.