Developer Defendants Claim Tulip Trading Case is Fraudulent in Preliminary Issue Application
On July 11, attorneys defending 12 Bitcoin Core developers in a lawsuit brought by Tulip Trading filed a preliminary issue application with the UK High Court. The application argues the claim brought by Tulip Trading is fraudulent and that the issue of whether Tulip Trading in fact owns the bitcoin it has sued on should be resolved before any further steps are taken. If the English High Court agrees, Tulip Trading will be required to prove that it owned the bitcoins it alleges were stolen before the lawsuit can proceed.
Background
Tulip Trading is a Seychelles-based holding company created by Craig S. Wright that alleges it lost 111,000 BTC during a hack of Wright’s home computer network in 2020. The following year Tulip Trading brought a suit against 12 Bitcoin developers alleging that they have a fiduciary duty to introduce a backdoor into the Bitcoin Core client to allow Tulip Trading to take control of billions of dollars worth of Bitcoin that it claims to have owned and lost.
The 111,000 BTC in question were held in two addresses—12ib7 and 1FeeX—and there is no evidence that Tulip Trading or Wright ever controlled these addresses. The 1FeeX address contains millions of dollars worth of bitcoins associated with the 2014 hack of the Mt. Gox exchange.
The Preliminary Issue Application
The preliminary issue application is a mechanism for bifurcating the case against the Bitcoin Developers such that Tulip Trading must prove that it once owned the 111,000 bitcoins it claims to have lost before a judge considers the question of whether Bitcoin Core developers owe a fiduciary duty to users of the Bitcoin network. The preliminary issue application argues that Tulip Trading cannot prove this basic fact and as a result the case against the Bitcoin Core developers should be dismissed. As noted in the application:
“Tulip Trading Ltd accepts that it must establish that it owns the Digital Assets in order to obtain the relief it seek. It cannot do so because it never owned the Digital Assets and has commenced this claim fraudulently and in reliance on fabricated documents. This is of a piece with the historical conduct of the individual behind Tulip Trading Ltd, Dr. Craig Wright. Dr. Wright has a long history of fraud, forgery, and dishonesty (including in court proceedings in this jurisdiction and internationally). He has been shown to be a thoroughly dishonest individual and it is the position of the [defendants] that these proceedings are an attempt by Dr. Wright, through Tulip Trading Ltd, to use the English courts as an instrument of fraud. These are plainly serious allegations and they are not made lightly.”
The basic request from the developer defendants in the preliminary application is that Tulip Trading should be required to prove that it owned the bitcoins in the 12ib7 and 1FeeX addresses since this was its justification for bringing the lawsuit in the first place. The application makes the case that spending “seven to ten days” of court time to settle the issue of whether Tulip Trading ever owned the bitcoins in question would save the courts “eight to ten weeks” of time and costs proceeding to a full trial that was brought on fraudulent evidence. If the court grants the preliminary application and still decides to proceed to a full trial, it wouldn’t result in any increase in time or costs because the court would have had to consider this issue during the trial anyway.
The evidence in support of the 35-page preliminary issue application provides a wealth of detail about why the defendants believe that Tulip Trading’s claim is fraudulent. The primary arguments are quoted directly from the evidence:
A History of Fraud
As noted in the application, “Dr. Wright has a long and documented history of fraud, forgery and reliance on deliberately false evidence in legal and regulatory proceedings in this jurisdiction, Australia, the United States and Norway.” The application quotes several judges overseeing lawsuits previously brought by Wright acknowledging that he “lied and cheated in his attempt to prove that he is Satoshi Nakamoto,” “has given deliberately false evidence,” “wilfully created the fraudulent documents,” and more.
Tulip Trading Can’t Account for When or How it Acquired the Bitcoins
“Tulip Trading Ltd. alleges Dr Wright acquired the Bitcoin in the 1Feex address in late February 2011 from a Russian based exchange called WMIRK. Notably, Tulip Trading Ltd. is not even able to state when or how it or Dr Wright acquired the Bitcoin in the 12ib7 address or the reason for any of the transactions that took place on it. Tulip Trading Ltd. accepts that no one has dealt with the Digital Assets in the 12ib7 address since July 2010, nor has anyone dealt with the 1Feex address since March 2011.”
Lack of Any Documents Showing Ownership of the 111,000 Bitcoins
“The absence of documentary records that one would expect to exist in relation to the acquisition of Bitcoin in the sums the subject of this claim” and argues that the “limited documents relied upon are fabrications.”
Tulip Trading Appears to be Admitting to Stealing Bitcoin from Mt. Gox
“It is widely accepted in the cryptocurrency community that the Bitcoin in the 1Feex address originated from a well-publicized hack on a Japanese crypto currency exchange that occurred in March 2011….essentially it appears that if Dr. Wright is the owner of the Bitcoin in the 1Feex address (which is denied), he has effectively admitted to being the person who stole 80,000 BTC from Mt. Gox.”
There is No Evidence that Craig Wright Lost These Assets in a Hack
“Dr Wright claims to have wiped his hard drive shortly after the Alleged Hack. He claims that he did so as he “did not know how the hackers obtained access” and “to ensure all malware and other threats were removed.” This explanation is not credible. It cannot be the case that a ‘renowned’ computer security expert, as Dr Wright claims to be, would take such action following a hack as to do so would result in the loss of all information that might be used to identify the Alleged Hackers and recover the stolen material.” Furthermore, “Dr Wright has stated that backups of the private keys were held on Keepass, his One Drive, and Google cloud drives. It is well known that Microsoft and Google retain records of information held on their servers and that this information can be recovered if requests are made. Dr Wright made no attempt to contact Microsoft or Google to recover the information he says was deleted during the Alleged Hack. It is not credible that, in the context of an alleged loss as substantial as this one, Dr Wright did not consider (or retain others to consider) all possible avenues for the recovery of the allegedly deleted private keys.”
For these reasons and several others listed in the applications, the developer defendants argue that Tulip Trading’s “claim is doomed to fail.” The application lists the evidence that Tulip Trading must present in a preliminary trial to demonstrate it owned the bitcoins in question and also requests that Tulip Trading provide a security payment of $1.63 million to cover the cost of the case in the event that it is dismissed.