Kleiman v. Wright, CASE No. 18-CV-80176-BLOOM/Reinhart

Decision Date27 December 2018
Docket NumberCASE No. 18-CV-80176-BLOOM/Reinhart
PartiesIRA KLEIMAN, et al., Plaintiffs, v. CRAIG WRIGHT, Defendant.
CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
ORDER ON MOTION TO DISMISS

THIS CAUSE is before the Court upon Defendant Craig Wright's ("Craig" or "Defendant") Motion to Dismiss, ECF No. [33] (the "Motion"). The Court has considered the Motion, the record, the parties' briefs, and the applicable law. For the reasons that follow, the Motion is granted in part and denied in part.

I. BACKGROUND

Plaintiff W&K Info Defense Research, LLC is a Florida limited liability company that was incorporated in 2011. ECF No. [24], at ¶ 2. Plaintiff Ira Kleiman is David Kleiman's ("Dave") brother and is the personal representative of his estate (the "Estate"), and is a resident of Palm Beach County, Florida. Id. at ¶ 1. Defendant Craig Wright is an Australian citizen who presently resides in London, England. Id. at ¶ 3.

Dave and Craig met in or around 2003. Id. at ¶ 52. Their relationship centered around their mutual interest in cyber security, digital forensics, and the future of money. Id. Around 2008, Dave and Craig began to speak about ways to use peer-to-peer file sharing to solve issues in cryptography. Id. at ¶ 54. The Amended Complaint alleges that for the next several years, Dave and Craig worked together in developing Bitcoin, and that through their collaboration they mined over a million bitcoins together. Id. at ¶¶ 53-57, 65. These bitcoins were stored in specifically identifiable bitcoin wallets, over which Craig now asserts ownership. Id. at ¶ 65.

A. Bitcoin

On October 31, 2008, a white paper authored under the pseudonymous name Satoshi Nakamoto (the "Satoshi White Paper") titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a mailing list of cryptography enthusiasts. Id. at ¶ 30. This paper detailed novel methods of using a peer-to-peer network to generate what it described as "a system for electronic transactions without relying on trust." Id. In May of 2016, Craig publicly claimed that he and Dave were the creators of Bitcoin. Id. at ¶ 16. Bitcoin is a decentralized digital currency that uses a ledger to track the ownership and transfer of every bitcoin in existence. Id. at ¶ 20. This ledger is called the "Bitcoin Blockchain." Id. In order to complete a transaction with bitcoins, you must have a bitcoin wallet. Id. at ¶ 21. "Wallets" are computer files dedicated to storing bitcoin information. Id. Each bitcoin wallet has a "public key" that is used as the "address" to receive bitcoin from others. Id. Each wallet is also assigned a "private key." Id. at ¶ 22. To send bitcoin out of a wallet, an individual must have the private key associated with that bitcoin wallet. Id.

There are two methods of acquiring bitcoins. The first is simply receiving bitcoins from someone. Id. at ¶ 23. The second way one can acquire a bitcoin is by "mining" them. Id. at ¶ 24. Bitcoin is designed without a centralized authority to curate the blockchain. Id. at ¶ 25. Therefore, "mining" is a process through which anyone with internet access can update the ledger and "mine bitcoins" by employing computer power to solve a complex computer problem. Id. at ¶ 26. The first "miner" who solves the problem gets the right to update the ledger by adding a block of recent transactions to the blockchain. Id. The protocol pays the successful miner in newly minted bitcoins, the number of which is determined by a pre-existing algorithm. Id.

Since its beginning, Bitcoin has inspired the creation of over one thousand other digital currencies. Id. at ¶ 37. These new currencies often borrow from the initial Bitcoin program but make changes to the model in an attempt to create a new cryptocurrency with distinct functions or more suited to a specific market or niche. Id. In other cases, Bitcoin has been modified by individuals in a way they believed would improve the Bitcoin itself, such as by allowing more transactions into a single block of blockchain. Id. at ¶ 38. In these situations, the supporters of the new Bitcoin, have created a "fork" through which the original Bitcoin blockchain/ledger is divided into two distinct, but identical, copies, (i) the original Bitcoin, and (ii) the new Bitcoin. Id. at ¶ 39. The result is that any individual who owned the original Bitcoin now owns an identical amount of the new Bitcoin. Id.

B. W&K Info Defense Research, LLC

On February 14, 2011, Dave formed W&K Info Defense Research LLC ("W&K") in Florida. Id. at ¶ 69. The Articles of Incorporation for W&K list Dave as the managing member and registered agent. Id. Dave and Craig allegedly created W&K to mine bitcoin and develop intellectual property. Id. at ¶ 72. W&K has no operating agreement, and Plaintiffs claim that due to receiving several conflicting statements from Craig, they are not certain of the exact ownership structure of W&K. Id. at ¶ 70. Dave, in partnership with Craig, created intellectual property both in his individual capacity and through W&K. Id. at ¶ 66. Plaintiffs assert that the Estate and/or W&K own all of this intellectual property. Id.

W&K was used to solicit business from the United States Department of Homeland Security ("DHS"). Id. at ¶ 76. Craig acted in many different capacities on behalf of W&K, including authorized representative, lead researcher, technical contact, legal agent and representative and Director/Australian Agent. Id. at ¶ 77. Craig also used W&K's Florida address as his mailing address associated with W&K. Id.

C. Dave Kleiman's Death

Dave passed away in April of 2013. Id. at ¶ 48. The Amended Complaint alleges that after Dave's death, Craig unlawfully and without permission took control of the bitcoins from the Estate and from W&K once he had exclusive possession over the private keys necessary to own, move, or sell the bitcoins belonging to Dave and/or W&K. Id. at ¶ 111. Craig used the private keys that Dave and Craig shared to move the bitcoins out of their wallets and then claimed to own bitcoins really owned by W&K and/or Dave by creating a series of fraudulent contracts and documents. Id. Craig then moved the stolen bitcoin into trusts only known and controlled by him for use in making large trades for his Australian businesses. Id. While the exact number of bitcoins stolen remains to be determined, the Amended Complaint contends that the Estate is entitled to at least 300,000 bitcoins, along with their forked assets. Id. at ¶ 112.

D. The Australian Judgments

After Dave's death, in July and August of 2013, Craig filed two claims in the Supreme Court of New South Wales against W&K for approximately $28 million each. Id. at ¶ 117. In both claims, Craig alleged that W&K agreed to pay Craig for property and consulting services necessary to "complete research," and that this contract was "bonded against the intellectual property of [W&K]." Id. at ¶ 118. In his pleadings filed before the Australian courts, Craig claimed that any breach of contract "would lead to liquidated damages [and if] the liquidated amount is not paid all IP systems returns to the sole ownership of [Craig]." Id. The statements of claim alleged that the intellectual property at issue was the "software and code used in the creation of a Bitcoin system" and "used by the US Military, DHS and other associated parties." Id. Plaintiffs claim that W&K was never served with process for these proceedings in Australia. Id. at ¶ 119.

In both lawsuits, Craig filed an "Acknowledgment of Liquidated Claim" on behalf of W&K where he represented that W&K accepted and agreed to his claims. Id. at ¶ 120. In the Australian court filings, Craig apparently falsely identified himself as the "legal agent and representative for the defendant" and its "Director/Australian Agent." Id. Further, he falsely identified his Australian address and email as the "address for service" for W&K. Id. On August 28, 2013, Craig filed proposed consent orders in both cases. Id. at ¶ 121. These filings represented to the Australian courts that W&K consented to judgment being entered against it through the signature of its "authorised officer . . . J Wilson." Id. "J Wilson" was actually Craig's employee and was not an authorized officer for W&K. Id. Although Craig did not have direct or voting interest in W&K, Craig "elected" Wilson as a director during a "shareholder meeting" where only Craig was present. Id. at ¶ 122. On November 6, 2013, the Supreme Court of New South Wales entered judgments in favor of Craig for both claims (the "Australian Judgments"). Id. at ¶ 130.

E. The Australian Tax Office Investigation

Sometime after Dave's death, the Australian Tax Office ("ATO") began investigating Craig. Plaintiffs claim Craig needed to use W&K and Dave's assets to justify tax positions he claimed in Australia. Id. at ¶ 96. To accomplish this, Craig forged and backdated several contracts to create a fraudulent "paper trail" purporting to show that Dave transferred bitcoins and intellectual property rights belonging to Dave and W&K to Craig. Id. at ¶ 97.

During the course of that investigation, the ATO conducted several meetings with Craig and his counsel in Australia, where Craig allegedly told the ATO officials that he had rightfully taken ownership of Dave's bitcoin upon his death. Id. at ¶¶ 82-84. During one of these meetings with the ATO, Craig's counsel indicated that W&K's bitcoins had been transferred into trusts located in Seychelles, Singapore, and the United Kingdom. Id. at ¶ 84.

Craig's attorney further represented to the ATO officials that intellectual property that had been acquired by Craig from W&K was "on-supplied to the Craig Family Trust and then broken up and transferred to other group entities, Hotwire, Coin Exchange . . . and so on." Id. at ¶ 131. Craig then provided the fraudulent contracts to the ATO in an attempt to substantiate his ownership of bitcoins and intellectual property that had originally belonged to Dave and/or W&K. Id. at ¶...

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