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Alleged US$16 million crypto theft case to test ‘Code is law’ defence in Canada

Canadian Lawyer | Aidan Macnab | Mar 17, 2022

code is law - Alleged US$16 million crypto theft case to test 'Code is law' defence in CanadaDispute shows how decentralized finance is being pulled into the regulated system, says lawyer

An action involving the alleged theft of around US$16 million in cryptocurrency will be the first in Canada, if it is heard on its merits, to address the “Code is law defence,” says the lawyer for the plaintiff.

Benjamin Bathgate, a partner in white-collar defence, fraud and investigations at McMillan LLP, is acting for Cicada 137 LLC, which obtained a precedent-setting Anton Piller order, also known as a civil search warrant. The court assigned Cicada the missing digital assets and their litigation and recovery rights. It seeks several court orders against a nineteen-year-old from Hamilton, Ont. named Andean Medjedovic.

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According to Bathgate, Cicada 137’s case against Medjedovic will be the first legal test of the “code is law” theory, a popular ethos among some computer programmers concerning how law applies to the digital world. According to the ethos, a programmed code is the law. If the code includes a vulnerability, which can be exploited – for example, to take possession of another person’s crypto – the existence of that vulnerability makes lawful any action which can be achieved through its manipulation.

“Some people in online communities suggest ‘Code is Law’ is a complete answer to anyone seeking legal remedies against those perpetrating cyberattacks or code exploits,” says Bathgate. “Others see it as a meaningless cloak for bad actors looking to carrying out theft and fraud against digital assets.”

“We believe the latter holds true, and if our case goes to trial, it would be the first reported case to test the defence of ‘Code is Law.’”

The case is also Canada’s first, and among the first worldwide, dealing with attacks against blockchain smart contracts and interactions between users on decentralized-finance trading platforms, he says. Bathgate is acting for Cicada 137 with the help of McMillan colleagues Reuben Rothstein, Joseph Osborne and Madeline Klimek.

See:  UK Law Commission confirms Smart contracts are legally sound

Cicada 137 claims Medjedovic stole the crypto on Oct. 14, 2021, from the Indexed Finance System, which runs on the Ethereum blockchain. The Indexed Finance System is “a way of buying and holding several kinds of virtual currency through a single virtual currency, like a mutual fund that has many stocks in it,” said an expert report submitted on behalf of the plaintiff and written by Addison Cameron-Huff, a Toronto lawyer focussed on the law surrounding blockchain.

The plaintiff’s notice of action states that “post-theft investigative steps” led the principals of the Indexed Finance System to “an elaborate series of usernames, addresses, Internet posts, accounts and transactions,” all pointing to Medjedovic as the culprit. Medjedovic also took credit in a Twitter post, said the plaintiff.

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