Filing # 142458534 E-Filed 01/21/2022 11:55:39 PM
`
`IN THE CIRCUIT COURT OF THE
`11TH JUDICIAL CIRCUIT IN AND
`FOR MIAMI-DADE COUNTY,
`FLORIDA
`
`Complex Business Litigation Division
`
`CASE NO. 2021-023426-CA-01
`
`
`STEVEN PAUL KOWALSKI,
`
`
`Plaintiff,
`
`
`v.
`
`BINANCE HOLDINGS LTD., a Cayman
`Islands limited liability company, BAM
`TRADING SERVICES INC. (d/b/a
`Binance.US), a Delaware corporation,
`BINANCE ASIA SERVICES PTE. LTD., a
`Singapore corporation, PAYWARD, INC. (d/b/a
`Kraken), a Delaware corporation, PAYWARD
`VENTURES, INC., a Delaware corporation,
`BRANDON CHUN YIN NG, HIU LAM
`COOKIE CHOI, WAI KIT LO, LEE KEI LAU,
`NURLAN NEQMAT OGLY GULIEV, and
`OKSANA ALEKSANDROVNA
`DOLGOPOLOVA,
`
`
`Defendants.
`
`
`PLAINITIFF’S MEMORANDUM OF LAW IN OPPOSITION
`TO DEFENDANTS PAYWARD, INC. AND PAYWARD
`VENTURES, INC.’S MOTION TO DISMISS THE COMPLAINT
`
`
`
`
`
`
`

`

`
`
`TABLE OF CONTENTS
`
`Page
`
`TABLE OF AUTHORITIES .......................................................................................................... ii
`INTRODUCTION .......................................................................................................................... 1
`BACKGROUND ............................................................................................................................ 3
`A.
`The Theft of Plaintiff’s BTC .......................................................................................... 3
`B.
`Kraken ............................................................................................................................. 3
`C.
`The Individual Defendants’ Kraken Accounts ............................................................... 4
`D.
`The Individual Defendants’ Obvious Laundering Through Kraken ............................... 5
`E.
`Defendants’ Knowledge of Electrum Hacks and the Theft of Kowalski’s BTC ............ 7
`F.
`Kowalski Directly Notifies Kraken of the Theft and Laundering of His BTC ............... 8
`G.
`Defendants Agree to Join the Conspiracy ....................................................................... 9
`H.
`Procedural History .......................................................................................................... 9
`ARGUMENT ................................................................................................................................ 10
`I.
`The Court Has Personal Jurisdiction Over Defendants .................................................... 10
`Legal Standard .............................................................................................................. 10
`The Court Has Personal Jurisdiction Over Defendants Pursuant to Florida’s Long-Arm
`Statute ........................................................................................................................... 11
`Defendants Engaged in Business in Florida ............................................................. 11
`Defendants are Independently Subject to Jurisdiction in Florida Because They
`Participated in a Conspiracy that Involved Tortious Acts Committed in Florida in
`Furtherance Thereof .................................................................................................. 14
`The Exercise of Jurisdiction Over Defendants Comports with Due Process ............... 18
`C.
`The Complaint States Claims Against Defendants ........................................................... 21
`II.
`The Complaint Permissibly Asserts Allegations Against “Kraken” ............................ 21
`A.
`The Complaint Pleads a Claim for Civil Conspiracy Against Defendants ................... 22
`B.
`The Complaint Pleads a Claim for Aiding and Abetting Against Defendants ............. 24
`C.
`The Complaint Pleads Claims for Conversion and Civil Theft Against Defendants ... 25
`D.
`The Complaint Pleads a Fraud Claim Against Defendants .......................................... 26
`E.
`The Complaint Pleads an Unjust Enrichment Claim Against Defendants ................... 27
`F.
`The Complaint Pleads Grounds for Imposition of a Constructive Trust ...................... 29
`G.
`CONCLUSION ............................................................................................................................. 30
`
`A.
`B.
`
`1.
`2.
`
`
`
`i
`
`

`

`TABLE OF AUTHORITIES
`
`
`Cases
`Abdo v. Abdo,
`263 So. 3d 141 (Fla. 2d DCA 2018) ......................................................................................... 16
`Abele v. Sawyer,
`747 So. 2d 415 (Fla. 4th DCA 1999) ........................................................................................ 29
`Acquadro v. Bergeron,
`851 So. 2d 665 (Fla. 2003) ................................................................................................. 11, 13
`Am. Fin. Trading Corp. v. Bauer,
`828 So. 2d 1071 (Fla. 4th DCA 2002) ...................................................................................... 14
`American Safety Ins. Serv. v. Griggs,
`959 So. 2d 322 (Fla. 5th DCA 2007) ........................................................................................ 28
`Arduin v. McGeorge,
`595 So. 2d 203 (Fla. 4th DCA 1992) ........................................................................................ 30
`Atlantis Marina & Yacht Club, Inc. v. R&R Holdings, Inc.,
`766 So. 2d 1163 (Fla. 3d DCA 2000) ....................................................................................... 11
`Banco Continental, S.A. v. Transcom Bank (Barbados), Ltd.,
`922 So. 2d 395 (Fla. 3d DCA 2006) ......................................................................................... 13
`Bank of Wessington v. Winters Gov’t Secs. Corp.,
`361 So. 2d 757 (Fla. 4th DCA 1978) ........................................................................................ 14
`Barownowsky v. Maiorano,
`326 So. 3d 85 (Fla. 4th DCA 2021) .......................................................................................... 18
`Bristol-Myers Squibb Co. v. Super. Ct. of Cal.,
`137 S. Ct. 1773 (2017) .............................................................................................................. 19
`Bruns v. Bruns,
`682 So. 2d 1159 (Fla. 4th DCA 1999) ...................................................................................... 29
`Burger King Corp. v. Rudzewicz,
`471 U.S. 462 (1985) .................................................................................................................. 18
`Charles v. Fla. Foreclosure Placement Ctr., LLC,
`988 So. 2d 1157 (Fla. 3d DCA 2008) ....................................................................................... 15
`Citicorp Ins. Brokers (Marine) Ltd. v. Charman,
`635 So. 2d 79 (Fla. 1st DCA 1994) .......................................................................................... 14
`Citizens State Bank v. Winters Gov’t Secs. Corp.,
`361 So. 2d 760 (Fla. 4th DCA 1978) ........................................................................................ 14
`Collado v. Baroukh,
`226 So. 3d 924 (Fla. 4th DCA 2017) ........................................................................................ 22
`
`
`
`ii
`
`

`

`Collinson v. Miller,
`903 So. 2d 221 (Fla. 2d DCA 2005) ......................................................................................... 29
`Diversified Mgmt. Solutions v. Control Sys. Research Inc.,
`2016 WL 4256916 (S.D. Fla. May 16, 2016) ..................................................................... 19, 20
`Donofrio v. Matassini,
`503 So. 2d 1278 (Fla. 2d DCA 1987) ....................................................................................... 15
`Duncan v. Kassim,
`810 So. 2d 968 (Fla. 5th DCA 2002) ........................................................................................ 27
`Edwards v. Landsman,
`51 So. 3d 1208 (Fla. 4th DCA 2011) ........................................................................................ 25
`Emerson v. Cole,
`847 So. 2d 606 (Fla. 2d DCA 2003) ......................................................................................... 11
`Energy Source, Inc. v. Gleeko Props., LLC,
`2011 WL 3236047 (S.D. Fla. July 28, 2011) ............................................................................ 21
`Execu-Tech Bus. Sys., Inc. v. New Oji Paper Co., Ltd.,
`752 So. 2d 582 (Fla. 2000) ........................................................................................... 10, 14, 19
`Extraordinary Title Servs., LLC v. Fla. Power & Light Co.,
`1 So. 3d 400 (Fla. 3d DCA 2009) ............................................................................................. 28
`Ferguson v. Estate of Campana,
`47 So. 3d 838 (Fla. 3d DCA 2010) ........................................................................................... 12
`Gevaerts v. TD Bank, N.A.,
`56 F. Supp. 3d 1335 (S.D. Fla. 2014) ................................................................................. 24, 25
`Gilison v. Flagler Bank,
`303 So. 3d 999 (Fla. 4th DCA 2020) ................................................................................. passim
`Goodwin v. Alexatos,
`584 So. 2d 1007 (Fla. 5th DCA 1991) ...................................................................................... 26
`Grape Leaf Capital, Inc. v. LaFontant,
`316 So. 3d 760 (Fla. 3d DCA 2021) ......................................................................................... 21
`Heldenmuth v. Groll,
`128 So. 3d 895 (Fla. 4th DCA 2013) ........................................................................................ 25
`Horizon Aggressive Growth, L.P. v. Rothstein-Kass, P.A.,
`421 F.3d 1162 (11th Cir. 2005) .......................................................................................... 11, 12
`In re Fin. Federated Title and Trust, Inc.,
`347 F.3d 880 (11th Cir. 2003) .................................................................................................. 30
`Int’l Underwriters AG v. Triple I: Int’l Inv. Inc.,
`2007 WL 9701852 (S.D. Fla. May 30, 2007) ........................................................................... 20
`James v. Nationsbank Trust Co. (Fla.), N.A.,
`639 So. 2d 1031 (Fla. 5th DCA 1994) ...................................................................................... 22
`
`
`
`iii
`
`

`

`Joseph v. Chanin,
`940 So. 2d 483 (Fla. 4th DCA 2006) .................................................................................. 26, 29
`Labbee v. Harrington,
`913 So. 2d 679 (Fla. 3d DCA 2005) ......................................................................................... 11
`Machtinger v. Inertial Airline Servs. Inc.,
`937 So. 2d 730 (Fla. 3d DCA 2006) ....................................................................... 10, 11, 14, 19
`Mears v. Int’l Precious Metals Corp.,
`421 So. 2d 743 (Fla. 4th DCA 1982) ........................................................................................ 13
`Meridian Trust Co. v. Batista,
`2018 WL 4693533 (S.D. Fla. Sept. 26, 2018) .......................................................................... 23
`Merkin v. PCA Health Plans of Florida, Inc.,
`855 So. 2d 137 (Fla. 3d DCA 2003) ......................................................................................... 17
`MP, LLC v. Sterling Holding, LLC,
`231 So. 3d 517 (Fla. 3d DCA 2017) ......................................................................................... 15
`Navas v. Brand,
`130 So. 3d 766 (Fla. 3d DCA 2014) ................................................................................... 10, 18
`NHB Advisors, Inc. v. Czyzyk,
`95 So. 3d 444 (Fla. 4th DCA 2012) .................................................................................... 10, 15
`Nicholson v. Kellin,
`481 So. 2d 931 (Fla. 5th DCA 1985) ........................................................................................ 27
`Parisi v. Kingston,
`314 So. 3d 656 (Fla. 3d DCA 2021) ......................................................................................... 16
`Peoples Nat. Bank of Commerce v. First Union Nat. Bank of Fla.,
`667 So. 2d 876 (Fla. 3d DCA 1996) ......................................................................................... 28
`Phelan v. Lawhon,
`229 So. 3d 853 (Fla. 3d DCA 2017) ......................................................................................... 20
`Popular Bank of Fla. v. R.C. Asesores Financieros, C.A.,
`797 So. 2d 614 (Fla. 3d DCA 2001) ......................................................................................... 21
`Quinn v. Phipps,
`93 Fla. 805 (1927) ..................................................................................................................... 29
`RG Golf Warehouse, Inc. v. Gold Warehouse, Inc.,
`362 F. Supp. 3d 1226 (M.D. Fla. 2019) .................................................................................... 12
`Russo v. Fink,
`87 So. 3d 815 (Fla. 4th DCA 2012) .......................................................................................... 17
`Sayers Constr., LLC v. Timberline Constr., Inc.,
`306 So. 3d 275 (Fla. 3d DCA 2020) ......................................................................................... 11
`Sheringer v. Big Lots, Inc.,
`532 F. Supp. 2d 1335 (M.D. Fla. 2007) .................................................................................... 13
`
`
`
`iv
`
`

`

`Solidda Grp., S.A. v. Sharp Elecs., Corp.,
`2014 WL 12513613 (S.D. Fla. Mar. 6, 2014) ........................................................................... 28
`Sonic Momentum B, LP v. Motorcars of Distinction, Inc.,
`2011 WL 4738190 (S.D. Fla. Oct. 7, 2011).............................................................................. 16
`State Farm Mut. Auto. Ins. Co. v. Advantacare of Florida, LLC,
`2020 WL 2630226 (S.D. Fla. May 22, 2020) ........................................................................... 28
`State Farm Mut. Auto. Ins. Co. v. Health & Wellness Servs., Inc.,
`389 F. Supp. 3d 1137 (S.D. Fla. 2018) ............................................................................... 22, 27
`Taubenfeld v. Lasko,
`324 So. 3d 529 (Fla. 4th DCA 2021) ........................................................................................ 24
`Tavakoli v. Doronin,
`2019 WL 1242669 (S.D. Fla. Mar. 18, 2019) ..................................................................... 19, 20
`Tempay Inc. v. Biltres Staffing of Tampa Bay LLC,
`2013 WL 12097458 (M.D. Fla. Jan. 18, 2013) ......................................................................... 30
`United Am. Corp. v. Bitmain, Inc.,
`530 F. Supp. 3d 1241 (S.D. Fla. 2021) ..................................................................................... 18
`Universal Physician Servs., LLC v. Del Zotto,
`2017 WL 11016112 (M.D. Fla. Mar. 2, 2017) ......................................................................... 20
`UTC Indus, Inc. v. Presidential Fin. Corp.,
`976 So. 2d 92 (Fla. 3d DCA 2008) ........................................................................................... 22
`Venetian Salami Co. v. Parthenais,
`554 So. 2d 499 (Fla. 1989) ....................................................................................................... 10
`Wadlington v. Continental Med. Servs. Inc.,
`907 So. 2d 631 (Fla. 4th DCA 2005) ........................................................................................ 27
`Wadlington v. Edwards,
`92 So. 2d 629 (Fla. 1957) ......................................................................................................... 29
`Walden v. Fiore,
`571 U.S. 277 (2014) .................................................................................................................. 20
`Wiand v. Wells Fargo Bank, N.A.,
`86 F. Supp. 3d 1316 (M.D. Fla. Feb. 9, 2015) .......................................................................... 29
`Wilcox v. Stout,
`637 So. 2d 335 (Fla. 2d DCA 1994) ......................................................................................... 15
`Williams v. Wells Fargo Bank, N.A.,
`2011 WL 4368980 (S.D. Fla. Sept. 19, 2011) .......................................................................... 28
`Wyndham Vacation Ownership, Inc. v. Clapp Bus. L., LLC,
`411 F. Supp. 3d 1310 (M.D. Fla. 2019) .................................................................................... 21
`Statutes
`Florida Statutes § 48.193 ....................................................................................................... passim
`
`
`
`v
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`

`

`Rules
`Rules
`Fla. R. Civ. P. 1.120 ...................................................................................................................... 27
`Fla. R. Civ. P. L120. ceccssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssssnsssssssssssssssssssseees 27
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`
`
`
`vi
`vi
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`

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`Plaintiff Steven Kowalski (“Plaintiff” or “Kowalski”) respectfully submits
`
`this
`
`memorandum of law in opposition to the motion by defendants Payward, Inc. (“Payward”) and
`
`Payward Ventures, Inc. d/b/a Kraken (“PVI” and, together with Payward, “Kraken” or
`
`“Defendants”) to dismiss the Complaint [D.E. 113]. Plaintiff’s opposition includes the Declaration
`
`of Alexander Pencu (“Pencu Decl.”) submitted herewith, as well as the Affidavits of Benedict
`
`Hamilton [D.E. 8] and Steven Kowalski [D.E. 7] submitted at the time he filed his Verified
`
`Complaint [D.E. 2] and the December 17, 2021 Affidavit of Benedict Hamilton [D.E. 128].
`
`INTRODUCTION
`
`Approximately 15% of the 1400.00009854 Bitcoin (“BTC”) stolen from Plaintiff were
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`deposited into and laundered through 37 addresses at Kraken, 30 of which are owned and/or
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`controlled by defendant Brandon Chun Yin Ng (“Brandon”). Brandon was a resident of Florida at
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`the time of the theft and laundering. [D.E. 136] at 7:4-10, 150:21-153:9.
`
`Payward, through its subsidiary PVI, operates the Kraken exchange, which is available to
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`and regularly used by Florida residents to transact in cryptocurrency. Defendants obtained
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`regulatory authorization to provide those services in Florida, and they have contracted with Florida
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`residents, including Brandon, for the use of Kraken’s services in Florida. Plaintiff’s claims against
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`Defendants arise out of this business activity in Florida because they are premised on Brandon’s
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`use of the Kraken accounts that he owned and/or controlled to launder and dissipate Kowalski’s
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`stolen BTC and Defendants’ knowledge of and assistance in that unlawful activity. Defendants are
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`therefore subject to personal jurisdiction under Florida Statutes § 48.193(1)(a)(1).
`
`Defendants are independently subject to jurisdiction in Florida based on their participation
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`in a conspiracy that included tortious acts in Florida in furtherance thereof. Defendants were on
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`notice of the theft of Kowalski’s BTC and the use of the Kraken exchange to launder the proceeds
`
`of that crime by no later than September 7, 2020, because the theft was publicized on August 29-
`1
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`

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`30, 2020, the cryptocurrency address to which the stolen BTC were first sent had been publicly
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`reported as an address used by criminals to receive stolen BTC, and the stolen BTC deposited at
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`Kraken were readily traceable back to Kowalski’s Electrum wallet. Nevertheless, Defendants
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`facilitated Brandon’s laundering and dissipation, including when Brandon claims to have
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`deposited more than 200 of Kowalski’s stolen BTC in just four days in October 2020 into his and
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`Lee Kei Lau’s account so Brandon could exceed ostensible trading limits while his Binance
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`accounts were suspended. [D.E. 136] at 95:19-101:11.
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`Defendants were also directly informed by Plaintiff’s representatives in November 2020
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`that Kraken was instrumental in the ongoing laundering and dissipation of Plaintiff’s stolen BTC.
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`Kowalski’s representatives implored Defendants to freeze the relevant accounts, file the
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`appropriate reports with regulatory authorities, and provide information critical to Kowalski’s
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`efforts to prevent the further dissipation and facilitate recoupment of his stolen BTC. But instead
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`of cooperating with Kowalski’s representatives, Defendants helped Brandon and his
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`coconspirators continue to dissipate Plaintiff’s stolen BTC. With full knowledge of the conspiracy
`
`and its objective, Defendants thwarted Plaintiff’s efforts to obtain necessary information, refused
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`to freeze the relevant accounts, and affirmatively facilitated the transfer of Kowalski’s stolen BTC
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`through Kraken in exchange for fees.
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`In addition, Kraken failed to comply with its obligations as a money services business
`
`under the Bank Secrecy Act (“BSA”). The Individual Defendants’ money laundering activities
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`would have been stopped and they would not have been able to dissipate Plaintiff’s stolen BTC if
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`Kraken had adhered to its customer due diligence and AML transaction monitoring legal
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`obligations under applicable anti-money laundering laws, including the BSA, and if it had filed
`
`
`
`2
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`

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`suspicious activity reports (“SARs”) based on the patently suspicious pattern of money laundering
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`transactions tied to Plaintiff’s stolen BTC.
`
`Under settled Florida law, Defendants’ participation in a conspiracy that included tortious
`
`acts committed in Florida in furtherance of the conspiracy both subjects them to personal
`
`jurisdiction under Florida’s long-arm statute and satisfies constitutional due process. The Court
`
`should therefore deny Defendants’ motion to dismiss for lack of personal jurisdiction.
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`The Court should also deny Defendants’ motion to dismiss for failure to state a claim. The
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`allegations in Plaintiff’s Verified Complaint, which the Court accepts as true and construes in
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`Plaintiff’s favor on this motion, plead viable claims for relief against Defendants on all counts
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`asserted in the Complaint.
`
`A.
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`The Theft of Plaintiff’s BTC
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`BACKGROUND
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`On August 29, 2020, 1400.00009854 of Plaintiff’s BTC were stolen from his Electrum
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`wallet through a malicious malware attack and sent to a single Bitcoin address. Compl. ¶¶ 15, 20.
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`From there, Plaintiff’s stolen BTC were transferred through hundreds of layering transactions to
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`cryptocurrency addresses and accounts owned and/or controlled by the Individual Defendants1 at
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`cryptocurrency exchanges Binance, Kraken, and non-party Celsius Network LLC (“Celsius”).
`
`B.
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`Kraken
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`Payward, through its subsidiary PVI, operates the kraken.com cryptocurrency exchange.
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`Compl. ¶ 55. Both Payward and PVI are incorporated under the laws of Delaware and have the
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`same principal place of business in California. Id. ¶¶ 55-56.
`
`
`1 The Individual Defendants are Brandon, Hiu Lam Cookie Choi (“Cookie”), Lee Kei Lau (“Lee”),
`Wai Kit Lo (“Wai”), Oksana Alexandrovna Dolgopolova (“Oksana”), and Nurlan Neqmat Ogly
`Guliev (“Nurlan”).
`
`
`
`3
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`

`

`According to its website, Kraken “welcomes clients from all over the world.” Pencu Decl.
`
`Ex. A. Kraken’s products and services are “provided through local operating entities that are
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`subsidiaries of Payward Inc.” For users in the U.S., that local operating entity is PVI. Pencu Decl.
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`Ex. B. See also Declaration of Kaiser Ng [D.E. 113, Ex. A], ¶ 3 (asserting that PVI “contracts with
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`U.S. customers, while other members of the Payward Group may contract with clients outside the
`
`United States”). PVI is registered as a money services business (“MSB”) with the Financial Crimes
`
`Enforcement Network (“FinCEN”). Compl. ¶ 55. PVI’s FinCEN registration, which it last
`
`renewed on October 15, 2020, lists Florida among the states where it engages in business as an
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`MSB. Pencu Decl. Ex. C.
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`Kraken “strive[s] to offer [its] services to all US residents.” Id. Ex. D. However, “the cost
`
`of maintaining regulatory compliance in some states can be very high, forcing [it] to make hard
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`choices about whether cost justifies doing business in the state.” Id. The only states in which that
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`cost/benefit analysis has led Kraken to choose not to do business are New York and Washington.
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`PVI contracts with clients residing in Florida for their use of Kraken’s services. Ng Decl.
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`[D.E. 113, Ex. A], ¶ 7. It does not specify how many clients it has in Florida, nor how much
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`revenue it derives from contracts with Florida residents. It merely makes the conclusory assertion
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`that it is “not engaged in substantial activity within Florida,” and that its “activity in Florida, if
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`any, is isolated activity.” Id. Apparently, however, the amount of business it conducts in Florida
`
`is sufficient to justify the cost of maintaining the necessary regulatory compliance to offer its
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`exchange services there. Discovery will confirm the extent of Kraken’s business in Florida.
`
`C.
`
`The Individual Defendants’ Kraken Accounts
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`PVI concedes that it has four accounts registered in the names of three of the Individual
`
`Defendants – Brandon (one account), Wai (two accounts), and Lee (one account). Ng Decl. [D.E.
`
`113, Ex. A], ¶¶ 22-24. Although PVI supposedly contracts only with U.S. customers (id. ¶ 3), it
`4
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`
`
`

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`asserts that none of these accounts is registered to a U.S. account holder. Id. ¶¶ 22-24. Plaintiff
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`does not know what, if any, documentation these defendants provided to Kraken when they opened
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`these accounts because Kraken has not produced any documents in response to Plaintiff’s pre-suit
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`requests for cooperation or his outstanding discovery requests in this action.2
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`Brandon, a U.S. citizen, resided in Florida from at least August 2019 through April 2021.
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`Compl. ¶ 46; see also [D.E. 136] at 7:4-10, 150:21-153:9. Brandon has disclosed that he owns
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`and/or controls 30 Kraken addresses. Hamilton Aff. [D.E. 128], Ex. A at 4 n.2. He opened his
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`Kraken account on October 12, 2020 (while living in Florida) because his Binance account had
`
`been temporarily frozen. [D.E. 136] at 96:16-24, 99:22-100:19. Brandon asked his friend Lee to
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`also set up a Kraken account for Brandon to use so that he could circumvent Kraken’s purported
`
`trading limits. Id. at 97:4-20, 99:15-21. Brandon claims he controlled both accounts. Id. Brandon
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`was living in Florida when he used these Kraken accounts in October 2020 to launder and dissipate
`
`more than 200 of Kowalski’s stolen BTC. Compl. ¶¶ 46, 96, 141, 143, 233; see also [D.E. 136] at
`
`95:19-96:5. Kraken received fees from these transactions. Compl. ¶¶ 166, 217.
`
`D.
`
`The Individual Defendants’ Obvious Laundering Through Kraken
`
`Plaintiff has traced approximately 15% of Kowalski’s stolen BTC to 37 addresses at
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`Kraken (the “Kraken Addresses”), including the 30 owned and/or controlled by Brandon. Compl.
`
`¶ 37; Hamilton Aff. [D.E. 8], Ex. 9 at 6; Hamilton Aff [D.E. 128], Ex. A at 7. Those deposits were
`
`made between September 7, 2020 and May 12, 2021. Hamilton Aff. [D.E. 8], Ex. 9 at 18. The first
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`deposit of stolen BTC at Kraken was on September 7, 2020, one hour after the first transfer to
`
`
`2 All Kraken users, regardless of their “verification level,” are required to provide a physical
`address when registering for an account. Pencu Decl. Ex. E. Users at the “intermediate” or “pro”
`level must provide certain documentation, including proof of residence and valid government
`identification. Id. Defendants have not disclosed the Individual Defendants’ verification level.
`
`
`
`
`5
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`

`

`Binance. Compl. ¶¶ 119, 141. The next transfer to Kraken did not take place until October 12,
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`2020, id. ¶ 143, the same date Brandon claims he opened his Kraken account. [D.E. 136] at 96:16-
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`24.
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`Thirty-six of the 37 Kraken Addresses were created solely for the purpose of receiving
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`stolen BTC. Compl. ¶ 122. Before depositing the stolen BTC at Kraken, the Individual Defendants
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`moved it through hundreds of “layering” transactions that exhibited classic signs of money
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`laundering. Id. ¶ 131. The stolen BTC were broken down and transferred in small increments
`
`between addresses controlled by Brandon and/or his co-conspirators. Id. at ¶ 132. Brandon
`
`received Plaintiff’s stolen BTC in at least 29 transactions (he claims many more). [D.E. 128], Ex.
`
`A at p. 7. The stolen BTC were then moved through 455 private addresses in 223 transactions
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`(including many where the sender was also the controller of the recipient address). Id. “This
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`splitting of the funds from a larger whole into smaller increments, largely using ‘single use’
`
`addresses, has no discernable purpose other than to obscure the source of the funds and is a
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`characteristic associated with blockchain money laundering.” Id. All of these transactions were
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`publicly recorded on the blockchain and thus readily viewable by Kraken. Compl., ¶¶ 2, 66, 75.
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`This obvious money laundering should have been instantly flagged by standard AML
`
`monitoring software and then investigated by a trained financial crime compliance employee. Id.
`
`¶ 215. But Defendants chose not to perform their AML obligations and instead chose to accept
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`fees from Brandon’s obvious money laundering. Id. ¶¶ 213-217. Defendants also failed to file
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`SARs tied to the Individual Defendants’ transactions on the Kraken exchange. Defendants were
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`legally required to file such reports within 30 days of the first suspicious pattern of money
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`laundering, which occurred on September 7, 2020. Id. ¶ 215-216. Had they done so, law
`
`
`
`6
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`

`

`enforcement would have been alerted to the crime at a point when it could have responded more
`
`effectively. Id. ¶¶ 43, 215.
`
`E.
`
`Defendants’ Knowledge of Electrum Hacks and the Theft of Kowalski’s BTC
`
`Wide-scale and significant instances of theft, fraud and software vulnerabilities involving
`
`Electrum wallets have been publicly reported since as early as 2017, and certain Bitcoin addresses
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`have been linked to the thefts since at least early 2019. Compl. ¶ 88. Defendants were surely aware
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`of these incidents given that major cryptocurrency exchanges like Kraken are required to maintain
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`AML compliance software that monitor and flag adverse media reporting about events and
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`customers that may pose an AML risk. Id. ¶¶ 88-89. Indeed, the address to which Kowalski’s
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`stolen BTC were first sent – bc1qcygs9dl4pqw6atc4yqudrzd76p3r9cp6xp2kny (the “First
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`Recipient Address”) – was publicly reported as being associated with the Electrum hack as early
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`as August 9, 2020. Id. ¶¶ 112.
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`Not only were Defendants aware of Electrum hacks before September 2020, they were
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`specifically aware of the theft of Kowalski’s BTC by no later than September 7, 2020. Compl.
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`¶¶ 31, 111, 211. Kowalski publicly disclosed the theft on August 29, 2020, including the address
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`to which the scammers had sent his stolen BTC. Id. ¶¶ 21, 108. The theft was also publicly
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`mentioned on Reddit.com as connected to the Electrum wallet compromise. Id. ¶ 113. Moreover,
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`the stolen BTC that the Individual Defendants deposited at Kraken were readily traceable back to
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`a known criminal address (the First Recipient Address) and to Kowalski’s Electrum wallet. Id.
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`¶¶ 170, 211. A simple trace using a publicly available and free blockchain explorer would have
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`shown that these funds (1) could be directly traced to this criminal address and (2) had been flagged
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`as stolen. Hamilton Aff. [D.E. 128], Ex. A at 33.
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`7
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`F.
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`Kowalski Directly Notifies Kraken of the Theft and Laundering of His BTC
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`Defendants were also directly notified of the theft of Kowalski’s BTC and the use of the
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`Kraken exchange to launder the proceeds of the crime. Compl. ¶¶ 218-220. On November 16,
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`2020, Kowalski’s lawyers wrote to Kraken’s Chief Legal Officer, explaining that approximately
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`1400 BTC had been stolen from Kowalski and that, as of that date, at least 79 BTC of the stolen
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`BTC had been transferred to 14 addresses at Kraken. Id. ¶ 218. The letter identified the addresses
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`into which the stolen BTC had been deposited and expressly “put Kraken on notice” that Kowalski
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`had “evidence that these stolen assets are the proceeds of a crime.” Id. The letter requested that
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`Kraken freeze all assets in the relevant accounts, preserve the details of any transfers out of those
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`accounts, and promptly file the necessary SARs. Id. Kraken responded that Kowalski had not
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`provided sufficient information and that it would not take action without a court order. Id. ¶ 219.
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`Kraken gave no indication that it would even investigate this information. Id.
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`In a second letter dated January 19, 2021, Kowalski’s lawyers provided additional
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`information to Kraken, including further details of the tracing by his investigators. Id. ¶ 220. By
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`that point, 190 stolen BTC had been deposited into