Crypto investor loses millions to 'managing director' on LinkedIn, goes after company
Singapore's High Court recently dealt with a case involving allegations of fraud, cryptocurrency investments, and corporate liability. The case revolved around a director's authority to bind a company, the authenticity of signatures, and the duties owed to investors in high-risk financial schemes.
The dispute centred on an investor who claimed to have lost millions in a cryptocurrency arbitrage scheme. He argued that he had entered into a service agreement with a technology company, which provided a corporate guarantee against losses due to internal fraud. The investor maintained that when the scheme's operator disappeared with the funds, the company was obligated to compensate him for his losses.
However, the company denied any involvement in the scheme, leading to a legal battle that touched on issues of corporate authority, document authenticity, and the responsibilities of businesses towards investors in risky financial ventures.
The case also highlighted the potential pitfalls of relying on online professional profiles, with the court noting that LinkedIn users may claim "high-sounding positions" without verification.
The ‘cryptocurrency arbitrage scheme’
The case centred around an investor who claimed to have lost millions in a cryptocurrency arbitrage scheme called "Cryptotrage". The investor said he had entered into a service agreement with a technology company, which provided a corporate guarantee against losses due to internal fraud. The agreement was allegedly signed by a director of the company and the company's Vietnam operations director.
The investor said he initially invested small amounts in the scheme but was encouraged to increase his investments after receiving the corporate guarantee. He deposited three types of cryptocurrencies: USDt, BUSD, and BNB.
In February 2021, the Vietnam operations director disappeared, allegedly after misappropriating the investors' cryptocurrencies. When the investor tried to enforce the corporate guarantee, the company denied responsibility for the scheme and said the service agreement was not valid.
Investor’s reliance on LinkedIn profile
The court examined whether the director's LinkedIn profile, which stated he was the company's managing director, could establish ostensible authority. The judge ruled that a LinkedIn profile alone was insufficient to grant such authority, citing established legal principles:
"[A]n agent who has no authority (whether actual or ostensible) to perform a certain act cannot confer upon himself authority to do that act, by representing that he has such authority."
The court emphasised that LinkedIn profiles are “typically controlled by individuals, not companies,” and cautioned against assuming their accuracy without verification. The judge said:
"If one is planning to undertake a significant investment to the tune of millions of dollars, on the faith that the purported agent holds the office which his LinkedIn profile professes him to hold, the sensible thing to do would be to call the organisation (in which the office is purportedly held) to seek confirmation."
The investor argued that the LinkedIn profile could be attributed to the company because the director said it was created with input from the company's "marketing guys". However, the company denied this claim.
Who can bind a company?
The case also looked at the complexities of corporate authority. The court asked, even if the signature was genuine, did the director have the power to bind the company to such a significant guarantee? The court examined concepts of actual and ostensible authority.
"[S]ubject to any other representations that may have emanated from the company, ostensible authority covers only those contracts which a [managing director] would usually have the authority to transact on the company's behalf."
Another aspect of the case was the investor's claim that the company and its director owed a duty to supervise the scheme's operator. The investor argued that the director had failed to exercise due diligence or control over the Vietnam operations director, allowing him to misappropriate the investor's cryptocurrencies.
The company and director argued that they were not responsible for supervising the Vietnam operations, as the Vietnam operations director was an independent contractor, not an employee.
While the case involved cryptocurrency trading, the court also reminded HR professionals and business leaders to be vigilant about document authenticity, clear authority definitions, due diligence practices, and risk management strategies.
Finally, the court concluded:
"Even if [the investor] succeeded in establishing [the company and director's] liability (which he has not), I would nevertheless conclude that [the investor] has failed to satisfactorily quantify his loss. There is simply no reliable basis on which [the investor] can lay claim to the quantum of cryptocurrencies ... which he sought to recover by this suit."
