Court continues freezing order after suspected email fraud

Out-Law News | 01 Sep 2017 | 10:07 am | 2 min. read

An individual has successfully applied for continuation of a freezing order, after being able to show that there was a real risk that money held in another's account would be dissipated if the order was not continued.

The individual, a Mr Kahlbetzer, had been the victim of an email fraud, in which $1 million was transferred from one of his accounts to an account held by UK currency trading firm. Kahlbetzer sought the freezing order against another individual who was a beneficiary of that firm, and who had admitted to being involved in facilitating the payment and distributing the money to various third parties. However, he claimed that he had done so innocently.

After hearing the evidence, High Court judge Mr Justice Carr said that there was a "strong likelihood" that the second individual was not an innocent party to the fraud against Kahlbetzer. This, combined with the "implausibility" of his story and his attempts to withdraw £6,000 from the account, allegedly to lend to a lawyer, after the freezing order was granted pointed to a risk of dissipation if the order was not continued, he said.

The case, which has not yet been reported, provided "a helpful reminder of the requirements for obtaining or continuing a freezing injunction", according to civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com.

"To obtain or continue a freezing injunction a claimant must, among other requirements, show that they have a good arguable case against the defendant, and that there is a real risk that the assets will be dissipated if they are not frozen," he said. "The judgment illuminates how the court will interpret the link between these two requirements."

"In Mr Justice Carr's judgment the strong likelihood that the defendant was not an innocent party to the underlying fraud, supported by the claimant's good arguable case, added to the risk that assets would be dissipated. Unsurprisingly, the judgment also makes clear that the court will interpret attempts to withdraw sums from frozen assets as a potential disregard of court orders, increasingly the likelihood that assets would be dissipated," he said.

The defendant in this case claimed to have no knowledge of the fraud against Kahlbetzer, according to a summary published on Lawtel. Instead, he claimed that Kahlbetzer had agreed to lend his girlfriend the money to pay death taxes due on a $24 million estate that she had inherited, in exchange for a 20% share of the proceeds.

Mr Justice Carr found this story implausible. Kahlbetzer denied any knowledge of the arrangements, and there was no evidence of a contract between Kahlbetzer and the girlfriend. The judge thought it unlikely that the girlfriend would have taken no steps to complete the probate process on her alleged inheritance on account of a $1m tax liability. It was also unlikely that Kahlbetzer would have agreed to make the payment, only for it then to be dispersed to various third parties.

The fact that the defendant had not revealed the existence of another bank account to the court would not of itself have caused the court to consider that there was a risk of dissipation, the judge said. However, it was relevant when combined with the other facts of the case, he said.

Alan Sheeley of Pinsent Masons said that the judgment would "provide comfort to victims of fraud, especially in this climate of increasingly prevalent cybercrime and email fraud".

"Upon discovery of an email fraud, victims should immediately seek advice and assistance from civil fraud solicitors," he said.