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Financial Services Law Insights and Observations

User’s lawsuit against online digital currency exchange must be arbitrated

Courts Virtual Currency Arbitration

Courts

On January 24, the U.S. District Court for the Eastern District of New York granted the motion of an online digital currency exchange to compel arbitration in connection with a lawsuit alleging that the exchange negligently failed to prevent a scam. According to the opinion, the plaintiff contacted what he thought was the online exchange’s customer support to inquire about a pending transaction, but actually spoke with a hacker who used the personal information he disclosed to steal more than $200,000 worth of digital currency from his account. In his complaint, the plaintiff claimed that “stronger security measures” by the exchange would have prevented the scam. The exchange moved to compel arbitration, citing the arbitration agreement in the user agreement. In order to establish an account with the exchange, the user is required to check a box which states, “I certify that I am 18 years of age or older, and I agree to the User Agreement and Privacy Policy,” both of which are hyperlinked in the statement. The court found that this “express acceptance” required by the exchange was a clear signal that a user account would be subject to terms and conditions and that the plaintiff had inquiry notice of those terms. The court concluded that the plaintiff also assented to the terms based on witness testimony from the exchange’s “dispute analyst,” who testified that an account cannot be created unless the user checks the box agreeing to the user agreement, and a log of the plaintiff’s visit to the site contains the note “accepted_user_ agreement.” Accordingly, the court granted the exchange’s motion to compel arbitration.

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