Unreported / Non-Citable
Background
Plaintiffs Alister Watt and others alleged that unidentified criminals stole digital assets from their accounts on third-party trading platforms and later transferred some of those stolen assets through the OKC cryptocurrency platform to launder them. The defendants included OKCoin USA Inc. (now known as OKC Inc.), Aux Cayes FinTech Co. Ltd., and OKC Holdings Corporation. In a March 31, 2026 order, the court had dismissed the First Amended Complaint, holding that defendants' alleged failure to implement adequate anti-money laundering and know-your-customer policies was not the cause of plaintiffs' injuries—the theft was—and that no facts plausibly alleged defendants knew about plaintiffs' stolen assets at the time of the alleged laundering.
In their Second Amended Complaint, plaintiffs added allegations that they had alerted defendants to issues with their assets after the theft and transfer, and added plaintiff Gezalian, a California resident, to support claims under the California Unfair Competition Law and California Penal Code section 496. Defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6), challenging both the sufficiency of the claims and personal jurisdiction over the foreign entities Aux Cayes and Holdings.
The Court’s Holding
The court granted the motion to dismiss in its entirety and dismissed the case with prejudice. On the conversion claim, the court held that plaintiffs' theory—based on defendants' failure to implement adequate KYC and AML procedures—did not constitute the affirmative action required for conversion. The only affirmative acts alleged were general platform operations like market-making and facilitating trades, which could not form the basis for conversion. On aiding and abetting conversion, the court found that general allegations of red flags and after-the-fact notifications from plaintiffs did not establish that defendants had actual knowledge of the thefts or money laundering at the time they occurred.
The court dismissed the UCL claim because plaintiffs could not plead causation: defendants' alleged conduct was not the but-for cause of plaintiffs' injuries, which were directly attributable to third-party thieves. The court similarly dismissed the section 496 claim for receiving stolen property, finding no allegation that defendants had actual knowledge the funds were stolen when transferred and no causal connection between defendants' receipt of property and plaintiffs' damages. Finally, the court found no general or specific personal jurisdiction over Aux Cayes or Holdings. Allegations about regional headquarters, a single executive residing in California, and isolated Web3 events were insufficient for jurisdiction over Aux Cayes, and plaintiffs failed to establish an alter-ego relationship between Holdings and OKCoin that would support jurisdiction over the Cayman Islands parent company.
Key Takeaways
- A cryptocurrency platform's failure to implement adequate anti-money laundering and know-your-customer procedures does not constitute the affirmative action necessary to state a claim for conversion under California law.
- General allegations of suspicious activity indicators and after-the-fact notice from victims are insufficient to plead that a defendant had actual knowledge of theft or money laundering required for aiding and abetting conversion.
- Under California's but-for causation standard for UCL claims, a plaintiff cannot establish causation when the same harm would have occurred regardless of the defendant's compliance with the law.
- Establishing regional headquarters or having a single executive reside in a state does not confer general personal jurisdiction over a foreign corporation under the Daimler standard.
- Common ownership, a shared director, and use of the same registered address are insufficient to establish the unity of interest necessary to pierce the corporate veil under an alter-ego theory.
Why It Matters
This decision reinforces the difficulty plaintiffs face in holding cryptocurrency platforms liable for thefts committed by third parties, even when stolen assets pass through the platform. The ruling emphasizes that causation remains a significant hurdle: courts will distinguish between the platform's alleged regulatory failures and the independent criminal acts that directly cause victims' losses. The decision also clarifies that merely operating a platform that processes transactions does not transform a company into a converter of stolen property absent affirmative wrongful conduct.
The jurisdictional holdings provide guidance on the limits of personal jurisdiction over foreign cryptocurrency entities. The court's rejection of alter-ego liability based on common ownership and shared directors signals that plaintiffs must plead specific facts showing actual control and disregard of corporate formalities, not merely structural connections between related entities. This may make it more challenging for U.S. plaintiffs to reach foreign parent companies and affiliates of domestic cryptocurrency exchanges.