Process - Service of Process - Alternate Service upon Unknown Defendants - Non-Fungible Tokens Hyperlinked to Pleadings and Airdropped into Digital Wallets

Letitia James, Attorney General, New York City (Jonathan S. Bashi and Shantelee Natania Christie of counsel), for plaintiff.

Plaintiff's unopposed motion for alternate service is determined as follows.{**87 Misc 3d at 951}

Plaintiff People of the State of New York, by Letitia James, Attorney General of the State of New York (OAG), commenced this action against defendants Unknown Parties in Ownership and/or Control of Digital Wallet Addresses XXXXXXXXXX0B7d (Wallet 1), XXXXXXXXXX1ss8 (Wallet 2), and XXXXXXXXXXZtmu (Wallet 3) and Unknown Others (collectively the defendants) who allegedly orchestrated a fraudulent, illegal, and deceptive cryptocurrency scheme to defraud individuals from New York and across the country (the victims) by stealing the victims' cryptocurrencies using the above-referenced Wallets.

Plaintiff contends that from January 2024 through at least June 2024, defendants operated a fraudulent scheme to lure the victims, including "recent immigrants to the United States with very little in assets—by tricking them into believing they would be paid to work remotely for legitimate businesses." Plaintiff avers that defendants recruited the victims by sending unsolicited text messages and private messages over the WhatsApp messenger application (WhatsApp) and other messenger groups, using spoofed telephone numbers and posing as recruiters, trainers, managers, and customer service representatives from real businesses and websites. Defendants then lured the victims into performing tasks, including reviewing and rating products on now-defunct websites created by defendants, and clicking on the products to generate data that helped promote them to consumers. Significantly, plaintiff avers that defendants fraudulently promised the victims compensation consisting of salary, bonuses, and commissions by requiring them to create accounts on these websites and make deposits in the form of USD Coin (USDC) or USD Tether (USDT) stablecoins to designated wallets that defendants owned and/or controlled. Plaintiff further contends that the victims were told "the more cryptocurrency they deposited the more salary and bonuses they would earn." This scheme allegedly involved escalating deposit requirements using the victims' own money through "product merges" or "package missions" that required the victims to deposit increasingly large amounts of cryptocurrency. Plaintiff avers that defendants guided the victims, often unfamiliar with cryptocurrency, step-by-step, through the process of opening up accounts on the different platforms, and instructed them to use their own money to purchase the cryptocurrency in order to make the deposits.

Plaintiff further avers that defendants led the victims to believe they were accumulating compensation in their accounts{**87 Misc 3d at 952} and that they could ultimately withdraw the amounts they earned during their employment, when, plaintiff contends, no actual compensation was ever paid to the victims. Plaintiff contends that defendants moved the victims' self-funded deposits into the three specific cryptocurrency Wallets that defendants owned and/or controlled (Wallets 1-3). As of April 26, 2024, plaintiff secured freezes on these Wallets, preventing defendants from accessing approximately $2,179,507.00 worth of cryptocurrency. Despite these freezes, plaintiff contends that their investigation revealed continued wallet activity such that defendants "continue to access and otherwise use the Wallets in spite of the freezes" and cryptocurrency is "still being sent to the Wallets."

Plaintiff now seeks an order, pursuant to CPLR 308 (5), permitting service of process of the summons, complaint, order to show cause, attorney affirmation and memorandum of law in support thereof, and all documents submitted contemporaneously therewith (collectively the pleadings), upon defendants by a non-fungible token (NFT) hyperlinked to the same website containing the pleadings, which is then airdropped to each of the defendants' cryptocurrency Wallets.

CPLR 308 provides the methods of service of process. When the methods of service under CPLR 308 (1), (2) and (4) are impracticable, CPLR 308 (5) authorizes service "in such manner as the court, upon motion without notice, directs" (see MTGLQ Invs., L.P. v Mayers, 209 AD3d 1009, 1011 [2d Dept 2022]; Bayview Loan Servicing, LLC v Cave, 172 AD3d 985, 987 [2d Dept 2019]; Wells Fargo Bank, NA v Patel, 175 AD3d 1350, 1351 [2d Dept 2019]). Courts have broad discretion to direct a method of service that is reasonably calculated to give notice and "fashion other means adapted to the particular facts of the case before it" (Dobkin v Chapman, 21 NY2d 490, 494-498 [1968]).

"The meaning of impracticable will depend upon the facts and circumstances of the particular case" (Markoff v South Nassau Community Hosp., 91 AD2d 1064, 1065 [2d Dept 1983] [internal quotation marks omitted]). Although the impracticability standard "is not capable of easy definition" (id.), it does not require the applicant to satisfy the more stringent standard of "due diligence" under CPLR 308 (4), or to make a showing that "actual prior attempts to serve a party under each and every method of the statute have been undertaken" (Home Fed. Sav. Bank v Versace, 252 AD2d 480, 481 [2d Dept 1998], citing{**87 Misc 3d at 953} Kelly v Lewis, 220 AD2d 485, 485 [2d Dept 1995]). A plaintiff can demonstrate impracticability by making diligent, albeit unsuccessful, efforts to obtain information regarding a defendant's current residence, business address, or place of abode (see Franklin v Winard, 189 AD2d 717, 717 [1st Dept 1993]). Due process requires that the alternative method of service be "reasonably calculated, under all the circumstances, to apprise the defendant of the action" (Jean v Csencsits, 171 AD3d 1149, 1150 [2d Dept 2019] [internal quotation marks omitted]).

While the use of NFTs to effect service presents a matter of first impression, courts have approved similar methods of alternate service for defendants who can only be identified by cryptocurrency wallet addresses. In LCX AG v 1.274M U.S. Dollar Coin, the plaintiff alleged that the defendants had misappropriated $8 million worth of assets from plaintiff's Ethereum wallet (LCX AG v 1.274M U.S. Dollar Coin, 2022 NY Slip Op 32834[U] [Sup Ct, NY County 2022]). The court allowed plaintiff to serve the anonymous defendants via an airdropped cryptocurrency token that contained a hyperlink to a website that contained the action's underlying papers, holding that "alternate service is especially necessary because of the anonymity of the Doe Defendants" (id. at *7). Additionally, in the Bankruptcy Court of the Southern District of New York, the court allowed service via airdropped NFT into a crypto wallet in a case involving the misappropriation of cryptocurrency (In re Celsius Network LLC, 666 BR 28 [SD NY 2024]). The court held that as "the owners of the Defendant Wallets are unidentifiable and are in unknown locations . . . it seems as though the best way the [plaintiff] has to reach them is through their crypto wallets" (id. at 36).

Here, upon the facts and circumstances of this case, plaintiff has demonstrated that service under CPLR 308 (1), (2) and (4) was impracticable by demonstrating diligent, but unsuccessful, efforts to obtain information about defendants' identity and location. Plaintiff attests that it made phone calls and sent text messages to 14 telephone numbers associated with defendants on December 6 and 9-11, 2024, informing them of plaintiff's intent to file a lawsuit and requesting a mailing address for service. The majority of the numbers either did not respond or used numbers that were landlines that do not natively support text messages. Only two of the numbers responded to plaintiff, but did not provide a verifiable mailing address when requested. Plaintiff also contacted four email addresses that defendants{**87 Misc 3d at 954} had used, with read receipt and delivery request requested, but only one returned a "delivered" notice, and none provided the requested mailing information for service. Accordingly, plaintiff seeks permission to serve defendants via NFTs airdropped to the Wallets, which it avers is the "only reliable method reasonably calculated to ensure timely and proper notice of the proceedings and an opportunity for Defendants to appear and respond."

In further support of the instant motion, plaintiff proffers the affirmation of Zhao Sang (Sang), a FinTech software developer and artificial intelligence data scientist with experience in the blockchain and crypto asset space since 2017. Sang is employed by plaintiff, assigned to the Investor Protection Bureau within OAG's Economic Justice Division since September 16, 2024. Sang attests that plaintiff created and delivered NFTs to each of the three wallet addresses between January 21-22, 2025. Specifically, on January 21, 2025, Sang created a smart contract to mint an ERC-721 NFT using an NFT platform and transferred the NFT using the Ethereum blockchain to Wallet 1, where the NFT's name is the website containing the pleadings, the image cover reflects a snapshot of the first page of the summons, and the NFT includes a description stating "YOU ARE HEREBY SUMMONED. View the official documents here at https://ag.ny.gov/IPBsummons." On the same day, Sang also created a smart contract to mint two TRC-721 NFTs using the Tron blockchain and separately transferred said NFTs into Wallets 2 and 3, with similar content and descriptions, and on January 22, 2025, Sang created another smart contract to mint two additional TRC-721 NFTs transferred into Wallets 2 and 3, both named "NOTICE OF A LAWSUIT" with conspicuous images titled "Notice of a Lawsuit. Visit https://ag.ny.gov/IPBSummons" that inform the defendants they are being sued and provide the website to the pleadings. Sang provides verification through blockchain explorers Etherscan and Tronscan.io, as well as the APENFT platform, demonstrating the existence and delivery of all NFTs to the respective Wallet addresses on said dates.

Based on the evidence presented, the court finds that service via NFTs hyperlinked to the same website containing the pleadings and airdropped to Wallets 1-3 is reasonably calculated to apprise the unidentifiable defendants in this action. Plaintiff has demonstrated, through its investigation, that defendants continue to regularly use these Wallets, as recently as{**87 Misc 3d at 955} April 2024 through December 2024. Since the accounts contain approximately $2,179,507.00 in frozen USDC and USDT stablecoins, plaintiff has demonstrated that defendants are likely to return to the accounts where they would find the NFTs. Upon the facts and circumstances of this case, using blockchain transactions to communicate with defendants is the only available manner of communication, as defendants have used spoofed telephone numbers and nonexistent email addresses to remain anonymous. Accordingly, plaintiff has sufficiently authenticated the method of alternate service through a detailed blockchain analysis and the continued activity of the Wallets.

Therefore, plaintiff's motion for alternate service pursuant to CPLR 308 (5) is granted, upon default and without opposition.

For all the foregoing reasons, it is hereby ordered that plaintiff's unopposed motion for alternate service is granted; and it is further ordered that the time for service of the summons and complaint upon defendants pursuant to CPLR 306-b shall be extended for 120 days from the date of entry; and it is further ordered that plaintiff shall serve the summons, complaint, order to show cause, attorney affirmation and memorandum of law in support thereof, and all documents submitted contemporaneously therewith, together with a copy of this decision and order with notice of entry, upon defendants, within 120 days of the date of entry, by airdropping NFTs hyperlinked to a website containing copies of said pleadings to digital wallet addresses XXXXXXXXXX0B7d (Wallet 1), XXXXXXXXXX1ss8 (Wallet 2), and XXXXXXXXXXZtmu (Wallet 3); and it is further ordered that plaintiff shall file an affidavit of service in accordance with CPLR 306 (a) and service shall be deemed complete upon such filing.