Federal Judge enters potentially case-ending order against Craig Wright, finding fraud, obstruction, and perjury

Quick Take

  • Federal Court enters case-ending sanctions against Craig Wright in long-running Kleiman v. Wright lawsuit
  • Court finds Wright’s fraudulent conduct warrants sanctions under federal rules, declines to recommend contempt
  • Wright’s defenses are stricken and key factual issues favorable to plaintiff resolved in his favor.
There's a principle in tort law called res ipsa loquitor. It means literally "the thing speaks for itself." Reading the Court's order finding against Craig Wright, that term comes to mind. In more than two decades of practice in front of courts in civil litigation I've rarely seen as brutal an analysis of a litigant, particularly in a high-stakes and high-dollar case like this. 
In short, this opinion speaks for itself -- we learn that Craig Wright is, in the eyes of this federal magistrate judge, a liar, and that there is "clear and convincing evidence that Dr. Wright’s non-compliance with the Court’s Orders is willful and in bad faith." He lost this case because he lied. That's the bottom line.  
To understand how completely brutal this order is, it's helpful to place it in context. This isn't an Order at the end of a case. There was no trial. Plaintiff complained that Wright was not playing by the rules and producing required documents. He ultimately filed a motion to compel and to show cause why Wright shouldn't be held in contempt, and for sanctions.  
One of the sanctions was that, in essence, Wright wouldn't be allowed to defend himself and the plaintiff would be entitled to attorneys fees. The latter seems to be where we are, and while criminal contempt appears to be off the table, it's possible that Wright might still be held in Civil Contempt by the District Court.
The Court begins its opinion by describing the relevant procedural history thus:
This case arises from a dispute over the ownership of bitcoin and Bitcoin-related intellectual property. Plaintiffs allege in the Second Amended Complaint that David Kleiman and Dr. Wright were partners in the creation of the Bitcoin cybercurrency and that they “mined” (i.e., acquired) a substantial amount of that currency together. Dr. Wright denies any partnership with David Kleiman, and further denies that David Kleiman had an ownership interest in the bitcoin that was mined. Alternatively, Dr. Wright asserts that David Kleiman transferred any interest he had in the bitcoin and the intellectual property to Dr. Wright in exchange for equity in a company that ultimately failed. David Kleiman died in 2013.

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As early as July 2018, Plaintiffs sought discovery to identify the bitcoin that Dr. Wright owned and controlled (his “bitcoin holdings”). In Ira Kleiman’s First Set of Interrogatories served on July 31, 2018, he asked Dr. Wright to identify “public keys and public addresses” for any cryptocurrency he currently or previously owned.  Dr. Wright responded on February 1, 2019, by objecting that the discovery request was “irrelevant, grossly overbroad, unduly burdensome, harassing and oppressive, and not proportional to the needs of the case.” Under the procedures required by my Standing Discovery Order, the parties requested a discovery hearing to resolve their respective objections. That hearing was scheduled for February 20, 2019. 
The next section of the opinion describes in forensic detail the procedural steps that followed the hearing, and describes the evidentiary tangle of conflicting statements that was ultimately Wright's downfall. The quotes from this opinion about Wright's deceptiveness are many and even have literary flair, as in this:
Apparently, dead men tell no tales, but they (perhaps) send bonded couriers. See John Dryden, “The Spanish Fryar or The Double Discovery”, Act IV, Scene 1 (1681) (“there is a Proverb, I confess, which says, That Dead men tell no Tales.“). I completely reject Dr. Wright’s testimony about the alleged Tulip Trust, the alleged encrypted file, and his alleged inability to identify his bitcoin holdings."
So, what's the tl;dr?
  1. The Court makes it clear at the outset that this opinion does not consider whether or not Craig Wright is Satoshi Nakamoto or how much bitcoin he controls today.
  2. The Court specifically found that Wright "intentionally submitted fraudulent documents to the Court, obstructed a judicial proceeding, and gave perjurious testimony. No conduct is more antithetical to the administration of justice."  He lied -- over and over and over again, and you just can't do this in federal court.
  3. As a sanction, the Court used federal rule of civil procedure 37 to strike Wright's defenses and find all relevant facts in Kleiman's favor.  Note again that this is all because he lied and obstructed a judicial proceeding.
  4. Wright will have to pay Kleiman's reasonable legal fees.
  5. This Order is actually technically a recommendation and it will have to be adopted by the District Court.  But you can bet that it will be.
While this judge didn't find Wright in contempt, he didn't have authority to do so. While he found that the conduct didn't rise to the level of criminal contempt beyond a reasonable doubt, there would have been sufficient evidence to certify facts to the district court that would support a finding of civil contempt. Still, it appears that the Court believed case-ending sanctions would be sufficient. Also of note, the Court didn't blame Wright's lawyers, and found that they did the best they could with a client who was clearly out of their control.
What's next?  Presumably, Wright's lawyers will take exception to the magistrate's Order, because they kinda have to. The District will overrule them and adopt the recommendations. Several affirmative defenses -- statute of limitations and laches -- remain, and it's possible they will be tried if the case isn't resolved by summary judgment.  Also, the civil theft claim requires showing of criminal intent.

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About Author

Stephen Palley is a partner in Washington, D.C. office of the Anderson Kill law firm, where he is a member of the firm's nationally recognized insurance recovery practice and chair's the firm's Technology, Media and Distributed Systems practice group. The opinions expressed are his alone, not those of past, present of future clients or employers, and are not intended as legal advice.