United States District Court, S.D. Florida
BLOOM UNITED STATES DISTRICT JUDGE
CAUSE is before the Court upon Defendant Craig
Wright's Objection to Magistrate Order
“Deeming” Certain Facts Established and
“Striking” Certain Affirmative Defenses (the
“Objection”). See ECF No. . The
Court has reviewed the Objection, the opposing and supporting
submissions, the record and applicable law, and is otherwise
fully advised. For the reasons that follow, Defendant's
Objection is sustained in part and overruled in part. The
Magistrate Judge's Order, ECF No. , is vacated in
factual background giving rise to this action has been set
forth previously in prior opinions issued by this Court and
are incorporated by reference. See e.g. ECF No.
to 28 U.S.C. § 636 and this District's Magistrate
Judge Rules, all discovery matters in this action were
previously referred to the Honorable Bruce E. Reinhart.
See ECF No. . The proceedings relevant to the
present appeal relate to a discovery dispute, initiated when
the Plaintiffs sought to identify the bitcoin owned and
controlled by the Defendant (herein referred to as
Defendant's “Bitcoin Holdings”), and are as
Plaintiffs' First Set of Interrogatories
31, 2018, Plaintiffs served their First Set of
Interrogatories, requesting Defendant identify the
“public keys and public addresses” for any
cryptocurrency he currently or previously owned. ECF No.
[91-2], at 8. Defendant objected to the discovery request as
“irrelevant, grossly overbroad, unduly burdensome,
harassing and oppressive, and not proportional to the needs
of the case.” ECF No. [91-2], at 14-19. The Defendant,
however, did not object in his discovery responses that the
information sought was impossible to produce. See
generally ECF No. [91-2].
discovery hearing to resolve these respective objections was
scheduled before Judge Reinhart on February 20, 2019. ECF No.
. In the parties' Joint Discovery Memorandum,
Defendant argued that the Plaintiffs' requests were
disproportionate to the needs of the case because they sought
all documents relating to any bitcoin transactions by him
between 2009 and 2014. ECF No. , at 3-4. The Defendant
represented, however, that he “stands ready to produce
documents in his possession, custody, or control that relate
to David [Kleiman], any trust in which David [Kleiman] was a
trustee or beneficiary, and W&K Info Defense Research,
LLC.” Id. At the hearing, the Court directed
the Plaintiffs to identify the starting date and seek
production of Defendant's Bitcoin Holdings on that date,
and then use the Bitcoin evidence trail to trace forward from
there. ECF No. , at 120-123. The Defendant did not
object in his discovery responses that the information sought
was impossible to produce.
Plaintiffs' Second Set of Requests for
January 17, 2019, Plaintiffs served a Second Set of Requests
for Production on Defendant. ECF No. [92-5], at 13-30. In
Request No. 1 of the Second Set of Requests for Production
(herein referred to as “Request No. 1”)
Plaintiffs sought “[a]ll documents or communications
that provide and/or estimate the value of your cryptocurrency
holdings. This includes, but is not limited to, loan
applications, financial statements, tax returns, life
insurance applications, financing agreements, sale papers,
assignment contracts, etc.” ECF No. [92-5], at 18.
Defendant objected to Request No. 1 on relevance,
over-breadth, harassment, and disproportionality grounds. ECF
No. [114-1], at 5-7. Defendant again did not object in his
discovery responses that the information sought was
impossible to produce. See generally id.
discovery hearing was thereafter scheduled. ECF No. . In
the parties' pre-hearing Joint Discovery Memorandum, they
indicated that Request No. 1 was still in dispute. ECF No.
, at 7. The discovery hearing was held on March 6, 2019.
ECF Nos. , . At the hearing, the parties deferred
the issues surrounding Request No. 1 to the next discovery
hearing after the Plaintiffs represented that they were
revising the scope of time referenced in Request No. 1. ECF
No. , at 56-62. Defendant again did not argue that the
information sought was impossible to produce. The Court
scheduled another discovery hearing for March 14, 2019.
The March 14, 2019 Discovery Hearing
Joint Discovery Memorandum for the March 14 discovery
hearing, Plaintiffs represented that they had limited Request
No. 1 to “produce any documents that existed as of
12/31/13 which estimate the value of Defendant's bitcoin
holdings, ” arguing that such information was relevant
to trace the assets of the alleged partnership between David
Kleiman and Defendant. ECF No. , at 3. Defendant argued
that the request was still “overly broad, unduly
burdensome and harassing by seeking such personal financial
information such as loan applications, financial statements,
tax returns, life insurance applications, etc.”
Id. The Defendant did not object, however, that the
discovery was impossible to produce. See generally
hearing the Plaintiffs argued that the information sought in
Request No. 1 was necessary to establish the universe of
bitcoin that was mined during the alleged partnership between
David Kleiman and Defendant. ECF No. , at 18-19.
Plaintiffs ultimately agreed that what they were seeking was
“a listing of all the bitcoin that was owned [by Dr.
Wright directly or indirectly] on December 31, 2013.”
Id. at 20:21-25. Plaintiff reiterated that
“it's just an attempt to find the partnership's
assets.” Id. at 19:7-8. At the hearing, the
Defendant conceded that the information sought was relevant,
but objected to its production on the basis of
proportionality and potential undue burden. Id. at
time, Defendant admitted that a list of public addresses
would “identify Craig Wright as being the owner of
those addresses, which sort of like opens the door to, you
know, a lot of financial information, and without any
evidence that all of those - or what portion of those David
Kleiman had an interest in.” Id. at 21:17-22.
Based on this representation, the Court ruled that Plaintiffs
were entitled to a list of Defendant's bitcoin holdings,
but granted Defendant leave to file a motion for protective
order based on undue burden. Id. at 22-23. At this
hearing, the Defendant did not argue that the information
sought was impossible to produce.
Defendant's April 4, 2019 Deposition
Defendant was deposed on April 4, 2019. During his
deposition, he testified that a trust called the Tulip Trust
was formalized in 2011 (“Tulip Trust I”), but
that Tulip Trust I never owned or possessed private keys to
bitcoin addresses. ECF No. [270-1], at 22. Defendant also
refused to answer questions about how much bitcoin he mined
in 2009-2010. The parties raised this issue with Judge
Reinhart, who deferred ruling on the issue. ECF No. , at
¶ 1 (“The request to compel Dr. Wright to disclose
the amount of bitcoin he mined during 2009 and 2010 is denied
without prejudice. The Court will revisit this issue after
the parties brief whether production of a list of Dr.
Wright's bitcoin ownership would be unduly
April 11, 2019 Discovery Hearing
discovery hearing was held on April 11, 2019. ECF No. .
During this hearing, Judge Reinhart required the Defendant
file a motion for protective order regarding Plaintiffs'
request for a list of his Bitcoin Holdings no later than
April 19, 2019. ECF No. , at 38-39.
to the Magistrate Judge's instructions, the Defendant
timely filed a sealed motion. ECF No. . In that Motion,
the Defendant represented that he did “not have a
complete list of the public addresses that he owned as of any
date.” Id. at 1. He also argued that the
creation of such a list would be unduly burdensome.
Id. Beyond identifying himself as the miner for the
first 70 blocks of the bitcoin blockchain, and providing the
public addresses for those blocks, the Defendant also claimed
that he did not know any other bitcoin public addresses.
Id. The Defendant represented that in 2011, he
transferred ownership of all of his Bitcoin into a blind
trust, of which he was not a trustee or a beneficiary.
Id. at 2. Defendant also claimed that he did not
“know any of the public addresses which hold any of the
bitcoin in the blind trust . . . and cannot provide any other
public addresses.” Id. Thus, Defendant
maintained that as of December 31, 2013, all of his bitcoin
had already been transferred into the blind trust, and
therefore are owned by the trusts, not the Defendant himself.
Reinhart denied the Defendant's Motion, finding
Defendant's assertion that the production of a complete
list of his public addresses he owned as of December 31, 2013
was unduly burdensome to be unsupported by the facts. ECF No.
, at 2. The Court further stated that the Defendant
“does not argue undue burden, he argues impossibility,
” and noted that “[t]he argument that Dr. Wright
is incapable of providing an accurate listing of his current
or historical bitcoin holdings was never presented in any of
the prior hearings before this Court.” Id. at
Reinhart then ordered the Defendant provide (1) a sworn
declaration identifying the name and location of the blind
trust, the name and contact information for the current
trustee and any past trustees and the names and contact
information of any current or past beneficiaries; (2) a copy
of any and all documents relating to the formation,
administration, and operation of the blind trust, accompanied
by a sworn declaration of authenticity; (3) all transactional
records of the blind trust, including but not limited to any
records reflecting the transfer of bitcoin into the blind
trust in or about 2011, accompanied by a sworn declaration of
authenticity; and (4) ordered the Defendant execute any and
all documents, or other legal process, necessary to
effectuate the release of documents in the possession,
custody, or control of the trustee. Id. at 4.
attempts to comply with Judge Reinhart's Order, the
Defendant provided a sworn declaration, in which he stated
that he had met with his counsel and provided them
“with additional details and clarity regarding trusts
that I settled that hold or held Bitcoin that I mined or
acquired on or before December 31, 2013.” ECF No.
, at ¶ 3. Defendant further affirmed that he had
mined bitcoin in 2009 and 2010 directly into a trust in
Panama, that there were no transactions related to that
bitcoin, and that he later “transferred the encrypted
files that control access to these Bitcoin in 2011, as
explained below.” Id. ¶ 4. In June 2011,
the Defendant represented that he consolidated “the
Bitcoin  mined with Bitcoin that [he] acquired and other
assets.” Id. ¶ 5. Defendant claims that
“[i]n October 2012, a formal trust document was
executed, creating a trust whose corpus included the Bitcoin
that [he] mined, acquired and would acquire in the future.
The name of that trust is Tulip Trust. It was formed in the
Seycelles [sic].” Id. Defendant then
identified the trustees of Tulip Trust I as (1) COIN Ltd. UK,
Uyen Nguyen, (3) Dr. Wright, (4) David Kleiman, (5)
Panopticrypt Pty. Ltd,  and (7) Savannah Ltd. Id.
¶ 6. Dr. Wright is the contact person for CO1N Ltd. UK.
The contact person for Panoptycript Pty. Ltd. is
Defendant's wife. The contact person for Savannah Ltd. is
Denis Mayaka. Id. ¶¶ 9-12. Defendant
further affirmed that the beneficiaries of Tulip Trust I are
Wright International Investments Ltd. and Tulip Trading Ltd.
Defendant is the point of contact for both of the
beneficiaries. Id. ¶¶ 13-14. Defendant
then asserted for the first time that “[a]ccess to the
encrypted file that contains the public addresses and their
associated private keys to the Bitcoin  mined, requires
myself and a combination of trustees referenced in Tulip
Trust I to unlock based on a Shamir scheme.”
Id. at ¶ 23.
Defendant's affidavit also outlined the structure of the
second Tulip Trust (“Tulip Trust II”). Defendant
admitted that he and his current wife are the beneficiaries
to Tulip Trust II. Id. at ¶¶ 19-20. At
that time, Defendant provided a limited number of documents
related to the trust. According to the Plaintiffs, Defendant
“produced two sworn statements, copies of various trust
instruments, and a statement from the purported trustee
re-attaching a trust instrument.” ECF No. , at 3.
The documents, however, apparently did not identify the
specific bitcoin that were transferred into the blind trusts,
nor did they indicate what the blind trusts have done with
the bitcoin since their transfer. Id. Defendant
claimed that he “produced trust formation documents
along with a sworn declaration of authenticity, ” as
well as “documents reflecting the use of bitcoin rights
from the trust to support research and development by his
Australian entities.” ECF No. , at 3. Defendant
did not produce any documents related to the administration
and operation of the blind trust as ordered by the Court.
See ECF No. ; ECF No.  at 4, fn 1.
Plaintiffs' Motion to Compel
3, 2019, Plaintiffs filed a Motion to Compel Defendant to
Comply with this Court's Orders Directing Him to Produce
a List of the Bitcoins He Held as of December 31, 2013. ECF
No.  (the “Motion to Compel”). In the Motion
to Compel, Plaintiffs sought an order from the Court imposing
sanctions under Federal Rule of Civil Procedure 37, and to
order the Defendant to provide a sworn statement identifying
the public addresses of the bitcoin transferred into the
Tulip Trusts, to provide transactional records and
communications relating to the trusts, and to sit for a
renewed deposition. Id. at 6. Plaintiffs
specifically requested that should the Defendant continue to
refuse to comply with the Court's Orders, that the Court
deem all of Dr. Wright's holdings in the Tulip Trust to
be joint property belonging to both the Defendant and David
Kleiman. ECF No. , at 6.
Response in Opposition to the Motion to Compel, Defendant
conceded that he did not comply with the Court's Order.
ECF No. . However, for the first time, Defendant argued
in these discovery proceedings that compliance with the
Court's Order was “impossible.” ECF No.
. Moreover, in this Response, Defendant claimed that
information necessary to comply with the Court's Order
was in Tulip Trust I in an encrypted file protected by a
“Shamir's Secret Sharing
Algorithm.” ECF No. , at 5. Defendant then
represented that he could not decrypt the “outer level
of encryption” because he did not have all of the
necessary keys, and represented that the encryption keys
needed were “distributed to multiple individuals
through the [blind] trusts” and “he alone does
not have ability to access the encrypted file and data
contained in it.” Id.
was hearing on June 11, 2019 on the Motion to Compel. ECF No.
. At the hearing, Plaintiffs' counsel presented the
Court with the Defendant's earlier deposition where he
denied ever putting bitcoin into a trust and denied putting
any private keys into the Tulip Trust, which was contrary to
the position the Defendant was now taking in his Opposition
to the Motion to Compel. ECF No. , at 8-9. The Court
once again gave the Defendant an opportunity to
“produce a complete list of all bitcoin that he mined
prior to December 31, 2013, ” and entered an Order to
Show Cause why it should not certify a contempt of court to
the District Judge. ECF No. . An evidentiary hearing was
scheduled for June 28, 2019.
28, 2019, a two-day evidentiary hearing began before
Magistrate Judge Reinhart. The Court heard from three
witnesses (1) the Defendant, (2) Steven Coughlan a/k/a Steve
Shadders, and (3) Dr. Matthew Edman. ECF Nos. , .
Plaintiffs also submitted excerpts from the depositions of
Jonathan Warren and Dr. Wright. ECF Nos. , . The
Magistrate Judge also heard oral argument on August 26, 2019.
the Defendant's testimony, the Defendant testified that
it was impossible to comply with the Court's Orders
regarding his Bitcoin Holdings due to the Shamir Scheme
implemented related to the encrypted file. Defendant also
claimed that he enlisted the now deceased David Kleiman to
implement and carry out these safeguards. ECF No. , at
125:15-126:23. He testified that to decrypt the outer most
layer of the encryption he needed eight “key slices,
” of which he presently only has seven in his
possession. Id. at 125. It was the Defendant's
position that he simply could not produce a list of his
Bitcoin Holdings even if he wanted to. Id. at
14:8-14. Judge Reinhart did not find the Defendant's
testimony to be credible, and his testimony and demeanor did
not impress Judge Reinhart as someone who was “telling
the truth.” ECF No. , at 19.
Coughlan a/k/a Steve Shadders (“Shadders”)
testified as to his effort to apply the filter criteria to
identify the Defendant's Bitcoin Holdings. Judge Reinhart
found Shadders' testimony to be credible and worthy of
belief. ECF No. , at 18. Judge Reinhart found that
employing Shadders to identify the Bitcoin Holdings
demonstrated a “good faith attempt” by the
Defendant to comply with the Court's Order. However,
Judge Reinhart found that this finding warranted little
weight in light of the ...