Kleiman estate awarded billions as court rules against Craig Wright

Craig Wright, an Australian security consultant who controversially claimed to be the person behind the anonymous Satoshi Nakamoto identity, and the creator of Bitcoin, has been ordered to hand over half of his alleged bitcoin holdings.

The case began in 2018 when Ira Kleiman, the brother of Wright’s late business partner Dave Kleiman, sued Wright for $10 billion. Kleiman alleged that Wright "concocted a scheme to claim ownership of all bitcoins owned by Dave" by falsifying a papertrail of backdated and forged documents.

Wright’s defence, which claimed that Kleiman had relinquished all claims to bitcoin mined by the duo before his death in 2013, was rejected by magistrate Judge Reinhart. The judge found Wright had "intentionally submitted fraudulent documents to the Court, obstructed a judicial proceeding, and gave perjurious testimony.”

Emails with fraudulent metadata, and documents with Kleiman’s forged signature, were taken as evidence that Wright had perpetrated a malicious scheme to seize Dave’s bitcoin — which are thought to number more than 300,000 (currently valued at more than $2 billion).

The Tulip Trust

The Bitcoin at the centre of the controversy can be traced back to the earliest days of cryptocurrency.

Dave Kleiman, a computer forensics expert from Florida, is said to have met Craig Wright on an online cryptography forum in 2003. The duo conducted research together before eventually setting up W&K Info Defense Research LLC — a shared company dedicated to mining bitcoin and developing blockchain technology.

Bitcoin mined by the duo was supposedly committed to a mysterious ‘Tulip Trust’, with funds tied up cryptographically between Kleiman, and Wright, who claimed in court that he created the trust to dissociate himself from bitcoin after it was "hijacked by drug dealers, human traffickers, and other criminals."

Though the court hasn’t confirmed the number of bitcoin in the trust, it is alleged to contain 1.1 million. But, evidence of the existence of these bitcoin is scant, and the Tulip Trust itself is often dismissed as a fantasy — yet another daydream of a man accused of being a serial liar.

Instead, the general assumption in the crypto community is that the 1 million bitcoin that hasn’t moved since it was mined in 2009 and 2010 belongs to Satoshi Nakamoto, whose true identity remains a mystery.

As of yet, there is no evidence that Craig Wright has control over the coins, and one study even found that the bitcoin addresses holding the large sums were actually associated with Mt. Gox.

Nevertheless, Kleiman’s lawsuit was based on the assumption that Wright controls the stash of bitcoin. It appears the judge took this assumption at face value.

In his defence, Wright claimed that due to his former business partner’s death he can no longer unlock the cryptographic code securing the trust, and is unable to access the bitcoin.

Wright claimed that he and Kleiman used Shamir’s Secret Sharing cryptographic scheme to encrypt the phantom bitcoin fortune — the scheme divides private keys into segments that can be distributed between different people, and eventually reunited to decrypt the file.

According to the court, Wright claimed that the segments needed to decrypt the trust will arrive by bonded courier in January 2020.

Victory for Kleiman

While the case was not intended to rule on whether or not Wright is Satoshi Nakamoto, Federal Magistrate Judge Bruce Reinhart was not convinced by the defence, and derided
Wright for arguing in bad faith and misleading the court.

"Dr. Wright’s demeanor did not impress me as someone who was telling the truth. When it was favorable to him, Dr. Wright appeared to have an excellent memory and a scrupulous attention to detail. Otherwise, Dr. Wright was belligerent and evasive," wrote the judge. "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."

The judge added that Wright had deliberately taken "directly conflicting factual positions at different times" during the litigation, and that the Tulip Trust is "part of a sustained and concerted effort to impede discovery into his bitcoin holdings."

To conclude proceedings, the judge ruled that “all bitcoin mined by Wright prior to David Kleiman’s death was the property of the partnership when mined,” and that the Kleiman family have a rightful interest in the bitcoin, and additional assets.

Ira Kleiman is now free to to submit an official request for legal fees owed to the Kleiman estate, and Reinhart’s order has been passed to the District Judge to be approved.

Though Wright is likely to appeal the decision, this milestone ruling could signal an end to the case.