United States District Court, D. South Dakota, Southern Division
DIGITALIRA.COM, LLC and ALTERNATIVE IRA SERVICES, LLC, Plaintiffs,
THE KINGDOM TRUST COMPANY, Defendant.
ORDER GRANTING PRELIMINARY INJUNCTION
E. SCHREIER UNITED STATES DISTRICT JUDGE
DigitalIRA.com, LLC (Digital IRA) and Alternative IRA
Services, LLC (Bitcoin IRA), move for a temporary restraining
order and preliminary injunction against defendant, The
Kingdom Trust Company. Docket 3. Kingdom Trust opposes this
motion. Docket 37. For the following reasons, the preliminary
injunction is granted.
recent years, some retirement investors have begun holding
their retirement assets in cryptocurrency. See
Docket 4 at 4-5. Such investors store these assets through a
trust custodian, who, for a fee, employs secure methods to
keep the assets safe from nefarious third-parties.
Id. at 4. Many investors also use an account service
provider who facilitates the purchase, sale, and delivery of
cryptocurrency funds. See Id. at 4-5. Such account
service providers recommend a variety of third-party services
to their customers. Id. These services include trust
custodianship and online trading platforms, which allow
customers to self-direct trading through an online portal.
Trust is a trust custodian. Id. at 5. It charges
customers a monthly fee in exchange for holding their assets
in secured storage. Id. It has been approved by the
South Dakota Division of Banking as a public South Dakota
Trust Company. Id. Bitcoin IRA is a technology
platform that allows account holders who keep assets in
cryptocurrency to make trades and monitor their account
balances online. FTR: Evidentiary Hearing on Motion for
Temporary Restraining Order and Preliminary Injunction at
9:18 a.m., DigitalIRA.com LLC et al. v. The Kingdom Trust
Company, No. 19-CV-4137-KES. It uses several fictitious
business names in conducting its services: Bitcoin IRA,
Digital IRA, and Digital Gold. Id.
is a separate, new entity. Id. at 9:19 a.m. It was
created to be the third-party administrator for BitGo Trust,
a trust custodian unrelated to Kingdom Trust. Id.
DigitalIRA.com and Bitcoin IRA, while separate entities, are
related. Id. Chris Kline serves as Chief Operating
Officer of both companies, and the former refers customers to
use the latter as an online trading platform. Id.;
Docket 4 at 5. DigitalIRA.com has no alleged relationship
with Kingdom Trust.
September 5, 2018, Bitcoin IRA and Kingdom Trust entered into a
referral agreement. Docket 1-1 at 2. The agreement stated
that Bitcoin IRA would refer its clients to use Kingdom Trust
as a trust custodian. Id. ¶ 1. In exchange,
Kingdom Trust agreed to pay Bitcoin IRA a referral fee for
account holders who became Kingdom Trust customers.
Id. ¶¶ 2-3. The agreement was for a term
of one year from its execution and it renewed annually
automatically, unless terminated by one of the parties.
Id. ¶¶ 5, 7. It allowed for termination by
either party, provided that the terminating party gave 180
days of written notice to the other party. Id.
¶ 6. Kingdom Trust agreed to notify Bitcoin IRA of any
changes made to accounts that used Bitcoin IRA as a trading
platform. Id. ¶ 13.
Trust customers who wished to use Bitcoin IRA as their online
trading platform named Bitcoin IRA as their account
designated representative (ADR). Docket 4 at 2. An ADR is
granted access to customer accounts for use in advising and
facilitating trades. Docket 1-3 ¶ 10.3; FTR: Evidentiary
Hearing at 12:54-12:55 p.m. This designation gave Bitcoin IRA
permission to access account data in Kingdom Trust. Docket 4
at 2. Kingdom Trust facilitated this access via application
programming interfaces (APIs). FTR: Evidentiary Hearing at
9:23 a.m. The APIs map data, like customer name and address,
from Kingdom Trust accounts into Bitcoin IRA, and vice versa.
Id. Bitcoin IRA also received a daily “data
feed” from Kingdom Trust that contained updated
information about customers' holdings. Id. at
9:33 a.m. The data feed also included data about trades and
transactions so that Bitcoin IRA's account pages could
reflect the same information as Kingdom Trust's database.
Id. at 12:56-12:57 p.m. Bitcoin IRA used this
information to ensure its platform reflected accurate
information about customers' holdings. Id. at
000 of Kingdom Trust's customers used Bitcoin IRA as
their ADR and used the Bitcoin IRA platform to effectuate
online trades. See Id. at 11:15-11:16 a.m. The
Kingdom Trust-Bitcoin IRA relationship began to sour after
Bitcoin IRA became the third-party administrator for BitGo
Trust. Id. at 10:03 a.m. According to Kline, Bitcoin
IRA partnered with BitGo Trust to give Bitcoin IRA customers
“optionality.” Id. Bitcoin IRA users
could, but were not required to, choose to use BitGo Trust
instead of Kingdom Trust as their trust custodian.
5, 2019, Bitcoin IRA sent a letter to its account holders.
Defendant's Exhibit 21. The letter stated that by
“upgrading” accounts for free, customers could
receive new features. Id. at 1. But the
“upgrade” that Bitcoin IRA touted as an
improvement to its existing features was a switch from
Kingdom Trust to BitGo Trust. FTR: Evidentiary Hearing at
10:53 a.m. The letter included a link to a form that directed
a transfer of customers' assets from Kingdom Trust to
BitGo Trust. Id. at 10:53-10:54 a.m; Defendant's
Exhibit 21 at 1. An “upgrade my account” link,
which also took customers to the form, was added to the
Bitcoin IRA customer login portal. FTR: Evidentiary Hearing
at 12:58 p.m.
the letter and additional solicitations from Bitcoin IRA, 1,
177 customers submitted requests to transfer their assets
from Kingdom Trust to BitGo Trust. Id. at
11:15-11:16 a.m. Before moving any assets to BitGo Trust,
Kingdom Trust validated each customer's intent to
transfer. Id. at 11:58 a.m., 1:00-1:01 p.m. Kingdom
Trust asserts that many customers who filled out the
“upgrade” form did not know they were requesting
to transfer assets to BitGo Trust. Id. at 1:01 p.m.
Kingdom Trust felt the transfer requests exposed its clients
to “heightened risk.” Id. at 1:02 p.m.
It alleges that for customers who validated their desire to
transfer and submitted the proper paperwork, transfers were
effectuated within a few weeks. Id. at 1:14-1:15
August 23, 2019, Kingdom Trust removed Bitcoin IRA's API
access and stopped sending daily updated account information,
as was the previous custom. Id. at 9:34-9:35 a.m.
Thus, Bitcoin IRA's online trading platform no longer
reflected accurate, up-to-date information about assets held
in Kingdom Trust's customers' accounts. Id.
Kingdom Trust did not provide notice to Bitcoin IRA prior to
removing access to account data. Id. at 9:58 a.m.
IRA created a “mirror” database that reflects
account information as it was on August 23, 2019, so that
customers' accounts still reflect some estimate of actual
assets. Id. at 9:34 a.m. But without updated data,
customers risk trading on outdated information that reflects
inaccurate balances and holdings. Id. at 9:35 a.m.
This might cause further problems with liquidity providers
once trades are executed. Id. Kingdom Trust has not
reinstated Bitcoin IRA's access to account data.
Id. at 11:39-11:40 a.m.
Trust asserts that its customers would be harmed if Bitcoin
IRA is able to access account data. Id. at 1:04 p.m.
It claims Bitcoin IRA's misleading behavior in urging
clients to “upgrade” shows that Bitcoin IRA
shared confidential information about Kingdom Trust accounts
with BitGo Trust and DigitalIRA.com. Id. at 1:04
p.m., 1:43 p.m. Kingdom Trust alleges that by withholding
access to client account information, it is acting in its
clients' best interest and is performing due diligence to
ensure their data will not be misused. Id. at
1:03-1:04 p.m. Around 400 customers who initially requested a
transfer have not been transferred to BitGo Trust.
Id. at 11:57 a.m. Kingdom Trust asserts that it is
still “walking through the process” of
transferring these customers. Id.
date, customers are still not receiving up-to-date data about
their Kingdom Trust accounts through the Bitcoin IRA
platform. Id. at 11:39-11:40 a.m. Kingdom Trust does
not send account data to Bitcoin IRA for any accounts.
Id. at 11:40 a.m. Because of volatility in
cryptocurrency markets, trading on reliable data is crucial.
Id. at 11:39 a.m. Kingdom Trust notes that customers
can still trade on updated data by first calling Kingdom
Trust or logging onto their website to check their account
data, and then logging on to Bitcoin IRA to make the trade.
Id. at 12:57-12:58 p.m. Around 80 trades have been
made in this manner since August 23, 2019, when Bitcoin
IRA's access to Kingdom Trust data was shut off.
Id. at 12:58 p.m.
IRA alleges that “down time” and continuity
statistics are crucially important to its reputation as a
technology platform. Id. at 10:31- 10:32 a.m. It
states that because it is not receiving data from Kingdom
Trust, its reputation suffers among its existing and
potential customers. Id. at 10:31 a.m. Account
holders who are unable to access their data via Bitcoin IRA,
despite having designated Bitcoin IRA as their ADR, may lose
confidence and trust in the service. Id. at 10:32
a.m. And Bitcoin IRA alleges that it could suffer ...