When Crypto Is Stolen, Can Courts Really Freeze It?
A recent filing in a Maryland federal court highlights a problem that is becoming familiar to judges, litigators, and boards alike. After a law firm reported that roughly $4 million in client-owned cryptocurrency had been siphoned from its escrow wallets through a phishing attack, it asked the court for emergency injunctive relief aimed at stopping further movement of the assets and freezing funds that had already been traced to known wallet addresses.
The theft itself has been widely covered. What deserves closer attention is what followed: the legal mechanics of trying to secure fast, court-ordered control over digital assets that can move across jurisdictions in minutes. The case, now before U.S. District Judge Rebecca Rubin, offers a useful window into what emergency crypto injunctions can realistically achieve—and where their limits remain.
For lawyers and business leaders, the issue is not whether courts will entertain these applications. They increasingly do. The harder question is whether the relief granted can still matter by the time it arrives.
Why This Matters for Lawyers and Business Leaders
Any organisation that holds digital assets on behalf of clients, counterparties, or investors should be paying attention. That includes law firms acting as escrow agents, fintech companies, exchanges, family offices, and corporates using crypto in treasury or settlement arrangements.
Emergency injunctions are often seen as the legal equivalent of pulling a fire alarm. In theory, they stop further harm while the dispute is sorted out. In crypto cases, they are also one of the few tools available before criminal enforcement or cross-border cooperation comes into play.
For boards and in-house teams, this raises a practical question: if something goes wrong, is injunctive relief a meaningful safeguard—or mostly a procedural necessity that looks reassuring but delivers limited control?
How This Plays Out in Practice
In a conventional fraud case, an injunction freezing bank accounts can be highly effective. Banks are regulated, centralised, and responsive to court orders within their jurisdiction. Crypto operates differently.
In practice, emergency relief tends to work in layers. Courts can restrain known defendants, prohibit dealings with identified wallet addresses, and direct third parties—such as exchanges—to preserve assets under their control. Where stolen funds have already been traced to an exchange account, an order can be decisive if the exchange cooperates and falls within a reachable regulatory framework.
The difficulty arises when assets are still moving. Hackers often split funds rapidly across dozens of intermediary wallets, some controlled by software rather than people, and some hosted in jurisdictions with no practical enforcement pathway. An injunction cannot reverse completed blockchain transactions. At best, it can slow or stop the next step.
What this shows is that timing, not legal theory, usually determines effectiveness. The earlier tracing and court involvement begin, the narrower the window for dissipation.
Where the Legal Risk or Leverage Really Sits
The instinct in these cases is to focus on the hackers. In reality, the leverage often sits elsewhere.
One pressure point is any regulated intermediary that touches the assets after the theft. If funds land at a major exchange or custodian, courts can exert real influence, even before liability is determined. Another is reputational and contractual exposure for firms that hold client crypto. The mere need to seek emergency relief can trigger uncomfortable questions from clients, insurers, and regulators about custody practices and internal controls.
There is also litigation risk in how the relief is framed. Overly broad injunctions can be challenged as unenforceable or disproportionate, particularly when they purport to bind unknown parties. Too narrow, and they may be obsolete by the time they are served.
Organisations tend to underestimate how quickly a court will scrutinise whether the applicant itself exercised reasonable safeguards before the loss occurred. Emergency does not suspend that inquiry; it merely postpones it.
What the Law Is Actually Doing
Despite frequent claims that crypto sits outside the reach of courts, judges have shown little hesitation in applying traditional equitable principles to digital assets. Conversion, unjust enrichment, conspiracy, and restitution claims are familiar tools, even when the subject matter is new.
Procedurally, courts rely on the same standards for temporary restraining orders and preliminary injunctions: likelihood of success, irreparable harm, balance of equities, and public interest. What changes is the evidence. Blockchain forensics now plays a role similar to bank records in earlier eras, allowing plaintiffs to show traceability even without knowing the identity of the wrongdoer.
At the same time, courts remain cautious. Injunctions do not confer ownership, do not guarantee recovery, and do not override jurisdictional limits. They are holding measures, not solutions.
The Bottom Line
Emergency injunctions in crypto theft cases are neither symbolic gestures nor silver bullets. They are tools whose value depends on speed, precision, and the presence of cooperative intermediaries.
For lawyers advising clients that custody or transact in digital assets, the real lesson is preparatory rather than reactive. Once funds are moving, the law can slow the damage but rarely undo it. The organisations that fare best are those that understand, in advance, what an injunction can realistically achieve—and what it cannot—before they ever need to ask a judge for one.
FAQs
Can a U.S. court actually freeze cryptocurrency held outside the United States?
A U.S. court can issue orders restraining parties subject to its jurisdiction, including directing exchanges or custodians to preserve assets they control. The practical effect depends on whether the intermediary recognises and complies with the order. Courts cannot directly compel foreign actors with no U.S. nexus, which is why timing and asset location matter.
Does obtaining an emergency injunction mean the stolen crypto will be recovered?
No. An injunction is a holding measure, not a recovery mechanism. It can prevent further movement of assets that are still reachable, but it cannot reverse completed blockchain transactions or guarantee restitution. Recovery typically depends on whether assets are intercepted at a compliant exchange or custodian.
Are organisations that hold client cryptocurrency treated like financial custodians in court?
Courts have not created a separate crypto-specific custody standard, but they assess conduct through existing fiduciary, negligence, and reasonableness frameworks. Organisations holding client assets are likely to face scrutiny over security controls, access management, and incident response—particularly when seeking equitable relief.
What happens when an exchange receives allegedly stolen crypto?
Exchanges are not automatic enforcers, but many will act once presented with credible tracing evidence and a court order. Responses range from temporary account restrictions to asset preservation pending further proceedings. The outcome often turns on the exchange’s regulatory exposure and jurisdictional ties, not on the merits alone.
