Crypto: "Making a living from trading alone doesn't make you a professional!"

Monday, September 4, 2023

In an opinion piece, lawyer Margaux Frisque (D&A Partners) discusses the recent ruling by the French Supreme Court (28 June 2023) that an investor whose sole source of income is crypto trading is not necessarily a "professional".

It's a decision that could have many consequences for crypto investors. On 28 June 2023, the Court of Cassation ruled in favour of a French customer of the Spectrocoin platform, holding that he was not a "professional trader", even though all of his income came from crypto trading.

The case began in 2020. At the time, a French customer of the Lithuanian platform Spectrocoin had just had his account hacked, causing him to lose a large part of his funds. To recover them, he sued the platform before a French judge, despite a clause providing that only Lithuanian courts had jurisdiction.

The French judge was to declare himself incompetent to handle this dispute, but the Montpellier Court of Appeal - hearing the case just after him - was to consider that the plaintiff's status as a 'consumer' allowed him to sue the platform before the courts of his place of residence. In other words, France.

Spectrocoin then appealed to the French Supreme Court (Cour de Cassation) to have the qualification of "consumer" set aside.

The text submitted to the interpretation of the judges of the Court of Cassation is a European regulation of 12 December 2012, which allows - under certain conditions - the territorial jurisdiction of the courts of the Member State where a consumer is resident to be retained.

Under this regulation, in order to qualify as a consumer, the contract must have been concluded for a use "outside his professional activity".

For Spectrocoin, its client is not a "consumer", but a professional since he was a member of the board of directors of the NEM foundation and carried out very many transactions and made substantial gains. The platform also emphasised that its client's sole source of income was trading in digital assets, in the absence of any other professional activity.

These arguments did not convince the Cour de cassation, however, which held that the contract allowed "both the chance to make his gains grow and the risk of losing them" and that "even if this activity had been regular, i.e. 200 transactions in 9 months, the profit made falls within the framework of the management of a private asset so that if Mr. X has special knowledge of crypto-currencies, he only participated in these activities on a voluntary basis and was no longer a member of the board of directors when the contract was concluded".

Thus, neither the size of the gain generated by the trading activities, nor past participation in a project in the blockchain environment allow an individual acting as part of the management of his private assets to be considered to have lost his status as a "consumer".

Some foreign platforms still include these so-called "unfair" clauses in their general terms and conditions under French and European Union law. These stipulations, if the economic activity is directed towards the French market, will not be enforceable against French users and expose the operator in France to civil sanctions (damages and interest), administrative sanctions (fines) and even criminal sanctions!

This analysis is not investment advice. It has been prepared without taking into account your personal situation, particularly your financial situation, risk profile, and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial, and accounting advisors.

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