ICON Network Blockchain Property Rights Lawsuit Survives Motion to Dismiss


A San Francisco, California federal court ruled in favor of a man who created ICON blockchain network crypto-assets while allegedly taking advantage of an unintentional error in ICON’s protocols. The court noted that the lawsuit raises issues of first impression regarding the application of common law principles to the ICON network’s esoteric rules.

According to Monday’s order, Mark Shin sued ICON Foundation, accusing it of interference with his property rights based on events that occurred last year. In August 2020, the opinion recounted, Shin attempted to “direct some of his staked ICX tokens from being delegated to one P-Rep to being delegated to another through the ICONex wallet.” In the process, and apparently by mistake, he was granted 25,000 ICX tokens and through repetition of the process accrued 14 million by the end of the day.

He transferred a substantial proportion of the ICX tokens to two exchange platforms, but was soon frozen out of those accounts after ICON told the platforms that Shin was a malicious hacker who had stolen the assets. The operative complaint, the plaintiff’s second amended, stated three claims: conversion based on the frozen ICX tokens in his ICON wallet, trespass to chattel based on the same, and trespass to chattel based on the frozen crypto-assets in his accounts on exchange platforms.

The court’s order first considered the conversion claim. Judge William H. Orrick noted that the parties vigorously dispute whether the actions Shin took in acquiring the ICX tokens were “proper and whether common law principles should apply in this unique context.” Nevertheless, the court found that, at this stage, Shin had plausibly pleaded possessory interest in the ICX tokens because he minted, created, and staked a claim to them on the blockchain.

Judge Orrick also denied the motion as to the trespass to chattel claims. With regard to the third claim implicating the exchange platforms, the court found that “Shin plausibly alleges that ICON’s actions (telling Binance and Kraken that he is a malicious attacker and that his exchange accounts should be frozen) proximately caused his injury (the freezing of his exchange accounts).” However, the order noted that the extent of ICON’s influence over the exchange platform’s actions remains unclear at this stage.

Finally, the court found Shin’s punitive damages theory conclusory. “The primary issue with his punitive damages claim is that he has not plausibly alleged an act of oppression, fraud, or malice to begin with,” the order explained, though Judge Orrick permitted him to reassert the claim should discovery on the surviving causes of action show otherwise.

Mark Shin is represented by Roche Freedman LLP and ICON by Manatt Phelps and Phillips and Morrison Cohen.