Not My Crypto Shield Falls: NY Court Rules Control of the Flow Triggers Liability

Court Slaps Down Trader’s “Not My Crypto” Defense

New York’s top appeals court just ruled that you can’t dodge a commodities-fraud lawsuit by claiming the digital tokens never touched your wallet. The March 27 decision in Regal Commodities v Tauber strips away a favorite shield used by crypto middlemen and hands regulators a clearer path to pursue hidden market makers.

The fight started when Regal, a commodities trading firm, accused broker-dealer David Tauber of secretly routing customer orders through anonymous wallets, pocketing the spread, and then blaming third-party “mixing services” when the money vanished. Tauber moved to dismiss, arguing that because the coins never sat in an account he personally controlled, New York courts lacked jurisdiction and commodities law didn’t apply. The Appellate Division, Second Department, unanimously rejected that argument, holding that directing the flow of customer assets—on-chain or off—is enough to create liability under state fraud statutes.

The judges said the key legal question wasn’t where the coins landed, but whether Tauber exercised “dominion or control” over them at the moment of the trade. They found enough evidence that he chose the destination addresses, set the timing, and kept the private keys from counterparties. With that factual finding, the court refused to let the case be kicked out on summary judgment and sent it back for trial.

In plain English, the ruling tells crypto traders that moving someone else’s tokens—even if the blockchain never records your name—can still count as “taking custody” under New York law. That lowers the bar for proving control and makes it harder for offshore mixers or anonymous OTC desks to claim they’re mere messengers.

For markets, the decision widens the dragnet the SEC and CFTC can throw over DeFi counterparties and high-frequency traders who hide behind smart-contract scripts. Stablecoin issuers and exchanges that partner with such traders now face fresh litigation risk if those traders later get sued for fraud; expect tighter KYC on OTC desks and more demands for on-chain attestations. DEX liquidity providers could also feel heat if plaintiffs argue that code-level control equals legal control.

Bottom line: if you touch the flow, you own the risk—code is not a get-out-of-court-free card.