Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 1 of 28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

GSR MARKETS LIMITED, )

)
Plaintiff, )
) CIVIL ACTION FILE
v. )
) NO. 1:19-cv-01005-MLB
DIANA MCDONALD, MCDONALD )
LAW GROUP LLC D/B/A LAW OFFICES)
OF DIANA MCDONALD, LLC, )
VALKYRIE GROUP, LLC, HUGH )
AUSTIN, BRANDON AUSTIN, AND )
WELLS FARGO BANK, N.A., )
)
Defendants. )

PLAINTIFF GSR MARKETS LIMITED’S RESPONSE IN OPPOSITION

TO THE McDONALD DEFENDANTS’ MOTION TO DISMISS

Plaintiff GSR Markets Limited (“GSR Markets”) files its response in

opposition to Diana McDonald’s and McDonald Law Group LLC’s (collectively,

the “McDonald Defendants”) Motion to Dismiss. (Dkt. No. 95). The McDonald

Defendants continue to delay these court proceedings so as to avoid discovery in

this matter, which is unquestionably not going to be helpful to them or their

claimed defenses.

The Verified Amended Complaint is detailed and lengthy. It is difficult to

conceive of a complaint which could have greater detail regarding the McDonald
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 2 of 28

Defendants’ intentional wrongdoing. The Verified Amended Complaint

incorporates (and the record contains) sworn testimony from McDonald herself,

authenticated documents, and the sworn testimony of others, which the Court can

review and rely upon in deciding this Motion.

The story is not complicated, though it is a story of egregious conspiracy to

defraud. In short, McDonald acted as escrow agent in a Bitcoin transaction. She

knew she was acting as escrow agent. GSR Markets wired $4 million into her

IOLTA account to be escrowed. McDonald immediately disbursed that money to

herself and others. She then affirmatively misrepresented to GSR Markets that its

money was safe and sound, when she knew otherwise. Her false assurances show

she knew full well that her disbursement of the funds was not consistent with her

duties as escrow agent. GSR Markets relied on her false statements and delayed in

acting, to its detriment.

All of the allegations regarding the above are detailed and are based on

sworn testimony, authenticated documents, and McDonald’s own correspondence.

There is no basis to dismiss any of the counts against McDonald, and the Motion

should be denied outright.

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FACTUAL ALLEGATIONS

The McDonald Defendants’ own recitation of the facts provides a detailed

story of what occurred, and shows that the allegations in the Verified Amended

Complaint more than state a claim against the McDonald Defendants.

I. McDonald Knowingly Acts as Escrow Agent in a Bitcoin Transaction.

GSR Markets is a Hong Kong Company, and Diana McDonald

(“McDonald”) is a Georgia lawyer operating through her law firm, McDonald Law

Group LLC (“McDonald Law”). (V. Am. Compl. ¶¶ 1-3 (Dkt. No. 76).)

In or around January 1, 2019, GSR Markets began discussions regarding a

Bitcoin transaction whereby it would purchase Bitcoin, with the funds escrowed

with the McDonald Defendants. (Id. at ¶¶ 13, 20.) A third-party, Alivic

Corporation Pty, Ltd. (“Alivic”) was purportedly the ultimate seller of the Bitcoin,

although it was Valkyrie Group, LLC, as Alivic’s broker, which signed the

contract as Seller. (Id. at ¶ 13.) Another third-party, OTC Desks Ltd., LLC (“OTC

Desks”) acted as GSR Markets’ broker, and represented to GSR Market that it had

done business before with the McDonald Defendants and Sellers. (Id. at ¶ 14.)

Under the terms of the agreement which GSR Markets and Valkyrie

ultimately signed, McDonald Law’s IOLTA account ending in -4172 was named

as Valkyrie’s nominated Escrow Account (the “Escrow Account”), and McDonald

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 4 of 28

as the account signatory. (Id. at Ex. B (Dkt. No. 76-2).) GSR Markets was to

deposit the first tranche into the Escrow Account, and upon confirmation of receipt

of the funds, Valkyrie would deposit the Bitcoin into GSR Markets’ wallet. (Id. at

Ex. B, p. 3.)

Based on the representations contained in the agreement, GSR Markets

wired $4 million into the Escrow Account, expecting to receive Bitcoin from

Valkyrie per the terms of the Agreement. (V. Am. Compl. ¶ 24.)

II. The McDonald Defendants Immediately Disburse the Escrowed Funds

to Themselves and Others.

Instead of escrowing the funds, or treating them as trusted funds deposited in

an IOLTA account, the McDonald Defendants used GSR Markets’ money as their

own personal piggybank, paying themselves and anyone else they thought to pay.

Immediately upon the receipt of the funds, McDonald disbursed $440,000 to

herself.1 (V. Am. Compl. ¶ 64.) She distributed the rest to other entities who are

not named parties in this case. (Id.) GSR Markets still has no idea who many of

these entities (or persons) are. For example, McDonald wired $800,000 of GSR

Markets’ money to an AgTex Group, LLC. (Id. at ¶ 92.) There is no evidence that

this is a legitimate transfer, and GSR Markets is unsure of how this entity is related

                                                            
1
GSR Markets is unaware of to whom McDonald sent that money.
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 5 of 28

to either the McDonald Defendants or the Valkyrie Defendants. (See, e.g., Id. at

¶ 93.)

McDonald also wired money to various other entities who had also been

involved in “Alivic” or “James Burke” transactions, apparently paying them back

for other money she and her co-conspirators had previously taken. For example,

Seth Eschen, one recipient of GSR Markets’ money, testified that his client had

escrowed $1,000,000 with McDonald in June 2018. (Id. at ¶ 77; Declaration of

Seth Eschen at Dkt. No. 43.) The claimed seller in that transaction was a “James

Burke,” the same “James Burke” McDonald claims is affiliated with Alivic, for

whom Valkyrie claimed to be broker in the GSR Markets transaction. (Id.)

Similarly, the payment to the entity “GivingBuilders, LLC,” was also related to a

“James Burke” transaction. (V. Am. Compl. at ¶ 81; Declaration of Heather H.

Sharp at Dkt. No. 42.) GSR Markets alleged other instances of such scams

between the Valkyrie Defendants and the McDonald Defendants. (V. Am. Compl.

at ¶ 82.)

In their Motion to Dismiss, the McDonald Defendants apparently take the

position that they were unaware of the terms of their escrow obligations because

they were not signatories to the agreement. (See, e.g., Br. at pp. 2-3 (Dkt. No. 95-

1).) But McDonald testified that she understood she was acting as escrow agent.
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 6 of 28

(V. Am. Compl. ¶ 21.) McDonald’s position is that, despite knowing she was

acting as escrow agent for GSR Markets’ funds escrowed in the Escrow Account,

she only owed fiduciary duties to Alivic. (Id. at ¶¶ 60.) She testified that her

“fiduciary responsibility was to Alivic as the ultimate beneficiary of the funds. I

was receiving any instructions regarding the disbursement or return of funds from

Alivic.” [Dkt. No. 9-1 at ¶ 5].2 The McDonald Defendants have presented

purported communications with Alivic to the Court for an in camera review,

though GSR Markets has not yet seen them.

III. The McDonald Defendants Falsely Claim GSR Markets’ Money Is Safe
in the Escrow Account.

When the Bitcoin was not delivered, GSR Markets began immediately

contacting McDonald. (Id. at ¶ 28.) On January 7, 2019, GSR Markets demanded

a refund of its escrowed money. (Id. at ¶ 32.) Of course, by that point, McDonald

had already disbursed no less than $890,000, and had attempted to disburse an

                                                            
2
GSR referred to other docket numbers in its Complaint, and this Court may
consider those matters of record in deciding the McDonald Defendants’ Motion.
See Annen v. Fed. Nat’l Mortgage Ass’n, No. 1:16-CV-02177, 2016 WL 11567870
(N.D. Ga. Nov. 16, 2016) (report and recommendation adopted, 1:16-CV-2177-
SCJ, 2016 WL 11567820 (N.D. Ga. Dec. 9, 2016)) (“A court evaluating a motion
to dismiss for failure to state a claim upon which relief can be granted ... may ...
consider any attachments to the complaint, matters of public record, orders, and
items appearing in the record.”) (string citation omitted).
 
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 7 of 28

additional $1.2 million which was ultimately returned on January 7, 2019. (See

Dkt. No. 47-7.) On January 7, 2019 (either before or after GSR Markets’ demand),

McDonald also wired to another of her accounts $1.8 million of GSR Markets’

money. (Id.)

McDonald’s responses to those demands show she was fully aware that her

actions were not consistent with those of an escrow agent or attorney, as she

immediately concocted false excuses. Instead of replying and stating that she had

already disbursed the money pursuant to Alivic’s instructions, as she now claims it

was entirely appropriate for her to do, McDonald responded apologizing for the

inconvenience, and stating that if seller failed to deliver, she would transfer the

escrowed funds back to GSR Markets. (Id. at Ex. E (Dkt. No. 76-5).) She

doubled-down on this lie on January 9, 2019, stating “I assure you that your funds

are safe and protected.” (Id.) She obviously did not tell GSR Markets that in fact

she had already taken possession over its escrowed funds, and that the funds were

not actually in the Escrow Account.

These knowingly false assurances went on and on, and the McDonald

Defendants accurately recite the contents of the multiple communications in their

brief. McDonald takes issue with some allegations, stating that GSR Markets has

failed to allege the context or who McDonald was speaking to when her statements
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 8 of 28

were made. The context is plain and does not require GSR Markets to allege it as

though the reader were not a competent adult: McDonald had stolen GSR Markets’

money, GSR Markets was demanding it to be returned, and McDonald told various

falsehoods to GSR Markets instead of stating where the money was. (V. Am.

Compl. ¶¶ 32-43, 52-54, Ex. E.)

Suffice to say, the communications all speak for themselves, and according

to McDonald’s own sworn testimony and authenticated documents in the record

and incorporated into the Complaint, they were false when made.

ARGUMENT AND CITATION TO AUTHORITY

I. Legal Standard On A Motion To Dismiss.

The pleading requirements under Rule 8(a)(2) of the Federal Rules of Civil

Procedure merely require “a short and plain statement of the claim showing that

the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). After “assum[ing] the

veracity” of the claimant’s factual allegations, the court is to “determine whether

they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009). Thus, a “complaint may proceed even if it strikes a savvy judge

that actual proof of [the facts alleged] is improbable, and ‘that a recovery is very

remote and unlikely.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556. If a

plaintiff’s allegations state a “plausible” claim for relief, dismissal is inappropriate.

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 9 of 28

Iqbal, 556 U.S. at 679. The relevant question for the Court is whether GSR

Markets has stated its claims; Defendants’ arguments that are based on factual

issues should be disregarded.

I. GSR Markets Has Adequately Stated A Claim For Declaratory

Judgment.

The McDonald Defendants claim that the Court lacks subject matter

jurisdiction over GSR Markets’ Declaratory Judgment claim because GSR Markets

has not alleged some risk of future injury. (Br. at p. 10 [Dkt. No. 95-1].)

The standard to state a claim for relief under the Declaratory Judgment Act

is not so limited. Instead, the Declaratory Judgment Act grants the to the federal

district courts the power to “declare the rights and other legal relations of any

interested party seeking such declaration, whether or not further relief is or could

be sought.” 28 U.S.C. § 2201. The issue is “whether the facts alleged, under all

the circumstances, show that there is a substantial controversy, between parties

having adverse legal interests, of sufficient immediacy and reality to warrant the

issuance of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312

U.S. 270, 273 (1941). See also Malowney v. Fed. Collection Deposit Grp., 193

F.3d 1342, 1347 (11th Cir. 1999) (“[T]he continuing controversy may not be

conjectural, hypothetical, or contingent; it must be real and immediate, and create a

definite, rather than speculative threat of future injury.”); Strickland v. Alexander,

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 10 of 28

772 F.3d 876, 883 (11th Cir. 2014) (a plaintiff must show more than a

“hypothetical or conjectural” injury).

Here, there is no question that a current and future controversy

exists. Multiple parties seek the rights to GSR Markets’ money. The Court’s

Order entering an injunction in this case establishes that there is an actual

controversy. That Order holds that while McDonald conceded that certain funds

are all directly traceable to the GSR Escrowed Funds, McDonald continues to

claim she is entitled to retain the funds as “legal fees.” (Dkt. No. 52). The

disputed funds are in the Court registry because there is a controversy between the

parties regarding ownership.

GSR Markets is unable to currently obtain its rightful property because of

the McDonald Defendants’ (spurious) claims that the money belongs to them.

GSR Markets has properly asked this Court to declare the legal relations of the

parties, and the legal ownership of the disputed funds so that the Court can

disburse the funds to their proper owner. (V. Am. Compl. ¶¶ 113-120.)

The McDonald Defendants also argue that GSR Markets’ declaratory

judgment count is duplicative of its other counts for money damages. To the

contrary, to the extent the Court finds that GSR Markets is owed the money, it

should enter the requested relief, i.e., a declaratory judgment that the money in the
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 11 of 28

Court’s registry belongs to GSR Markets and that it should be accordingly

disbursed.3 See Wachovia Bank N.A. v. Tien, 598 Fed. Appx. 613, 614 (11th Cir.

2014) (action seeking declaratory judgment regarding ownership of funds in bank

accounts).

II. GSR Markets Has Alleged in Detail the McDonald Defendants’

Fraudulent Actions.

A fraud claim has five elements: (1) a false representation made by the

defendant; (2) scienter, or knowledge of the statement’s falsity at the time the

statement was made; (3) an intention to induce the plaintiff to act or refrain from

acting in reliance on the statement; (4) the plaintiff’s justifiable reliance; and (5)

damage to the plaintiff. Wolfe v. Chrysler Corp., 734 F.2d 701, 703 (11th Cir.

1984).

In addition, Federal Rule of Civil Procedure 9(b) requires claimants to “state

with particularity the circumstances constituting fraud or mistake.” While a party

claiming fraud must plead the fraudulent behavior with particularity under Rule

9(b), the same provision allows a party to plead generally scienter for fraud. As

the Eleventh Circuit explained in Mizzaro v. Home Depot, Inc., 544 F.3d 1230

                                                            
3
GSR Markets is not concerned with how it obtains the money in the registry,
either through a declaratory judgment or some other order. The point is that the
money belongs to GSR Markets and should be disbursed to it.
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 12 of 28

(11th Cir. 2008), “Rule 9(b) does not require a plaintiff to allege specific facts

related to the defendant’s state of mind when the allegedly fraudulent statements

were made…it is sufficient to plead the who, what, when, where, and how of the

allegedly false statements and then allege generally that those statements were

made with the requisite intent.” 544 F.3d at 1237.

The allegations regarding the misrepresentations of the McDonald

Defendants easily meet the “who, what, when, where, and how” test.

The agreement at issue identified McDonald Law’s IOLTA account as the Escrow

Account, and McDonald testified she understood she was acting as escrow agent.

(V. Am. Compl. ¶ 21 & Ex. B.) In reliance on the agreement, GSR Markets wired

$4 million into the Escrow Account, which McDonald disbursed, to the great

detriment of GSR Markets.

On January 7, 2019, GSR Markets requested return of its funds from

McDonald. (Id. at ¶ 32.) The Verified Amended Complaint identifies and attaches

the various correspondence in which McDonald falsely represented that GSR

Markets funds were safe. (V. Am. Compl. ¶¶ 32-43, 52-54, Ex. E.) For example,

she stated on January 7 that “I hereby confirm that if the seller fails to deliver by

close of business today, January 7th, 2019, I will commence the process of

transferring your client’s escrowed funds via Wire Transfer to your client’s
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 13 of 28

account on January 8th, 2019.” (Id. at ¶ 33 and Ex. E.) On January 9, 2019, she

stated “we appreciate your patience and I assure you that your funds are safe and

protected.” (Id. at ¶ 36.) On January 10, 2019, McDonald promised to return the

funds, writing, “It will be done today as stated.” (Id. at ¶ 37.)

All of the above statements were false, as demonstrated by the fact that at

the time she assured GSR Markets that its funds were safe, she had already

disbursed much of the money. (V. Am. Compl. ¶ 130; Dkt. No. 47-7.) The

misrepresentations were made with the intent to induce Plaintiff to refrain from

acting. (Id. at ¶ 131.) Justifiably relying on McDonald’s assurances, Plaintiff did

refrain from acting, to its detriment. (Id. at ¶ 132.)

All of the above allegations not only adequately plead fraud, they prove it.

III. GSR Markets Has Alleged and Shown that the McDonald Defendants
Breached Their Fiduciary Duty to GSR Markets.

Plaintiff’s claim for breach of fiduciary duty is straightforward: the

McDonald Defendants undertook duties as escrow agent and held Plaintiff’s funds

in a trust account pending completion of the transaction. When she distributed the

funds to herself and others, McDonald breached her fiduciary duty to hold the

funds in trust for Plaintiff until the Bitcoin was received.

Under Georgia law, “[i]n order to create a valid and binding escrow, it is

necessary that there be an actual contract between the parties at interest, a proper
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 14 of 28

subject-matter, and an absolute deposit of an instrument with a depositary acting

for the parties, by which it passes beyond the control of the depositor to withdraw

the deposit on the performance or happening of the agreed conditions of the

escrow.” Rogan v. Patterson, 294 Ga. App. 35, 36–37, 668 S.E.2d 459, 460

(2008) (citation omitted). “No precise form of words is necessary to constitute an

escrow. The term ‘escrow’ need not be used.” Id. Thus, the escrow agent need not

be a party to the contract between the principals. The conditions to create an

escrow were indisputably present in this case, and the McDonald Defendants were

well aware of their role. McDonald testified she was aware she was acting as

escrow.

The McDonald Defendants apparently claim that even though they were

escrow agent, they could not know that they were not permitted to immediately

disburse escrowed funds to themselves and others instead of holding them in

escrow. Of course, the definition of an escrow agent is one who has a duty to

“perform for each of the parties, which duties neither can forbid without the

consent of the other,” i.e. an escrow agent is not permitted to act on the unilateral

instructions of one party to the detriment of the other. Rogan, 294 Ga. App. at 36-

37. See also Roberts v. Porter, Davis, Saunders & Churchill, 193 Ga. App. 898,

901 (1989) (“[t]itle of the escrowed property remains in the depositor who
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 15 of 28

surrenders his property to the third party, until all conditions of the escrow are

accomplished or it is abandoned and he or another receives the property from the

depository”). An escrow agent such as McDonald has no right to the property she

holds. Roberts, 193 Ga. App. at 901.

Further, McDonald is a Georgia attorney. She is bound by the ethical rules

regarding an IOLTA account. Those rules require McDonald to have an IOLTA

account, and require that no funds should be withdrawn from the IOLTA account

for the personal use of an attorney, except that earned as fees debited against the

account of a specific client and debited as such. Ga. R. Prof. Cond. 1.15(II). GSR

Markets alleges that the McDonald Defendants were obviously not entitled to pay

themselves legal fees from GSR Markets’ money given she did not perform any

services for GSR Markets in exchange for such fees. (V. Am. Compl. ¶ 104.)

Obviously the McDonald Defendants were not permitted to send it to third parties

unrelated to GSR Markets.

Finally, the allegations and evidence show that McDonald knew and

understood her role as escrow agent. She made multiple statements evidencing

that she knowingly undertook the duty of escrow agent, including stating to GSR

Markets, “I assure you that your funds are safe and protected.” (Id. at ¶ 36.)
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 16 of 28

It is clear that the McDonald Defendants breached their fiduciary duties as

escrow agent when GSR Markets’ funds were distributed before “the performance

or happening of the agreed conditions of the escrow.” Rogan, 294 Ga. App. at 37.

IV. GSR Markets Has Alleged the McDonald Defendants Were, At a

Minimum, Negligent.

GSR Markets has asserted a negligence claim against the McDonald

Defendants. At set forth above in the fiduciary duty section, the McDonald

Defendants plainly had a duty to GSR Markets as escrow agent and holder of the

IOLTA account which held GSR Markets’ money in trust. At the bare minimum,

assuming the McDonald Defendants were entirely ignorant as to their duties as

escrow agent, it was negligent of the McDonald Defendants to apparently do zero

investigation into the terms of the escrow arrangement.

V. GSR Markets Has Alleged the Existence of a Conspiracy.

The McDonald Defendants argue that they cannot be responsible for

conspiracy since there are insufficient allegations of fraud. As set forth above, this

argument fails. There are ample allegations (and record evidence) of fraud. The

McDonald Defendants also claim there are not allegations of an “overt act.” More

than an overt act toward a fraud, there is the actual act – the conversion of GSR

Markets’ money, which is alleged in passim throughout the Verified Amended

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 17 of 28

Complaint and to which McDonald testified at length in her deposition. (Dkt. No.

47.)

In any event, GSR Markets has sufficiently alleged a conspiracy. Beyond

alleging that the McDonald Defendants and the Valkyrie Defendants worked

together to defraud GSR Markets in this transaction as set forth above, GSR

Markets alleged several other “Alivic” transactions which were related to GSR

Markets and which indicates a conspiracy. (V. Am. Compl. ¶¶ 77-82; Dkt. Nos. 42

& 43.)

VI. GSR Markets Has Alleged a RICO Violation.

The McDonald Defendants argue that GSR Markets’ claim under Georgia

RICO does not adequately describe their predicate acts. As set forth above, the

McDonald Defendants’ fraudulent actions are described in great detail in the

Verified Amended Complaint, including the communications and documents sent,

the misrepresentations made, and the “who, what, when, where, and how” of the

fraud. Specifically with regard to Georgia RICO, paragraph 205 of the Verified

Amended Complaint identifies the documents transmitted by mail and internet,

described more completely earlier in the Verified Amended Complaint. Plaintiff

has adequately alleged the McDonald Defendants’ predicate acts of mail and wire

fraud, and its RICO claim should not be dismissed.

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“Racketeering activity means to commit, to attempt to commit, or to solicit,

coerce, or intimidate another person to commit any crime which is chargeable by

indictment under” an enumerated list of Georgia and federal laws, often referred to

in the RICO context as “predicate acts” or “predicate offenses.” O.C.G.A. § 16-

14-3(9) (internal quotation marks omitted); see, e.g., Ali v. State, 328 Ga. App.

203, 207 (“[T]he Georgia RICO Act contemplates the performance of two or more

predicate offenses to establish a pattern of racketeering.”).

The predicate acts constituting racketeering include federal mail and wire

fraud. See O.C.G.A. § 16-14-3 (5)(C); 18 U.S.C. §§ 1341 (mail fraud) and 1343

(wire fraud). Mail or wire fraud occurs when a person (1) intentionally participates

in a scheme to defraud another of money or property and (2) uses the mails or

wires in furtherance of that scheme. Feldman v. American Dawn, Inc., 849 F.3d

1333, 1343 (11th Cir. 2017); Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283,

1290 (11th Cir. 2010).

GSR Markets has adequately alleged the details of Defendants’ fraudulent

scheme, and has adequately alleged that the McDonald Defendants used the mails

or wires in furtherance of that scheme on at least two instances. See, e.g., Georgia

Gulf Corp. v. Ward, 701 F. Supp. 1556, 1559 (N.D. Ga. 1987) (declining to

dismiss RICO claim based on mail and wire fraud, stating “[t]he scheme to defraud
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 19 of 28

is set out explicitly, and Georgia Gulf has alleged how the mails and interstate

wires were used in furtherance of the scheme.”) Accordingly, the Georgia RICO

claim is adequately plead and should not be dismissed.

VII. GSR Markets Has Alleged that the McDonald Defendants Have Been
Unjustly Enriched by Their Conversion of GSR Markets’ Funds.

Taking someone’s money and paying it to yourself without giving anything

in return is quite literally the definition of “unjust enrichment.” (Notably, the

McDonald Defendants do not move to dismiss GSR Markets’ conversion claim.)

“The theory of unjust enrichment applies when as a matter of fact there is no legal

contract…, but where the party sought to be charged has been conferred a benefit

by the party contending an unjust enrichment which the benefited party equitably

ought to return or compensate for.” Smith v. McClung, 215 Ga. App. 786, 789

(1994). Given that the McDonald Defendants (or the Valkyrie Defendants) did

nothing to earn a fee from GSR Markets, they obviously should be required to

compensate GSR Markets or return its funds. The McDonald Defendants’

argument that unjust enrichment is not an available remedy where there are

damages available is nonsense. Damages are a remedy for any unjust enrichment

claim.
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 20 of 28

VIII. GSR Markets Is Entitled to an Accounting of Its Funds Which Were

Held in the Escrow Account.

In their Brief, the McDonald Defendants list precisely the reason GSR

Markets is entitled to an accounting. As they state, “pursuant to Ga. Code. Ann. §

23-2-79, equity jurisdiction over matters of account extends only to…(4) Cases

where the account is of a trust fund.” (Br. at pp. 22-23.) The IOLTA account is a

trust account, and GSR Markets is entitled to an account of all of its funds which

were in that trust account.

IX. GSR Markets Has Alleged Securities Fraud.

The McDonald Defendants argue that Bitcoin is not a security, and therefore

GSR Markets has not stated a claim for securities fraud.  

On July 25, 2017, the SEC issued a Report of Investigation pursuant to

Section 21(a) of the Exchange Act (the “DAO Report”) setting forth the SEC’s

view that digital assets may be securities. The DAO Report focused on the Howey

test to determine whether a cryptocurrency is a security. That test establishes that

“an investment contract for purposes of the Securities Act means a contract,

transaction or scheme whereby a person invests his money in a common enterprise

and is led to expect profits solely from the efforts of the promoter or a third party,

it being immaterial whether the shares in the enterprise are evidenced by formal

certificates or by nominal interests in the physical assets employed in the

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 21 of 28

enterprise.” S.E.C. v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946); see also

O.C.G.A. § 10-5-2(31) (defining security under Georgia law).

Thus, whether any cryptocurrency is a security is a factual question. GSR

Markets has alleged certain facts that tend to show that its agreement for Bitcoin

was an investment contract and qualifies as a security in this context. As the

agreement indicates, GSR Markets possessed available investment funds and

wanted to invest in the Bitcoin for the purpose of its portfolio expansion strategies.

(See Doc. 76-2 at p. 2.) Valkyrie further represented in the agreement that:

SELLER, through its connected commercial relationships,

global correspondents, affiliates, financial authorities, and
institutional network, is a miner or/and holder of BTC, and
other Crypto Assets Wallets which it intends to be for sale
to certain, qualifying legal persons which are financially-
fit and competent performers.

(Id.) Thus, GSR Markets’ purchase of the Bitcoin was based on the efforts of

Valkyrie to mine or otherwise obtain the Bitcoin for sale to GSR Markets for

investment purposes.

GSR Markets alleged that Bitcoin’s value changes rapidly, unlike a

commodity such as money. The parties agreed to “transact on the total volume of

1,500 BTC (With mutually agreed upon Rolls and Extensions) in accordance with

the instrument specifications, pricing structure and tranche scheduling as described

[in the agreement].” (Id. at p. 4.) According to the closing procedure, the parties
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 22 of 28

agreed that GSR Markets would transfer funds to the escrow account, and upon

confirmation of the escrow deposit, Valkyrie would “initiate the placement of not

in excess of $70,000,000 of XBT value first tranche Amount/value, directly to the

buyers (sic) designated WALLET.” (Id. at p. 5.) Under Annex A to the

agreement, the parties agreed to at least one tranche per business day. (Id. at p.

10.) The investment arrangement appears to contemplate at least one tranche per

business day of Bitcoin transferred by Valkyrie to GSR Markets until the total

volume of 1,500 Bitcoin was reached. Furthermore, the agreement was to remain

“in full force and effect unless the total bitcoin (BTC) value has been completely

fulfilled to the satisfaction by both PARTIES . . .” (Id. at p. 6.)

Because the Howey test is fact-based, discovery is necessary to confirm

whether the agreement is an investment contract subject to federal and state

securities laws and regulations. Based on the totality of the circumstances,

including GSR Markets’ reliance on the efforts of Valkyrie and the ongoing nature

of the contemplated investment scheme (at least one tranche of Bitcoin transferred

per business day until the total volume of Bitcoin is fulfilled), the purchase

contract may qualify as an investment contract subject to securities laws.

GSR Markets recognizes, however, that there are contradictory opinions

regarding whether Bitcoin is a security never, sometimes, or always. It therefore

 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 23 of 28

pleads in the alternative to its securities claim a violation of the Commodities

Act. Other than complaining GSR Markets did not meet the heightened pleading

standard under Rule 9(b) (it has), the McDonald Defendants do not otherwise

argue that count should be dismissed.

X. GSR Markets’ Derivative Claims Survive.

As set forth above, GSR’s underlying claims are not subject to dismissal at

this early stage, and its derivative claims of punitive damages and attorneys’ fees

likewise are not subject to dismissal. Kenney v. PennyMac Loan Servs., 1:15-CV-

03632, 2017 WL 10978493, at *10 (N.D. Ga. Jan. 12, 2017), report and

recommendation adopted, 1:15-CV-03632, 2017 WL 10991376 (N.D. Ga. Mar. 7,

2017).

XI. The “Conflict Resolution” Provision in the Agreement Is

Unenforceable.

The McDonald Defendants finally argue that GSR Markets is bound by the

“Conflict Resolution” provision in the underlying agreement. Given that no party,

except for GSR Markets, even attempted to perform under the agreement, this is a

rich argument.

The Conflict Resolution provision is nearly incomprehensible, and states as

follows:
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 24 of 28

Though the Parties hereto as of the Mind to be courtesy

and full of integrity, with all their dealings with each other,
in any event a conflict or dispute arises, relating to or in
connection with this Agreement, the undersigned Parties
shall endeavor to settle any dispute, out of Court.
However, whether either feels such third-party be a
necessity; then, allowing for at least 30 days for the alleged
contract breaker to cure the ill of the complaining Party
hereto, and prior to the one or the other engaging a
competent Court for the purpose of jury-free arbitration,
one final effort will be made to resolve the dispute(s) out
of Court by engaging the Chamber of Commerce
mediation. And where the Chamber of Commerce
mediator cannot have the Parties settle their differences
amicably; then, the mediator’s notes may be used as
supporting evidence of the Court, competent in digital
Assets matters, to hear and rule on.

(V. Am. Compl. Ex. B at pp. 6-7.)

First, the McDonald Defendants are not parties to the agreement, and the

provision is expressly limited to parties. It also appears to be limited to contract

claims given the reference to “contract breaker.”

Second, the provision makes no sense. Putting aside the lack of a valid

waiver of trial by jury, how would one “engage a competent Court for the purpose

of jury-free arbitration?” Which court is “competent in digital Asset matters?”

Which court is going to hear and rule on a mediator’s notes? This provision is as

unreasonable and as vague as one could imagine, and thus unenforceable under

Georgia law. See Dale v. Comcast Corp., 498 F.3d 1216, 1219 (11th Cir. 2007)
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 25 of 28

(noting under the Federal Arbitration Act, state law may invalidate a provision, and

that in Georgia commercially unreasonable provisions or public policy concerns

can invalidate a provision). The conspicuousness and comprehensibility of the

contract language are relevant factors to determine enforceability. NEC Techs.,

Inc. v. Nelson, 267 Ga. 390, 392 (1996). In addition to the incomprehensibility,

“the agreement is missing essential terms, including how the parties select an

arbitrator and the governing authority, like the American Arbitration Association,

under which the arbitration would be conducted.” See Matthews v. Ultimate Sports

Bar, LLC, No. 1:13-CV-2353-TWT, 2016 WL 4035655, at *2 (N.D. Ga. July 28,

2016) (striking incomprehensible arbitration provision).

Even if the Court could make heads or tails of the provision, the McDonald

Defendants have waived any right to enforce the provision by failing to engage in

any good faith settlement discussions, and instead, as outlined above,

misrepresenting the status of GSR Markets’ funds and refusing to respond to

demands.

CONCLUSION

GSR Markets has more than sufficiently plead its allegations against the

McDonald Defendants, who have testified regarding the facts at issue. The Motion

should be denied.
Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 26 of 28

This 13th day of June 2019.

/s/ Heather H. Sharp

Richard L. Robbins
Georgia Bar No. 608030
rrobbins@robbinsfirm.com
Vincent R. Russo
Georgia Bar No. 242628
vrusso@robbinsfirm.com
Heather H. Sharp
Georgia Bar No. 671545
hsharp@robbinsfirm.com
Robbins Ross Alloy Belinfante
Littlefield LLC
500 14th Street, NW
Atlanta, GA 30318
Telephone: (678) 701-9381
Facsimile: (404) 856-3250
Attorneys for GSR Markets Ltd.
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 27 of 28

L.R. 7.1(D) CERTIFICATION

I certify that the foregoing PLAINTIFF GSR MARKETS LIMITED’S

RESPONSE IN OPPOSITION TO THE McDONALD DEFENDANTS’

MOTION TO DISMISS has been prepared with one of the font and point

selections approved by the Court in Local Rule 5.1(C). Specifically, it has been

prepared using 14-pt Times New Roman Font.

/s/ Heather H. Sharp

Heather H. Sharp
 Case 1:19-cv-01005-MLB Document 102 Filed 06/13/19 Page 28 of 28
 

CERTIFICATE OF SERVICE

I hereby certify that I have this day served the within and foregoing

PLAINTIFF GSR MARKETS LIMITED’S RESPONSE IN OPPOSITION

TO THE McDONALD DEFENDANTS’ MOTION TO DISMISS on all parties

by electronically filing it with the Clerk of Court using the online filing system,

which will automatically send an email notification of such filing to all counsel for

the parties.

This 13th day of June, 2019.

/s/ Heather H. Sharp

Heather H. Sharp