Florida Magistrate Sanctions Craig Wright in Kleiman Bitcoin Case

A federal magistrate judge in Florida imposed sweeping discovery sanctions against Craig Wright on August 27, 2019, sharply narrowing his defenses in a lawsuit over early bitcoin and Bitcoin-related intellectual property.

The written order in *Kleiman v. Wright*, entered in the Southern District of Florida as docket entry 277, found clear and convincing evidence that Wright had willfully failed to comply with discovery orders and had acted in bad faith. Magistrate Judge Bruce E. Reinhart granted the plaintiffs’ motion to compel, authorized consideration of their reasonable expenses and struck several of Wright’s affirmative defenses.

The ruling mattered beyond the litigants because Wright had publicly claimed to be Satoshi Nakamoto, Bitcoin’s pseudonymous creator. The dispute attached potentially enormous—but unverified—economic stakes to records concerning Bitcoin’s earliest years. The order nevertheless drew an explicit boundary around what the court had decided: it did not determine whether Wright was Satoshi and did not determine how much bitcoin, if any, he controlled on August 27, 2019.

What the court established

As a sanction under Federal Rule of Civil Procedure 37, the court deemed four facts established for purposes of this lawsuit. It treated Wright and the late computer-security specialist David Kleiman as having entered a 50/50 partnership to develop Bitcoin intellectual property and mine bitcoin; treated Bitcoin-related intellectual property developed by Wright before Kleiman’s death as partnership property; treated bitcoin mined by Wright before Kleiman’s death as partnership property when mined; and recognized that the plaintiffs retained an ownership interest in the partnership’s bitcoin and traceable assets.

Those findings were litigation sanctions, not a verified inventory or an immediate blockchain transfer. The order did not direct Wright to send a specified number of coins to the plaintiffs. Although the plaintiffs’ motion referred to 1,100,111 bitcoin in an alleged Tulip Trust document, the court did not adopt that figure as a finding about Wright’s holdings. Contemporary headlines describing an award of half of roughly one million bitcoin therefore went further than the written order supported.

Reinhart also struck defenses including good faith, payment, release, set-off, waiver and the statute of frauds. The court allowed the plaintiffs to seek reasonable fees and costs by September 20, 2019, but had not fixed an amount in the August 27 order.

Discovery collided with disputed ownership claims

The sanctions followed a prolonged dispute over Wright’s obligation to identify bitcoin he owned or controlled as of December 31, 2013. Wright maintained that information needed to reconstruct those holdings was inaccessible through an encrypted file associated with the alleged Tulip Trust. After hearings and testimony, Reinhart rejected Wright’s account as uncorroborated.

The order found that Wright had engaged in obstructive conduct that included incomplete or deceptive pleadings, a false declaration, production of a fraudulent trust document and perjurious testimony. It expressly placed responsibility on Wright rather than his lawyers, whom the court declined to sanction.

For the cryptocurrency sector, the institutional lesson on August 27, 2019 was narrower and more durable than the disputed fortune attached to the case. A transparent public ledger could show transactions, but it could not by itself resolve who controlled particular keys, whether claimed partnerships existed or whether documents offered to connect people with addresses were authentic. Courts could still apply ordinary discovery rules—and severe procedural consequences—when claims involving pseudonymous assets depended on evidence held by a party.

The litigation remained unresolved on its ultimate merits on August 27. The order materially changed the evidentiary terrain, but it was not a final judgment establishing the size of a bitcoin estate, proving Wright’s identity or ordering a market sale.