Bitcoin Forum

Hi,

IANAL ;D

Much has been theorized about the way the feds will be going forward with the BTC they seized from SR servers so far (26k BTC) and those that they will potentially be seize from Ross Ulbricht in the future (up to 600k BTC or 80M USD in BTC).

I wonder how they are going to proceed with those moneys, will they either liquidate them for USD in a public auction (like commodities or real estate) or will they just delete them like other illegal forfeited substances? Will they maybe liquidate them on the open market thus potentially crushing Bitcoin/USD price?

What are the most likely scenarios?


Some sources I found on the matter:

Summary of events:
http://www.forexminute.com/bitcoin/fbi-may-liquidate-the-seized-bitcoin-from-silk-road-18743

http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=10&ved=0CHsQFjAJ&url=http%3A%2F%2Fwww.njdcj.org%2Fpdfs%2Fsop_5.pdf&ei=1l5YUuqwJ_On0wWR74DYBQ&usg=AFQjCNHaW9mv_xCgHK0IwnrGywW694637w&bvm=bv.53899372,d.d2k

There may be an exception to this guidance applicable in our case, because:

http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CDMQFjAB&url=http%3A%2F%2Fwww.justice.gov%2Fcriminal%2Fafmls%2Fpubs%2Fpdf%2Fpm-2012.pdf&ei=o1hYUtWwMsSI0AXS8IDgCw&usg=AFQjCNFG3ZxMfCQ0OgdJo83LhrE6I0vHWg&bvm=bv.53899372,d.d2k


It can be argued that the BTC serve as evidence in the case because they show where they came from and can potentially be traced back to seller and buyers engaged in illicit activities on the Silk Road. On the other hand the BTC themselves are not needed to provide this kind of information and may be liquidated because all the transaction histories are already in the blockchain and the BTCs themselves are known to the feds already. There may also be intelligence on the origins of those funds on the serves the feds seized along the SR bust.



Major Update:
Forbes repotres today that the FBI have managed to seize another whopping 144kBTC of Ulbricht's stash:
http://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-says-its-seized-20-million-in-bitcoins-from-ross-ulbricht-alleged-owner-of-silk-road/

The coins are being held here: https://blockchain.info/address/1FfmbHfnpaZjKFvyi1okTjJJusN455paPH

More coins may be in hidden by him. So far it remains unclear how the FBI is going to proceed with their seizure.

to move that kind of BTC they would most likely have to sell it on an exchange*
It would be extremely interesting which exchange they use.

By using the exchange aren't they in a way giving a green light as to the legitimacy of a particular exchange?

If they don't outright state which exchange they use to liquidate ...a FOIA might be able to be filed.

--
The foreign currency conversion reference you provided appears to be specific to New Jersey  .. however I found similar Fed regs
http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/111mcrm.htm

---
If the feds are concerned about the fluctation in Bitcoin price they are also allowed to sell

http://letstalkbitcoin.com/users-bitcoins-seized-by-dea/

* An interesting alternative could be to simply auction off the Bitcoin to the highest bidder (likely a pool  created for the purspose of purchasing)
http://www.treasury.gov/services/Pages/auctions_index.aspx
dunno... this could be crazy talk.

These people will treat them as Storage to stablize the gold. These people may do more bitcoin business later on.

With regard to the first issue, I am pretty sure Bitcoin would not be considered "foreign currency" even if it is considered "currency" at all.  Arguably, it does constitute "seized cash."  However, even if it does, the exception for use as evidence would apply at least until there is no chance of it being used as evidence.  If it is not cash, however, it could be treated as the feds treat any other seized commodity, and sold at auction at some indefinite future date, subject to internal rules and regulations of the agency.  Even then, of course, it could be subject to the "evidence" rule and kept indefinitely.

The disposition of the DPR case might not resolve the issue, as it may still be "evidence" in other cases.  If the feds were actually seeking to maximize the value of their holdings (which they often don't do much to do such as by selling properties often on the cheap at auction), they'd find any excuse to hold onto it as long as possible before liquidating.

There might also be some procedure for anyone whose business through SR was entirely legitimate to make a claim on any seized funds.  That, of course, assumes there are any such people who would be willing to expose their identities.

The blockchain is more useful evidence than the bitcoins.

I think they will slowly sell the coins on an exchange, no big deal

True, at least to people who know Bitcoin, but they're doing this in front of a judge and (maybe) a jury.  So the less they have to explain, the better, and explaining how something is evidence when they don't even "have" the "money" any more may be beyond the ken of the average juror (or judge).

They aren't meant to do anything with it until after they get a guilty verdict anyway.

If they do dispose of it, it goes to the forfeiture fund.
http://www.justice.gov/oig/reports/2013/a1307.pdf
If the trial goes on for a significant length of time the amount may significantly impact the fund's operations and perhaps encourage other cases that may result in seizures. 

Actually, they can fail to get a guilty verdict but still win the civil action over the forfeiture.  But yes, they at least shouldn't dispose of the assets before some legal resolution.

Technically, yes.  It is a separate case, it happens, but that is a weird outcome.
And sometimes you get the forfeited property returned even with a guilty, or at least some of it.

Do they even have access to those funds? Wasn't those wallets encrypted?

True we don't even know if they have access yet.

Secondly i doubt all 80 mil he made is all in one place, and none of it spent yet

80 mil worth of bitcoins is significant though.

The government can't sell them, they'd have to apply for a license and all, it could take years!

This as well.Afaik the 600k BTC is pure speculation.Noone knows the exact amount so it's a little early to talk about the impact of the seized wallets
to the price of bitcoin...

I believe, if I've read it correctly, that they actually do have access to the SR hot wallet funds, or at least, I believe that's what the seized non-DPR BTC are.  So we may see them attempt to liquidate those funds sooner than the DPR funds, especially if they don't end up prosecuting anyone over them.  At least the owners of unquestionably illegal proceeds are very unlikely to come forward and make a claim on them, and even people who were selling something legal in their own jurisdiction (like PlutoPete), may be unwilling to make a claim on funds in the United States, where selling paraphernalia may be illegal (ask Tommy Chong), if only because they'd effectively be waiving a jurisdictional claim by coming forward and submitting their claims to a US court.

i think this be normal for comunity bitcoin

The FBI is highly unlikely to liquidate the funds until after the case is closed. I honestly hope they hold an auction with cheap prices for bitcoins haha.

The evidence thing is not important, since the evidence lies in the block chain. They can sell the coins, and still prove all they need to.

Also, even if they do not secure a criminal conviction, I doubt that he has paid taxes on his criminal income, so that in itself will be enough to confiscate all the money.

http://www.forbes.com/2011/06/08/property-civil-forfeiture.html

Wasn't the wallet encrypted ?

This is for the hot wallet on the server.  Coins were still flowing into it long after the raid.
The enforcers had control of the server for more than a month before the raid. 
When someone has control of the hardware, it is very difficult to secure against that.
It is not like he had a Trezor dongle hanging off of it or anything... 

Looks like the whole thing go more interesting today ;D:
http://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-says-its-seized-20-million-in-bitcoins-from-ross-ulbricht-alleged-owner-of-silk-road/

Here's an interesting thought.  Can the people who lost BTC with pirateat40 trace their coins and petition for their return from the FBI stash as recovered stolen property?

I would like to see an auction also.  Let me get some of those coins for cheap.

We may see bitcoin price depressions near the end of the trials when expectations of selling these rise.  The sale will likely be forfeiture auction.

It would be interesting if there were a pool created to bid on them, the pool sells shares in the pool to raise the bidding fund.  Big buyers are waiting, not buying on exchanges because of expected sales, many/most of the forfeiture auction bidders joined the pool.  Others sold bitcoin to join the pool depressing the bitcoin price further, the pool buys the forfeiture against a thin bidding market at a low price in an artificially depressed period due to the effects of the sale.

This would actually be a good idea.  First, it would probably ultimately be profitable to whoever places the winning bid, even if uncertainty about what will happen with the BTC might depress prices in the short term.  Second, it would help protect BTC against the possible impact of some rapacious bandit simply lowballing it for 10% or under and then dumping it, simply by forcing the selling price somewhat closer to true value.

yup

If this were a movie script, they might cast the the mining pools as the groups that diversify into this arena.  They have most of the security and structure and constituency to accomplish it, and their current model is failing, and they might be able to handle these US legal issues more simply.

But who would want to bid for them.  Any thoughts of privacy would be gone since the bidder would fully identify themselves to the FBI.  Only some sort of arbitrage but that means selling them right after buying them.

The FBI is as capable of looking at the blockchain as anyone else.  Why would it be any worse with Bitcoin than with buying any other seized asset?

Seeing the blockchain tells you nothing regarding people behind the addresses but if you were to buy coins from FBI at this auction you'd have to identify yourself.

So what you're saying is that buying Bitcoin at a government auction is like buying anything else at a government auction.  Okay.  And?  If that's a concern for you, you wouldn't be buying something at a government auction in the first place, Bitcoin or anything else.

If the feds DO sell it (a big if), they won't go to an exchange. They'll sell it in an auction like every other asset they seize. We may know the price but since it's essentially a private sale, it won't impact the day-to-day prices of bitcoin; also, it may be months before anybody is able to figure out the price it was sold for.

It's cute that you think you'll be able to buy/sell XBT in any substantial amount without disclosing huge amounts of information about yourself.

Hell, I don't care.  I'll go right ahead and disclose information about myself to the FBI.

And, It's nothing they don't know already.  We went over all of this in great boring detail when I got my clearance as a security contractor.  They know exactly who I am.  So does the NSA for that matter.  The Treasury department would be new to me, but not terribly unexpected given some of my specialties.

So, yah, full disclosure.  I'm not a fed, but I do work semi-closely with some subsets of feds. It's even possible that via one of the security contracts I might get called as an expert witness in a Bitcoin case.

Only problem is, I doubt that I'd be able to scrape up enough money at one time to make any significant purchase.  Hmm, well, there is this one job that might make me US$10K by the end of the year, but it's a bit of a long shot. Still, that's not a very big drop in a $20M (or possibly $60M) bucket.

If it's not possible to stay even remotely anonymous that takes out one of the major benefits of bitcoin.  Bitcoin needs to retain that aspect if it is going to even remotely challenge gold or silver as a method of anonymous savings.  Coinjoin would do wonders in that regard.  I'm also fairly certain it is possible to buy/sell large amounts just not all at once.