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Author Topic: What's next? Procedure for seized BTC funds from Silk Road  (Read 4835 times)
Spekulatius
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October 11, 2013, 08:44:21 PM
 #1

Hi,

IANAL Grin

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

Quote
5:3 Seizure of Foreign Currency
Any seizure of foreign currency shall be converted to United States currency on the
first business day following the seizure at any banking institution.
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:

Quote
Seized cash, except where it is to be used as evidence, is to be deposited promptly in the Seized Asset Deposit Fund pending forfeiture. The Chief, AFMLS, may grant exceptions to this policy in extraordinary circumstances. Transfer of cash to the U.S. marshal should occur within 60 days of seizure or 10 days of indictment.
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.

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row5_seat47
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October 12, 2013, 01:15:00 AM
 #2

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
Quote
9-111.600 Seized Cash Management
" To the extent practical, negotiable instruments and foreign currency should be converted and deposited."
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

Quote
Users Bitcoins Seized by DEA: The DEA consolidated the regulations for seizure and forfeiture in October 2012.  This included “… Sec. 8.14 {which} adds a provision to the Department’s regulations allowing for the pre- forfeiture disposition of seized property when the property is liable to perish, or to waste, or to be greatly reduced in value while being held for forfeiture, or when the expense of holding the property is or will be disproportionate to its value.”
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.
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October 13, 2013, 01:49:08 PM
 #3

These people will treat them as Storage to stablize the gold. These people may do more bitcoin business later on.
darkmule
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October 13, 2013, 02:12:39 PM
 #4

Quote
Seized cash, except where it is to be used as evidence, is to be deposited promptly in the Seized Asset Deposit Fund pending forfeiture. The Chief, AFMLS, may grant exceptions to this policy in extraordinary circumstances. Transfer of cash to the U.S. marshal should occur within 60 days of seizure or 10 days of indictment.
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.

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.
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October 14, 2013, 11:27:08 AM
 #5

The blockchain is more useful evidence than the bitcoins.

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b!z
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October 14, 2013, 11:57:16 AM
 #6

I think they will slowly sell the coins on an exchange, no big deal
darkmule
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October 14, 2013, 12:18:45 PM
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The blockchain is more useful evidence than the bitcoins.

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).
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October 14, 2013, 02:39:06 PM
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The blockchain is more useful evidence than the bitcoins.

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. 

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darkmule
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October 14, 2013, 05:15:11 PM
 #9

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

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.
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October 15, 2013, 02:17:23 AM
 #10

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

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.

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pand70
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October 18, 2013, 01:49:47 AM
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Do they even have access to those funds? Wasn't those wallets encrypted?

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October 18, 2013, 02:43:38 AM
 #12

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!

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October 18, 2013, 04:00:10 AM
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Do they even have access to those funds? Wasn't those wallets encrypted?
Secondly i doubt all 80 mil he made is all in one place, and none of it spent ye

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...

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October 18, 2013, 01:22:53 PM
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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.
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October 18, 2013, 03:06:36 PM
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i think this be normal for comunity bitcoin

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October 18, 2013, 10:51:55 PM
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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.

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October 20, 2013, 10:06:32 AM
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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.

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October 20, 2013, 11:47:58 AM
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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

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October 21, 2013, 06:21:07 PM
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Wasn't the wallet encrypted ?
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October 21, 2013, 09:57:28 PM
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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... 

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