Coinbase and Bittrex In Court: Hand Over Stolen Bitcoin
SAN FRANCISCO — In the United States Bankruptcy Court of the Northern District of California, Coinbase and Bittrex turned over an undisclosed percentage of millions of dollars worth of stolen Bitcoin.
In official court documents obtained by The Cryptory (though highly censored as to protect the reputation of the accused) the PRELIMINARY STATEMENT AND SUMMARY OF RELIEF REQUESTED reads as follows:
“In a seemingly routine series of transactions in February of 2018, Dooga Ltd. (“Dooga” or the “Debtor”) — the operator of a cryptocurrency exchange — transferred €27 million worth of Bitcoin to the accounts of three purchasers, all Chinese nationals. All seemed in order: the purchases were requested in accordance with Dooga’s ordinary procedures, and Dooga’s contracted payment processor confirmed that the Chinese nationals had paid for the Bitcoins. In reality, the transactions were anything but routine, and the “purchasers” were nothing of the kind.
“Instead, they were part of an elaborate conspiracy to defraud Dooga and steal tens of millions of dollars. The purchasers had not paid for the Bitcoin… This theft rendered Dooga insolvent. The administrators, later appointed as liquidators, then began a long effort to identify the conspirators and recover the Bitcoin.”
The documents go on to name the “Foreign Representatives” of the Chapter 15 case.
“Granted a Recognition Order by the court, the Foreign Representatives have undertaken additional investigation, assisted by that subpoena power, and identified certain cryptocurrency assets held in accounts at two U.S.-based exchanges called Coinbase Inc. (“Coinbase”) and Bittrex Inc. (“Bittrex”). Aided by this new information, among other things, the Foreign Representatives retained a leading cryptocurrency tracing expert, Mr. Richard Sanders, the founder of blockchain forensics firm CipherBlade Ltd., to analyze the flow of transactions in cryptocurrency wallets that appear to have held the proceeds of the February 2018 Theft. Based on this review and Mr. Sanders’ extensive experience, Mr. Sanders — who is routinely retained by U.S. government agencies to assist in sensitive law enforcement inquiries — has concluded that the property in the target wallets is derived from the February 2018 Theft, and is therefore properly deemed to be property of the Debtor. By this Motion, the Foreign Representatives seek an order directing the turnover of that property from the exchanges, pursuant to the entrustment rights granted to the Foreign Representatives under the Recognition Order. The Foreign Representatives have been advised by Coinbase and Bittrex that neither opposes the relief sought by this motion.”
The brief, which is not exactly brief at almost 90 pages, goes on to describe certain fascinating particulars in the case.
“Mr. Sanders’s analysis has shown that the proceeds of the February 2018 Theft were run through intermediary accounts associated with known laundering operations. The very purpose of such a laundering scheme is to make it difficult to trace the location of stolen property (and render it uneconomical to do so). Indeed, the proceeds of the February 2018 Theft have been subjected to well-known laundering methodologies, such as the use of so-called “blenders” or “mixers,” which are overseas services where users send cryptocurrency and receive back cryptocurrency with an equivalent value (minus fees) in different amounts, delivered to several locations — in essence, a purpose-built laundering device.”
But the most fascinating thing of all was that the Chinese users (one of whom was tracked down by Sanders via his Facebook profile connections with one of the payment processors that aided and abetted the scam) actually left the proceeds of their Dooga-destroying heist on exchange platforms where they could be seized. Were they cocky, or were they just stupid?
The lawyers arguing this case presented page upon page of legal precedents on why the court should order that these assets be seized and returned to those they were stolen from.
According to an exclusive interview with Mr. Sanders regarding this case, “The court has decided. They got their money. Can’t say how much but it’s nothing to sneeze at and it establishes that bringing in crème de la crème investigators yields results.”
Read the entire legal document here.
Interview with Richard Sanders of CipherBlade forthcoming.
