Bitcoin

U.S. Marshals Will Auction $52 Million of Bitcoin Seized Through Asset Forfeiture

More than 3,800 Bitcoin will be auctioned on January 22, including those taken from vendors on cryptomarkets like SilkRoad and AlphaBay.

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MARK GARLICK/SCIENCE PHOTO LIBRARY/Newscom

The U.S. Marshals will auction off more than 3,800 bitcoins seized with criminal and civil asset forfeiture in connection to a variety of investigations by the FBI, Department of Homeland Security, and other federal law enforcement agencies.

The bitcoins will be auctioned off January 22. There will be 11 blocks of bitoins for sale, ranging in size from 100 bitcoins to 813 bitcoins per block, the U.S. Marshals said in a statement. Anyone who wants to participate in the auction has until January 19 to register.

It's not clear how much of the bitcoin was seized via civil asset forfeiture or without first obtaining a convinction.

This month's auction will include bitcoins seized from Aaron Schamo, who was arrested in 2016 and accused of running an international fentanyl ring from his home in suburban Salt Lake City, Utah. Federal prosecutors seized more than $1 million in cash from Schamo's home along with a stash of bitcoin. That bitcoin was worth only about $500,000 at the time of Schamo's arrest, according to the Associated Press, but was estimated at more than $8 million in December, at the height of the recent bitcoin surge.

Other bitcoins on auction were once owned by David Summerfield, who pleaded guilty in September to drug conspiracy charges. He was busted during a federal crackdown on now-shuttered dark web sites like Silk Road and AlphaBay. According to Ars Technica, Summerfield sold bitcoins to undercover federal agents and told them he used the cryptocurrency to facilitate his marijuana-selling operations. Summerfield told the agents he preferred bitcoin to traditional banks because it "keeps the government off your back."

This is the sixth time the federal government has offered blocks of bitcoin for auction, but given the cryptocurrency's recent surge in price, it figures to be the government's largest windfall by a wide margin.

The Department of Justice sold 2,700 bitcoins with an estimated value of about $1.5 million during the most recent auction in August 2016. The largest-ever auction took place in December 2014, when the DOJ sold about 50,000 bitcoins with an estimated value, at the time, of about $18.6 million.

NEXT: New D.A. Larry Krasner Cleans House in Philadelphia

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  1. Summerfield told the agents he preferred bitcoin to traditional banks because it “keeps the government off your back.”

    Nothing does that.

    1. I think it was Tony the other day who said that GOPers don’t code. The relative honesty and hubris between this case and the Bundy case relative to that notion is hilarious. The Bundy’s were tiptoeing around their own property, swearing that armed gunmen were on watch at all hours and nobody believed them. This schmuck, who admittedly is not a programmer, is laying out the gory details of his drug operation to federal agents because he believes in the magic of bitcoin.

      It’s like he didn’t even look up the definition of money laundering in the dictionary like a proper nerd.

  2. How do the Feds get the bitcoin owners’ security codes? Or am I missing something.

    1. How do the Feds get the bitcoin owners’ security codes? Or am I missing something.

      They gave him cash for the coins, arrested him, and took their cash back.

      Not that the inverse scenario is exceedingly difficult; they slap the cuffs on him, offer to reduce his sentence (or not) in exchange for cooperation, and then ask him. Otherwise, they slap the cuffs on him, seize the drives, and proceed to do it the easy way or the hard way on the drives directly.

      All this assumes that they need/care about the coins to begin with. If the value had cratered, they’d just go with the evidence freely available/decipherable in the blockchain.

      1. Clear enough if you sell them to someone for cash, but how to do you seize Bitcoin if they are not transferred to you in a transaction? Short of that or giving up your account password under duress (“do it, or you’ll never see daylight again”), I don’t get how they can be seized.

        1. There is a process known as freezing bitcoins or putting them into cold storage. It’s similar to freezing assets in a conventional sense.

          I get a computer that only I have access to. I create an account or ‘wallet’ that, again, only I have access to. I transfer coins into the ‘wallet’. I disconnect the computer from all network connections and/or turn it off and/or pull the hard drives. The coins are effectively frozen on the computer or drives. Theoretically, nobody can spend them but me and they need to have the drives and/or the computer to do so.

          The feds can kinda-sorta know this by examining the blockchain and seeing that the coins went into the wallet, possibly even the wallet on the specific computer (and, by examining the computer, the drives) and know that by seizing the computer/drives, they control the wallet and the coins therein.

          Technically, without the acquiescence of the accused , they can’t know any or all of it with 100% certainty which is probably part of the reason why they’re selling the coins/drives/computer at auction. Would you pay $1M for a disk drive that might have $8M in bitcoin on it? How about $80 for a $40 disk drive or $100 computer that might have $8M in bitcoin on it? Even if you personally couldn’t decrypt the drive or hack your way into the wallet, at $8M (assuming no one else actually does have access to the wallet) you could probably go 50/50 with someone who could and still come out ahead.

  3. Will be interesting to see how much value these bitcoins lose for being able to be tied to a specific owner.

  4. The U.S. Marshals will auction off more than 3,800 bitcoins seized with criminal and civil asset forfeiture

    Why don’t they just use them to buy weapons on the dark web?

  5. If the government says they are illegal, then they can’t auction them off. Doing so sets a precedent of lawfulness, and validity. No?

    Oh wait, I’m talking about the feds.

  6. Auction? Why not just sell them over some coin exchange? You’d think that if they held an auction they’d get less than they could on the open market.

    1. Auction? Why not just sell them over some coin exchange? You’d think that if they held an auction they’d get less than they could on the open market.

      I would guess 2 things:
      A) No given exchange is going to move $8M of your coins tomorrow. Especially a known set of hot coins put up by the feds.

      B) They don’t verifiably control the coins directly. Kinda like you auction off a $3M Lamborghini that needs parts for $2.5M, they’ve got a drive with $8M in coins stored on it for anyone with $1-2M and the ability to crack it for less than $6M.

  7. Never buy anything the government wants to auction off.

    Doing so enables their lust for seizing people’s property without giving just compensation.

    People being what some people are, they will buy the auctioned items. Some day the government will do it to them and they will have a shocked look on their face.

  8. I also ask this question @Jus. This history of auction is in the suspicious border. Possessing a bitcoin wallet at my broker cf-partners, I just wonder when the government will arrive.

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