battle over billions in stolen bitcoin recovered in DOJ seizure

When the Justice Department introduced it seized billions in stolen cryptocurrency earlier this 12 months, it appeared like nice information for victims of a hack that drained round $70 million from prospects’ accounts on the Bitfinex buying and selling platform in 2016. 

“It was the biggest relief of my life,” mentioned Frankie Cavazos, who misplaced 15 bitcoins in the hack. 

Over the course of the final six years, the worth of the stolen crypto skyrocketed. At the time of the hack, a single bitcoin was value lower than a thousand {dollars}. Today it might be buying and selling for round $20,000. 

For Cavazos, getting his bitcoins again could be “a life-changing amount of money.” 

But to this point 1000’s of victims like him have not skilled the completely happy ending they had been hoping for. Instead, they’re embroiled in a battle over who’s the authorized proprietor of all that stolen crypto.

On the day the information broke that the funds had been recovered, Bitfinex publicly asserted that the stolen bitcoins needs to be returned to the platform in a press release: “Bitfinex will work with the DOJ and follow appropriate legal processes to establish our rights to a return of the stolen bitcoin.”

That’s as a result of the corporate believes it is already made its prospects entire by offering them with quite a lot of digital tokens that prospects may promote in trade for money after the hack. An organization spokesperson advised CNBC that Bitfinex prospects may have bought the tokens for money after which used the money to purchase extra bitcoins on the time.

The choice to supply prospects tokens got here after the corporate determined to generalize its losses throughout all account holders by 36%. That meant everybody who had a Bitfinex account misplaced 36% of their belongings – not simply customers whose accounts had been hacked.

The first token the corporate created was referred to as a BFX token. Customers obtained one BFX token for every greenback they misplaced.

Bitfinex hack sufferer Frankie Cavazos

CNBC’s “Crocodile of Wall St” YouTube documentary

Cavazos advised CNBC he felt like Bitfinex simply “dumped” these tokens on its prospects and mentioned he was not given the choice to say no the BFX token.

He and several other different Bitfinex hack victims spoke solely to CNBC for the documentary “Crocodile of Wall Street,” which experiences on the theft of the bitcoins and the alleged try to launder the stolen crypto.

One challenge prospects introduced as much as CNBC is that after they determined to promote their tokens they had been truly value pennies on the greenback.

“They pegged ’em to $1 per BFX token,” Cavazos mentioned. “They put ’em on the open market and it went from $1 to, like, 20 cents, so they were essentially allowed to basically FOMO everyone out of their debt.” 

Rafal Bielenia, who had 91 bitcoins on the platform mentioned: “I sold those tokens as fast as possible immediately when they became available. And I was only able to get like 25% of their value.” He believes, “there was no point in time that they refunded me – not in dollar terms, and not in bitcoin terms.”

Bitfinex hack sufferer Rafal Bielenia.

CNBC’s “Crocodile of Wall Street” YouTube documentary

For prospects who did not promote the tokens instantly, the corporate later gave BFX token holders an opportunity to transform their tokens into fairness shares of iFinex, the company entity behind Bitfinex by different tokens the corporate created referred to as RRT and LEO.

To put it merely, Bitfinex feels the shoppers have already been compensated pretty and in the event that they selected to promote the tokens earlier than their worth reached a greenback, that was their option to make. In a press release, the corporate advised CNBC, “Upon receipt of the bitcoins recovered from the 2016 security breach, Bitfinex has pledged to use 80 percent of the proceeds to buy back and burn LEO tokens, after all RRTs are redeemed.”

Essentially, Bitfinex desires the bitcoins that had been stolen in the 2016 hack returned to the corporate and it’ll give a portion of that again to a few of their prospects in money, not in bitcoins.

But a number of the hack victims nonetheless assert the bitcoins belong to them. And the concept they might lose their bitcoins not as soon as, however twice, appears inconceivable.

“Why would anybody question that I should get my money back? That was my property,” Bielenia mentioned.

“I still am going to be trying to get ahold of these 15 bitcoins because I truly believe they are mine,” Cavazos mentioned. “I can prove it through the blockchain explorers.” 

Will Hogarth, who additionally had his crypto stolen in the Bitfinex hack, advised CNBC, “I still expect my bitcoin back and I don’t see any reason why they would keep it.”

U.S. Deputy Attorney General Lisa Monaco advised CNBC, “Victims, individuals and entities whose money, who claimed that’s their money, that they were victimized by this money laundering scheme will submit claims ultimately to a court who will decide how that money is dispersed.” However, no additional particulars about that course of have been launched. 

Booking images for Heather Morgan and Ilya Lichtenstein.

Courtesy: Alexandria Adult Detention Center.

For now, the holdup appears to be that there was no decision in the court docket case involving the couple investigators say bought caught holding the stolen cryptocurrency. Heather Morgan and Ilya Lichtenstein have been charged with conspiring to launder billions in bitcoin.

Morgan is an aspiring rapper who referred to as herself “the Crocodile of Wall Street” and Lichtenstein a self-described “tech entrepreneur, explorer and part time magician.” The duo is dealing with greater than twenty years in jail in the event that they’re discovered responsible. They haven’t but entered a plea. CNBC reached out to Morgan and Lichtenstein to listen to their facet of the story, neither agreed to an interview. So far, nobody has been charged with hacking Bitfinex in the primary place.

As their case makes its manner by the court docket system, a multibillion-dollar battle over what occurs to the cash is brewing.

“Ultimately, it’s going to be a dog fight as to who gets this money. Whether or not the government gets to keep it, whether or not Bitfinex gets to keep it, whether or not the customers get it back — anyone who tells you there’s a clear answer is lying for their own benefit,” mentioned cryptocurrency legal professional David Silver.

David Silver cryptocurrency legal professional at Silver Miller

CNBC’s “Crocodile of Wall Street” YouTube documentary

With billions of {dollars} on the road, Silver expects “people are going to spend hundreds of millions of dollars to get their hands on that pot of gold.”

“I do think it’s going to be a fight,” Cavazos agreed,

“The end of this story — we don’t know yet,” he mentioned. “But you can’t just simply walk away with a hack like this. There’s someone that’s going to be caught up in this that has to tell the truth and when that shoe drops, it’s going to be really interesting and it’s going to impact who gets the money.”


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