Bitcoin and the U.S. Marshals

An interesting look at the seizure and sale of Bitcoin and other cryptocurrency by the U.S. Government, including some legal twists and turns:

The U.S. Marshals Service is the oldest law-enforcement agency in the country, counting gunslingers like Wyatt Earp and Wild Bill Hickok among its alumni. More recently, TV and movies have familiarized many Americans with its role transporting prisoners and tracking dangerous fugitives. Far fewer people know the marshals sell Bitcoin.

A decades-old law gives the Marshals Service, which is part of the Department of Justice, primary responsibility for disposing of items seized by other federal law-enforcement agencies. That’s why you can visit the marshals’ website and ogle boats, cars, planes, wristwatches, and other ill-gotten gains snatched by the FBI and other agencies, all available at public auction. The seizure process, known as forfeiture (see sidebar), became more commonplace and controversial in the 1980s after Congress made it easier for federal officials to sell assets tied to drug crimes.

. . . .

Local authorities are dealing with comparable headaches. “We had a good, old-fashioned kidnapping and robbery where they put the guy into what he thought was an Uber and then held him at gunpoint for $1.8 million worth of [digital currency] Ethereum,” forcing him to give them his private key, says Brenda Fischer, who leads the cyber unit of the Manhattan District Attorney’s office. The DA’s office recovered the funds but is now coping with a conundrum: The robber converted the Ethereum to Bitcoin, whose price rose significantly after the theft—raising novel legal questions over who should get the surplus windfall.


Wyoming Passes Token Exemptions

Really interesting how Wyoming is taking the lead on deregulating tokens:

House Bill (HB) 70, which on Monday passed the House 60 to 0 and will now head to the Senate, explicitly exempts utility tokens from state securities regulations, a key factor in attracting initial coin offering (ICO) launches to the state.


Bank of America With Most Blockchain Patents

As a patent litigator, I am very interested to see the evolving patent landscape on blockchain technology.  This article suggests that Bank of America is ahead of the pack, at least for now:

The greatest surprise of all is reserved for top spot, which is claimed by Bank of America, with no less than 45 patents. Last year, a total of 1,250 cryptocurrency patents were filed, demonstrating the extent to which corporations have finally caught on to bitcoin’s huge potential.

Using a Nuclear Weapons Facility to Mine Cryptocurrency

Not advisable.

Russian authorities say they have arrested several engineers employed at the the All-Russian Research Institute of Experimental Physics in Sarov, a top secret nuclear weapons facility, because they were involved in a cryptocurrency-mining scheme at work.

The tightly guarded nuclear facility is where the USSR’s first nuclear bomb was built. According to the BBC, it has about 20,000 employees and one of the country’s strongest supercomputers, which can run at one petaflop, or perform a quadrillion operations per second. That’s ideal for running nuclear scientific calculations and simulations.

According to some Russian media reports, the employees tried to use the power of the supercomputer to mine cryptocurrency, and were detected when they attempted to connect the usually offline machine to the internet.

Export Law Blog on OFAC and Venezuela’s Cryptocurrency

An interesting post by the Export Law Blog on OFAC and Venezuela’s cryptocurrency.  Go there for the full explanation, but in short, they disagree with OFAC’s decision to label Venezuela’s cryptocurrency an extension of credit and therefore an asset off limits to U.S. persons:

For starters, let’s address the notion that using currency issued by a government is an extension of credit to the government. Credit is extended to a government when goods or services are supplied to that government without a requirement for immediate payment. By that common and uncontroversial definition, accepting fiat money or representative money in exchange for goods and services from a private individual is not an extension of credit by the purchaser to the government that issued the currency because no goods or services were supplied by the purchaser to the government. This is even the case even if goods and services are provided to the government because the currency obtained can be immediately used for other transactions and there is no delayed payment. If the government paid with a debt instrument, such as a bond with a future maturity, then that would be an extension of credit to the government.

It appears that the genesis of OFAC’s misconception here is that the currency can be exchanged later with the government for the underlying commodity. Even were that an extension of credit to the government, OFAC’s rules would only be implicated if that exchange was delayed for more than 30 days. But, of course, the point of commodity backed currency is that it is immediately convertible. One could take the new Venezuelan currency and immediately demand to exchange it for oil, gas, gold or diamonds, so it does not have a “maturity of greater than 30 days.”

CFTC Brings Case Against My Big Coin Pay

The CFTC is running at full steam on enforcement lately:

On the heels of two enforcement actions announced late last week, the U.S. Commodity Futures Trading Commission has announced fraud charges against yet another company operating in the virtual currency space.

The enforcement action alleges that Las Vegas-based My Big Coin Pay Inc., a virtual currency wallet and platform, misappropriated more than $6 million from its customers for “personal expenses and the purchase of luxury goods,” including a home, jewelry and fine art.


CDM Complaint

Last week, the CFTC brought a civil suit against Patrick McDonnell and CabbageTech (aka Coin Drop Markets) alleging fraud.  In short, the CFTC claims that the defendants offered trading advice and even to trade on behalf of investors and instead they pocketed the funds.

Some relevant points from the Complaint:

23. In fact, however, after receiving subscription payments from multiple CDM Customers, Defendants never provided to such customers continuous, real-time trading signals, advice, or trading expertise through its social media chatrooms, through online communications such as via Twitter, or through its website.

. . . .

38. For example, in or around January 2017 through June 2017, one CDM Customer, in response to multiple solicitations by Defendants to provide funds for trading in virtual currencies managed by Defendants, made a series of investments with Defendants.

39. Defendants told this customer that Defendants would use the customer’s funds to invest in Bitcoin.

40. In fact, however, Defendants misappropriated this customer’s funds.

41. In or around June 2017, when the customer requested withdrawal of the investments after apparently profitable results, Defendants offered a series of excuses for delays in repayment before ceasing communications entirely and paying out no funds at all.