Bitcoin Investors: Arrested For Their Crypto Investments?

While investing in Bitcoin is not a crime, there have been several arrests of individuals involved in fraudulent activities related to the cryptocurrency. For example, in 2022, Ilya Lichtenstein and his wife, Heather Morgan, were arrested for allegedly conspiring to launder $4.5 billion in stolen cryptocurrency. In another case, the founder and majority owner of a cryptocurrency exchange, Bitzlato, were arrested for processing over $700 million in illicit funds and failing to meet regulatory safeguards. In addition, early Bitcoin investor Roger Ver was charged with tax fraud for evading nearly $50 million in taxes. These cases highlight the importance of regulatory compliance and the potential consequences for those who engage in illegal activities involving Bitcoin and other cryptocurrencies.

Bitcoin investors charged with tax fraud

On April 30, 2024, Roger Ver, an early bitcoin investor known as "Bitcoin Jesus," was charged with tax fraud. Ver, formerly of Santa Clara, California, owned MemoryDealers.com Inc. and Agilestar.com Inc., two companies that sold computer and networking equipment. Starting in 2011, he began acquiring bitcoins for himself and his companies and promoted them avidly, earning his nickname.

On February 4, 2014, Ver obtained citizenship in St. Kitts and Nevis and renounced his U.S. citizenship. As a result, he was required to file tax returns reporting capital gains from the sale of his worldwide assets, including bitcoins, and to pay an "exit tax" on those gains. By that time, Ver and his companies allegedly owned approximately 131,000 bitcoins, with MemoryDealers and Agilestar holding about 73,000 of them.

Ver hired a law firm and an appraiser to assist with his expatriation and tax returns. He allegedly provided false information that concealed the true number of bitcoins he and his companies owned. As a result, the law firm allegedly filed false tax returns that substantially undervalued the companies and their bitcoins and did not report Ver's personal bitcoin holdings.

The indictment further alleges that by June 2017, Ver's companies still owned approximately 70,000 bitcoins. Ver allegedly took possession of them and sold tens of thousands on cryptocurrency exchanges for approximately $240 million in cash. Despite not being a U.S. citizen, he was required to report and pay taxes on dividends from his U.S. corporations. Ver allegedly concealed the bitcoin sales from his accountant, resulting in his 2017 individual income tax return not reporting any gain or paying tax related to the bitcoin distributions.

In total, Ver is alleged to have caused a loss to the IRS of at least $48 million. He was arrested in Spain and is facing extradition to the United States.

In a separate case, three men were arrested in connection with a $722 million cryptocurrency fraud scheme. Matthew Brent Goettsche, Jobadiah Sinclair Weeks, and Joseph Frank Abel were charged with conspiracy to commit wire fraud and conspiracy to offer and sell unregistered securities. They operated BitClub Network, which solicited money from investors in exchange for shares of purported cryptocurrency mining pools. They provided false and misleading figures to investors and targeted "dumb" investors, referring to them as "sheep."

Arrests made for money laundering using Bitcoin

On February 8, 2022, Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were arrested in Manhattan for their alleged involvement in laundering $4.5 billion in stolen cryptocurrency. The couple allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex, a virtual currency exchange, in 2016.

According to court documents, the stolen bitcoin was transferred to a digital wallet controlled by Lichtenstein, who then moved the funds through a series of complicated money laundering transactions, including using fictitious identities and darknet markets. Over a five-year period, approximately 25,000 of the stolen bitcoin were deposited into financial accounts controlled by Lichtenstein and Morgan, while the remaining 94,000 bitcoin were stored in the wallet used to receive the illegal proceeds.

The couple allegedly spent the laundered funds on various items, including gold, non-fungible tokens (NFTs), and a $500 Walmart gift card. Authorities were able to recover over $3.6 billion in bitcoin, making it the largest financial seizure in the history of the US Department of Justice.

Lichtenstein and Morgan were charged with conspiracy to commit money laundering and conspiracy to defraud the United States. These charges carry a maximum sentence of 20 years and 5 years in prison, respectively. The case has brought attention to the use of cryptocurrency in money laundering schemes and the ability of law enforcement to track and seize stolen cryptocurrency.

The couple's arrest and the subsequent seizure of the stolen funds send a clear message to criminals that cryptocurrency is not a safe haven for illegal activities. It also demonstrates the sophistication of federal authorities in being able to follow the digital trail and disrupt criminal activities in the cyber world.

Bitcoin investors charged with wire fraud

Bitcoin investors have been charged with wire fraud in several cases. Here are some examples:

The BitClub Network Case

In December 2019, three men were arrested and charged with conspiracy to commit wire fraud and conspiracy to offer and sell unregistered securities. Matthew Brent Goettsche, 37, of Lafayette, Colorado, Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, and Joseph Frank Abel, 49, of Camarillo, California, were accused of operating a fraudulent cryptocurrency mining scheme that defrauded investors of $722 million through their company, BitClub Network. The defendants allegedly solicited investments by providing false and misleading information, targeting "dumb" investors, and using the funds for their personal gain. Goettsche, the alleged mastermind, referred to investors as "sheep" and directed others to manipulate mining earnings. The wire fraud conspiracy charge carries a maximum penalty of 20 years in prison and a fine of up to $250,000.

The Eastern Metal Securities (EMS) Case

In March 2021, Roger Nils-Jonas Karlsson, a Swedish citizen, pleaded guilty to securities fraud, wire fraud, and money laundering charges. Karlsson and his company, Eastern Metal Securities (EMS), used a website (www.easternmetalsecurities.com) to make fraudulent representations and convince victims to invest. He promised investors payouts of 1.15 kilograms of gold per share, worth over $45,000 each, or a 97% guarantee on their investment. However, Karlsson admitted that he had no intention or means to pay off the investors. Instead, he transferred the funds to his personal accounts and used them to purchase luxury items. Karlsson defrauded at least 3,575 victims of more than $16 million. He faced a maximum sentence of 20 years in prison and a fine of up to $250,000 for the wire fraud charge.

The Douglas Jae Woo Kim Case

In July 2020, Douglas Jae Woo Kim, a 27-year-old New York resident, was charged with wire fraud in connection with a multi-million-dollar cryptocurrency investment scheme. Kim posed as a cryptocurrency trader and solicited loans from friends and acquaintances for business purposes or cryptocurrency trading. He received cryptocurrencies, including Bitcoin and Ether, from his victims and then transferred a significant portion of the funds to online gambling sites outside the United States. Kim convinced his victims to provide him with over $4.5 million in assets. If convicted, he faced up to 20 years in prison and a fine of $250,000 or twice the gross gain or loss resulting from the scheme.

These cases highlight the legal consequences that can arise from fraudulent activities involving Bitcoin and other cryptocurrencies. Investors and traders must be cautious and vigilant to avoid becoming victims of such schemes, and those engaging in fraudulent activities will face serious criminal charges and penalties.

Bitcoin inventor referred for prosecution for perjury

The man who claimed to be the inventor of Bitcoin, Craig Wright, was referred to British prosecutors for committing alleged perjury. British High Court Judge James Mellor decided to refer the case to the Crown Prosecution Service (CPS) to consider whether Wright should be prosecuted for "wholesale perjury and forgery of documents".

Wright, an Australian computer scientist, had previously been found to have falsely claimed to be the creator of the bitcoin cryptocurrency. Judge Mellor ruled that Wright had lied "extensively and repeatedly" in his evidence and had forged documents "on a grand scale" to support his claim.

The case against Wright was brought by a coalition of cryptocurrency businesses who pre-emptively sued to prevent him from enforcing his claim in court. The presiding judge, Mr Justice Mellor, issued an oral verdict within seconds of the case concluding, stating that the "evidence is overwhelming" that Wright is not the author of the bitcoin white paper.

Wright's claim to be the inventor of Bitcoin had implications for the control of the intellectual property rights of the virtual currency. The ruling affected three pending lawsuits Wright had filed based on his claim to having the intellectual property rights to Bitcoin.

Wright has remained mostly silent since the High Court ruling and has been ordered not to commence any legal proceedings based on his false claims. His holding company, Tulip Trading, was not immediately available for comment.

Arrests for investing in Bitcoin

While there have been no arrests specifically for investing in Bitcoin, there have been arrests related to fraudulent activities involving Bitcoin and other cryptocurrencies. For example, in December 2019, three men were arrested in connection with a $722 million cryptocurrency mining scheme that defrauded investors. The men were charged with conspiracy to commit wire fraud and conspiracy to offer and sell unregistered securities.

In February 2022, two individuals were arrested for an alleged conspiracy to launder $4.5 billion in stolen cryptocurrency. The cryptocurrency was stolen during a hack of Bitfinex, a virtual currency exchange, in 2016. Law enforcement agencies have also arrested individuals for operating cryptocurrency exchanges that fail to meet regulatory safeguards and are used for money laundering and other criminal activities.

Arrests made for Bitcoin-related fraud

The BitClub Network

In December 2019, three men were arrested in connection with a cryptocurrency mining scheme that defrauded investors of $722 million. Matthew Brent Goettsche, 37, of Lafayette, Colorado, and Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, were charged with conspiracy to commit wire fraud. Goettsche, Weeks, and Joseph Frank Abel, 49, of Camarillo, California, were charged with conspiracy to offer and sell unregistered securities. According to the indictment, the men operated BitClub Network, a fraudulent scheme that solicited money from investors in exchange for shares of purported cryptocurrency mining pools. Goettsche and his conspirators targeted "dumb" investors, referring to them as "sheep", and manipulated the figures displayed as "mining earnings". The wire fraud conspiracy charge carries a maximum potential penalty of 20 years in prison and a fine of up to $250,000.

Ilya Lichtenstein and Heather Morgan

In February 2022, Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were arrested in Manhattan for an alleged conspiracy to launder $4.5 billion in stolen cryptocurrency. The cryptocurrency was stolen during the 2016 hack of Bitfinex, a virtual currency exchange. Law enforcement has seized over $3.6 billion in cryptocurrency linked to the hack. Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform and transferred to a digital wallet under Lichtenstein’s control. They employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts and utilizing computer programs to automate transactions. They are charged with conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.

Anatoly Legkodymov

In January 2023, Anatoly Legkodymov, 40, a Russian national and resident of Shenzhen, China, was arrested in Miami for his alleged operation of a money transmitting business that transported and transmitted illicit funds and failed to meet U.S. regulatory safeguards, including anti-money laundering requirements. Legkodymov is the founder and majority owner of Bitzlato Ltd. (Bitzlato), a Hong Kong-registered cryptocurrency exchange that operates globally. Bitzlato marketed itself as requiring minimal identification from its users, and allowed users to provide information belonging to "straw man" registrants. As a result, Bitzlato became a haven for criminal proceeds and funds intended for use in criminal activity. Bitzlato received more than $700 million in cryptocurrency transactions from Hydra Market (Hydra), an anonymous, illicit online marketplace, and over $15 million in ransomware proceeds. Legkodymov is charged with conducting an unlicensed money transmitting business, which carries a maximum penalty of five years in prison.

Roger Ver

In April 2024, Roger Ver, an early investor in bitcoins, was arrested in Spain based on U.S. criminal charges. Ver, formerly of Santa Clara, California, owned MemoryDealers.com Inc. and Agilestar.com Inc., two companies that sold computer and networking equipment. Starting in 2011, Ver began acquiring bitcoins for himself and his companies, and promoted bitcoins, earning the moniker "Bitcoin Jesus". In 2014, Ver obtained citizenship in St. Kitts and Nevis and renounced his U.S. citizenship. As a result, he was required to file tax returns reporting capital gains from the constructive sale of his worldwide assets, including bitcoins. Ver allegedly provided false or misleading information to a law firm and an appraiser, which substantially undervalued his companies and their bitcoins. In 2017, Ver sold tens of thousands of bitcoins for approximately $240 million in cash. Ver allegedly concealed this from his accountant, resulting in a loss to the IRS of at least $48 million. He is charged with mail fraud, tax evasion, and filing false tax returns.

Nader Al-Naji

In July 2024, Nader Al-Naji, the founder of the crypto social media platform BitClout, was arrested and charged with wire fraud and the sale of unregistered securities. Al-Naji, known pseudonymously as "Diamondhands", raised approximately $257 million from the sale of BitClout’s native token, BTCLT. He led investors to believe that the money would be used to pay him and other BitClout employees, but instead spent more than $7 million of investor funds on personal expenditures. Al-Naji is also accused of taking steps to make BitClout seem like a decentralized project with "no company behind it...just coins and code". He has been charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison if convicted.

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