U.S. Department of Justice Reveals Full Text: Two Russians Stole 640,000 Bitcoins from Mt. Gox

Source: U.S. Department of Justice

Compiled by: Wu Says Blockchain

Bilyuchenko and Verner are charged in the Southern District of New York with conspiring to launder approximately 647,000 bitcoins ("SDNY Case") stolen from Mt. Gox in 2011. Bilyuchenko is also charged in the Northern District of California with conspiring with Alexander Vinnik to operate the illegal cryptocurrency exchange BTC-e from 2011 to 2017 ("NDCA Case"). The SDNY Case has been assigned to U.S. District Judge P. Kevin Castel. The NDCA Case has been assigned to U.S. District Judge Chhabria.

U.S. Attorney Damian Williams stated, "As the methods of cybercriminals become increasingly sophisticated, our professional prosecutors and law enforcement partners have also become experts in the malicious misuse of new technologies. As alleged, Alexey Bilyuchenko and Aleksandr Verner believed they could evade legal consequences by using complex hacking techniques to steal and launder large amounts of cryptocurrency. This was a new technology at the time, but the public allegations also demonstrate that no matter how complex their plans were before we brought them to justice, we have the ability to relentlessly pursue these alleged criminals."

Assistant Attorney General Kenneth A. Polite, Jr. said, "This announcement marks a significant milestone in two major cryptocurrency investigations. As alleged in the indictment, starting in 2011, Bilyuchenko and Verner stole a substantial amount of cryptocurrency from Mt. Gox, leading to the eventual bankruptcy of that exchange. Bilyuchenko allegedly used the illegally obtained funds from Mt. Gox to continue participating in the establishment of the notorious cryptocurrency exchange BTC-e, laundering money for cybercriminals around the world. These indictments underscore the department's unwavering commitment to holding bad actors in the cryptocurrency ecosystem accountable and preventing the financial system from being abused."

I. SDNY Case:

Around September 2011, Bilyuchenko, Verner, and their co-conspirators accessed servers storing Mt. Gox cryptocurrency wallets without authorization. At the time, Mt. Gox was the largest bitcoin exchange in the world, serving thousands of users globally, including users in the Southern District of New York. Mt. Gox stored cryptocurrency wallets containing its customers' bitcoins and the corresponding private keys for authorizing bitcoin transfers from those wallets on a computer server located in Japan.

Bilyuchenko, Verner, and their co-conspirators exploited unauthorized access to the Mt. Gox servers to fraudulently transfer bitcoins from Mt. Gox's wallets to bitcoin addresses controlled by Bilyuchenko, Verner, and their co-conspirators. From at least September 2011 to May 2014, Bilyuchenko, Verner, and their co-conspirators caused approximately 647,000 bitcoins to be stolen from Mt. Gox, which represented the vast majority of bitcoins belonging to Mt. Gox's customers. Bilyuchenko, Verner, and their co-conspirators primarily laundered most of the stolen bitcoins from Mt. Gox through bitcoin addresses associated with accounts controlled by Bilyuchenko, Verner, and their co-conspirators at two other online bitcoin exchanges ("Exchange-1" and "Exchange-2"), as well as a specific user account at Mt. Gox itself.

To further their money laundering scheme, Bilyuchenko, Verner, and their co-conspirators negotiated and entered into a fraudulent contract ("Advertising Contract") around April 2012 to provide purported advertising services to a bitcoin brokerage service located in the Southern District of New York ("New York Bitcoin Broker"). Under the guise of the Advertising Contract, in order to conceal and monetize the stolen bitcoins from Mt. Gox, Bilyuchenko and Verner regularly requested the owner and operator of the New York Bitcoin Broker to make large wire transfers to various offshore bank accounts controlled by Bilyuchenko, Verner, and their co-conspirators (including accounts in the names of shell companies). According to these requests, from around March 2012 to around April 2013, the New York Bitcoin Broker transferred over approximately $6.6 million to overseas bank accounts controlled by Bilyuchenko, Verner, and their co-conspirators. In exchange for the wire transfers, the New York Bitcoin Broker received "credits" on Exchange-1, through which Bilyuchenko, Verner, and their co-conspirators laundered over 300,000 bitcoins stolen from Mt. Gox. The fraudulent advertising contract with the New York Bitcoin Broker allowed Bilyuchenko, Verner, and their co-conspirators to conceal and monetize the bitcoins stolen through the Mt. Gox hack.

After the theft was exposed, Mt. Gox ceased operations in 2014.

II. NDCA Case:

Bilyuchenko collaborated with Alexander Vinnik and others to operate the BTC-e exchange starting in 2011 until it was shut down by law enforcement in July 2017. During this time, BTC-e was one of the largest cryptocurrency exchanges in the world and a primary means for cybercriminals worldwide to transfer, launder, and store the proceeds of their illegal activities.

BTC-e served over one million users globally, facilitating deposits and withdrawals worth millions of bitcoins and processing transactions worth billions of dollars. BTC-e received a significant amount of criminal proceeds from computer intrusions and hacking incidents, ransomware events, identity theft schemes, corrupt public officials, and drug distribution gangs.

The SDNY indictment charges 43-year-old Bilyuchenko and 29-year-old Verner (both Russian citizens) with conspiracy to launder money. If convicted of the charges in the SDNY indictment, each defendant faces a maximum of 20 years in prison.

The NDCA indictment charges Bilyuchenko with conspiracy to launder money and operating an unlicensed money service business. If convicted of the charges in the NDCA indictment, Bilyuchenko faces a maximum of 25 years in prison.

The above maximum potential sentences are prescribed by Congress and are for reference only, as any sentencing for the defendants will be determined by the court.

U.S. Attorney Williams praised the work of IRS-CI and the FBI in the investigation of the SDNY case.

The SDNY case is being handled by the Complex Frauds and Cybercrime Unit of the U.S. Attorney's Office for the Southern District of New York. Assistant U.S. Attorney Olga I. Zverovich is responsible for prosecuting the SDNY case.

The NDCA case is being handled by the Corporate and Securities Fraud Section and the Computer Crime and Intellectual Property Section ("CCIPS") of the U.S. Attorney's Office for the Northern District of California. CCIPS trial attorney C. Alden Pelker and NDCA Assistant U.S. Attorney Claudia Quiroz, both members of the national cryptocurrency enforcement team, along with NDCA Assistant U.S. Attorney Katherine Lloyd-Lovett, are prosecuting this case. The Federal Bureau of Investigation (FBI); the IRS-CI Oakland office and Cybercrime Division in Washington, D.C.; the U.S. Secret Service Criminal Investigations Division; and Homeland Security Investigations are investigating this case. The Department of Justice's Office of International Affairs provided valuable assistance.

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty in a court of law.