U.S. Department of Justice reveals: Two Russians stole 640,000 bitcoins

Author: U.S. Department of Justice; Compiler: Wu Shuo Blockchain

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Bilyuchenko and Verner were charged in the Southern District of New York with conspiring to launder approximately 647,000 bitcoins from Mt. Gox in 2011 (the "SDNY case"). Bilyuchenko was separately 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 said: "As cybercriminals' methods of theft have become more sophisticated, our career prosecutors and law enforcement partners have become experts at the malicious misuse of new technologies. As alleged, Alexey Bilyuchenko and Aleksandr Verner thought they could get away with it by using sophisticated hacking techniques to steal and launder large amounts of cryptocurrency. This was a new technology at the time, but the public accusations also show that no matter what they did before they were brought to justice No matter how sophisticated their plans, we are all capable of doggedly pursuing these alleged criminals."

Assistant Attorney General Kenneth A. Polite, Jr. said: “This announcement marks an important milestone in two major cryptocurrency investigations. As alleged in the indictment, beginning in 2011, Bilyuchenko and Verner stole from Mt. Gox A large amount of cryptocurrency, which led to the exchange's eventual bankruptcy.Bilyuchenko allegedly used funds obtained illegally from Mt. Gox to continue to participate 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 bringing bad actors in the cryptocurrency ecosystem to justice and preventing the financial system from being abused."**

SDNY case:

In or about September 2011, Bilyuchenko, Verner, and their co-conspirators gained unauthorized access to servers storing Mt. Gox cryptocurrency wallets. At the time, Mt. Gox was the largest bitcoin exchange in the world, serving thousands of users around the world, including those in the Southern District of New York. Mt. Gox stored cryptocurrency wallets containing its customers' bitcoins and the corresponding private keys used to authorize bitcoin transfers from those wallets on a computer server in Japan.

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

To further the money laundering scheme, in or about April 2012, Bilyuchenko, Verner, and their co-conspirators negotiated and entered into a fraudulent contract (“Advertisement Contract”) to a bitcoin brokerage service located in the Southern District of New York (“New York Bitcoin Brokers") provide so-called advertising services. Under the guise of advertising contracts, Bilyuchenko and Verner regularly required the owners and operators of New York-based bitcoin brokerages to pay various parties controlled by Bilyuchenko, Verner, and their co-conspirators in order to conceal and cash in bitcoins stolen from Mt. Gox. Large wire transfers to offshore bank accounts, including in the name of shell companies. According to those requests, from about March 2012 to about April 2013, New York bitcoin brokers transferred more than approximately $6.6 million to overseas bank accounts controlled by Bilyuchenko, Verner, and their co-conspirators. In exchange for the wire transfer, New York bitcoin brokers took "credit" on Exchange-1, by which Bilyuchenko, Verner and their co-conspirators laundered more than 300,000 bitcoins stolen from Mt. Gox. A fraudulent advertising contract with a New York bitcoin broker enabled Bilyuchenko, Verner, and their co-conspirators to conceal and cash in bitcoin stolen through the Mt. Gox hack.

Mt. Gox ceased operations in 2014 after the theft came to light.

NDCA Cases:

Working with Alexander Vinnik and others, Bilyuchenko operated the BTC-e exchange from 2011 until it was shut down by law enforcement in July 2017. During this period, BTC-e was one of the largest cryptocurrency exchanges in the world and one of the main ways for cybercriminals around the world to transfer, launder and store the criminal proceeds of their illicit activities.

BTC-e serves more than one million users worldwide, transfers deposits and withdrawals worth millions of Bitcoins, and processes transactions worth billions of dollars. BTC-e has received numerous computer intrusions and hacking incidents, ransomware incidents, identity theft schemes, criminal proceeds from corrupt public officials and drug distribution rings.

The SDNY indictment accuses Bilyuchenko, 43, and Verner, 29, both Russian citizens, of conspiring to launder money. If convicted of the charges in the SDNY indictment, each defendant faces up to 20 years in prison.

The NDCA indictment charges Bilyuchenko with conspiracy to launder money and operate an unlicensed money services business. If convicted on the charges in the NDCA indictment, Bilyuchenko faces up to 25 years in prison.

The above maximum potential sentences are set by Congress and are for information only, as any sentencing of defendants will be determined by the courts.

US Attorney Mr. Williams commended the work of the IRS-CI and the FBI in investigating the SDNY case.

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

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

The charges in the indictment are merely allegations, and defendants are entitled to the presumption of innocence until proven guilty.