Charges Brought by the Southern District of New York, the Northern District of California, and the Department of Justice’s Criminal Division
Damian Williams, the United States Attorney for the Southern District of New York, Kenneth A. Polite, Jr., the Assistant Attorney General for the Department of Justice’s Criminal Division, Ismail J. Ramsey, the United States Attorney for the Northern District of California, James C. Lee, the Chief of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), Michael J. Driscoll, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), William Mancino, the Special Agent in Charge of the U.S. Secret Service’s Criminal Investigative Division (“USSS”), and Katrina W. Berger, the Acting Executive Associate Director of Homeland Security Investigations (“HSI”), announced the unsealing of charges against Alexey Bilyuchenko and Aleksandr Verner, both Russian nationals. Bilyuchenko and Verner are charged in the Southern District of New York with conspiring to launder approximately 647,000 bitcoins from the 2011 hack of Mt. Gox (the “SDNY Case”). Bilyuchenko is separately charged in the Northern District of California with conspiring with Alexander Vinnik to operate the illicit cryptocurrency exchange BTC-e from 2011 to 2017 (the “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 cyber criminals have become more sophisticated in their methods of thievery, our career prosecutors and law enforcement partners, too, have become experts in the latest technologies being abused for malicious purposes. As alleged, Alexey Bilyuchenko and Aleksandr Verner thought they could outsmart the law by using sophisticated hacks to steal and launder massive amounts of cryptocurrency, a novel technology at the time, but the charges unsealed demonstrate our ability to tenaciously pursue these alleged criminals, no matter how complex their schemes, until they are brought to justice.”
Assistant Attorney General Kenneth A. Polite, Jr. said: “This announcement marks an important milestone in two major cryptocurrency investigations. As alleged in the indictments, starting in 2011, Bilyuchenko and Verner stole a massive amount of cryptocurrency from Mt. Gox, contributing to the exchange’s ultimate insolvency. Armed with the ill-gotten gains from Mt. Gox, Bilyuchenko allegedly went on to help set up the notorious BTC-e virtual currency exchange, which laundered funds for cyber criminals worldwide. These indictments highlight the department’s unwavering commitment to bring to justice bad actors in the cryptocurrency ecosystem and prevent the abuse of the financial system.”
NDCA U.S. Attorney Ismail J. Ramsey said: “For years, Bilyuchenko and his coconspirators operated a digital currency exchange that enabled criminals around the world – including computer hackers, ransomware actors, narcotics rings, and corrupt public officials – to launder billions of dollars. The Department of Justice will work tirelessly to identify cyber criminals, no matter where they are. And Bilyuchenko and his coconspirators will learn that the Department of Justice has long arms and an even longer memory for crimes that harm our communities.”
IRS-CI Chief James C. Lee said: “Cryptocurrency offers a new way for criminals to steal and launder money, but greed and deceit are nothing new. IRS-CI is specially equipped to follow the complex financial trail left by criminals, and we are dedicated to holding those accountable for crimes committed. IRS-CI is proud to stand with our law enforcement partners to announce these indictments.”
FBI Assistant Director in Charge Michael J. Driscoll said: “As alleged in the indictment, the defendants gained unauthorized access to a server used by Mt. Gox to house cryptocurrency wallets. Mt. Gox was the world’s largest bitcoin exchange at the time, and the defendants used their unauthorized access to steal the bulk of the bitcoins held by Mt. Gox customers. The FBI and our partners will continue to work tirelessly to protect the integrity of all of our financial markets.”
USSS Special Agent in Charge William Mancino said: “The Secret Service has a long tradition of pursuing and bringing to justice those who aim to exploit our financial systems and target innocent victims. Working together with our local, state, and federal law enforcement partners, we will continue to investigate criminal organizations that operate in the ever-evolving cyber domain.”
HSI Acting Executive Associate Director Katrina W. Berger said: “Homeland Security Investigations continues to investigate cyber criminals illicitly operating in virtual spaces, and we are proud to have worked collaboratively with our law enforcement partners to bring these two individuals to justice. Our special agents continue to investigate transnational criminal organizations operating in emerging technologies, leveraging our broad authorities to identify and dismantle those behind sophisticated crypto scams.”
The SDNY Case
According to the allegations in the Indictment unsealed in the Southern District of New York:[1]
In or about September 2011, Bilyuchenko, Verner, and their co-conspirators gained unauthorized access to the server holding the cryptocurrency wallets for Mt. Gox. At the time, Mt. Gox was the largest bitcoin exchange in existence, servicing thousands of users worldwide, including users in the Southern District of New York. Mt. Gox stored the cryptocurrency wallets containing its customers’ bitcoin 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 their unauthorized access to Mt. Gox’s server to fraudulently cause bitcoins to be transferred from Mt. Gox’s wallets to bitcoin addresses controlled by Bilyuchenko, Verner, and their co-conspirators. From September 2011 through at least May 2014, Bilyuchenko, Verner, and their co-conspirators caused the theft of at least approximately 647,000 bitcoins from Mt. Gox, representing the vast majority of the bitcoins belonging to Mt. Gox’s customers. Bilyuchenko, Verner, and their co-conspirators laundered the bulk of the bitcoins stolen from Mt. Gox principally through bitcoin addresses associated with accounts Bilyuchenko, Verner, and their co-conspirators controlled at two other online bitcoin exchanges (“Exchange-1” and “Exchange-2”), as well as a particular user account on Mt. Gox itself.
In furtherance of the money laundering scheme, in or about April 2012, Bilyuchenko, Verner, and their co-conspirators negotiated and entered into a fraudulent contract (the “Advertising Contract”) to provide purported advertising services to a bitcoin brokerage service based in the Southern District of New York (the “New York Bitcoin Broker”). Under the guise of the Advertising Contract, in order to conceal and liquidate the bitcoins stolen from Mt. Gox, Bilyuchenko and Verner made regular requests to the owner and operator of the New York Bitcoin Broker to make large wire transfers into various offshore bank accounts, including in the names of shell corporations, controlled by Bilyuchenko, Verner, and their co-conspirators. In accordance with these requests, between in or about March 2012 and in or about April 2013, the New York Bitcoin Broker transferred more than 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 “credit” on Exchange-1, through which Bilyuchenko, Verner, and their co-conspirators laundered more than 300,000 of the bitcoins stolen from Mt. Gox. The fraudulent Advertising Contract with the New York Bitcoin Broker enabled Bilyuchenko, Verner, and their co-conspirators to conceal and liquidate bitcoins stolen through the Mt. Gox hack.
Mt. Gox ceased operations in 2014 after the theft was revealed.
The NDCA Case
According to the allegations in the Indictment unsealed in the Northern District of California:[2]
Bilyuchenko worked with Alexander Vinnik and others to operate the BTC-e exchange from 2011 until it was shut down by law enforcement in July 2017. During that time period, BTC-e was one of the world’s largest cryptocurrency exchanges and was one of the primary ways by which cyber criminals around the world transferred, laundered, and stored the criminal proceeds of their illegal activities.
BTC-e served over one million users worldwide, moving millions of bitcoin worth of deposits and withdrawals and processing billions of dollars’ worth of transactions. BTC-e received criminal proceeds of numerous computer intrusions and hacking incidents, ransomware events, identity theft schemes, corrupt public officials, and narcotics distribution rings.
The SDNY Indictment charges Bilyuchenko, 43, and Verner, 29, both Russian nationals, with conspiracy to commit money laundering. If convicted of the charge in the SDNY Indictment, each defendant faces a maximum penalty of 20 years in prison.
The NDCA Indictment charges Bilyuchenko with conspiracy to commit money laundering and operating an unlicensed money services business. If convicted of the charges in the NDCA Indictment, Bilyuchenko faces a maximum penalty of 25 years in prison.
The maximum potential sentences set forth above are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the Court.
Mr. Williams praised IRS-CI and the FBI for their work in investigating the SDNY Case.
The SDNY Case is being handled by the Complex Frauds and Cybercrime Unit of the United States Attorney’s Office for the Southern District of New York. Assistant U.S. Attorney Olga I. Zverovich is in charge of the prosecution of the SDNY Case.
The charges in the Indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
[2] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
