At the end of 2024, a US court authorized the Department of Justice to sell 69,370 bitcoins from “the largest cryptocurrency seizure in history.”
At bitcoin’s current price, just under $92,000, these bitcoins are worth nearly $6.4 billion, and crypto outlets are reporting that DOJ officials have said they’re planning to proceed with selling off the assets consistent with the court’s order. The DOJ had reportedly argued that bitcoin’s price volatility was a pressing reason to push for permission for the sale.
Ars has reached out to the DOJ for comment and will update the story with any new information regarding next steps.
A hacker initially stole these bitcoins from Silk Road—an illegal online marketplace where goods could only be bought and sold with bitcoins—in 2012, shortly before the US government shut down the marketplace. The US later discovered the stolen bitcoins in 2020 while conducting further investigations of Silk Road, eventually securing a consent agreement that year from the hacker, who signed the bitcoins over to the government.
Whether the government’s seizure of those bitcoins was proper has been disputed by Battle Born Investments, a company that purchased the assets of bankruptcy estate from an individual who they believed to be either the hacker whose bitcoins were seized or someone “associated with him.”
After a court battle failed to return the bitcoins, Battle Born attempted to unmask the hacker through a Freedom of Information Act (FOIA) request, which sparked a new court fight. But ultimately, in late December, the court agreed with the US government that the hacker had a right to privacy as someone who was the subject of a criminal investigation and shouldn’t be unmasked. That ended Battle Born’s claim to the bitcoins and cleared the way for the government’s sale.
The US government finally got its metaphorical hands on Do Hyeong Kwon, the 33-year-old Korean national who built a financial empire on the cryptocurrency Luna and the “stablecoin” TerraUSD, only to see it all come crashing down in a wipeout that cost investors $40 billion.
As private investors filed lawsuits, and as the governments of South Korea and the United States launched fraud investigations, Do Kwon was nowhere to be found. In 2022, the Korean government filed a “red notice” with Interpol, seeking Kwon’s arrest and his return to Korea. A few months later, the Securities and Exchange Commission charged Kwon with fraud in the US.
On September 17, 2022, Kwon famously tweeted, “I am not ‘on the run’ or anything similar”—but he also wouldn’t say where he was. He didn’t help his case when he was arrested in March 2023 by the authorities in Montenegro. At an airport. With fake travel documents. On his way to a country with no US extradition agreement.
After serving some time in a Montenegro prison, Kwon battled extradition to both Korea and the US. This delayed the process by some months, but on December 31, 2024, he was shipped off to US authorities. Today, he appeared in front of a federal judge in New York City, where he pled “not guilty” to fraud.
The US Justice Department crowed about the extradition, with US Attorney General Merrick Garland pointing out that the US can sometimes get to people in surprising ways.
“We secured this extradition despite Kwon’s alleged attempt to cover his tracks by laundering proceeds of his schemes and trying to use a fraudulent passport to travel to a country that did not have an extradition treaty with the United States,” Garland said in a statement. “This extradition from Montenegro is an example of the Justice Department’s international partnerships, which enable the pursuit of criminals wherever they attempt to hide.”
Five alleged misrepresentations
As for the charges, the US also unsealed a massive indictment against Kwon today, which you can read here (PDF) if you want all the gory details.
The basic claim is that Kwon “defrauded investors by falsely advertising the company’s blockchain products as decentralized, reliable, and effective, and by engaging in market manipulation, ultimately resulting in more than $40 billion in investor losses,” according to the US government. This, the government alleges, happened in five key ways:
But Russia presumably gets no taxes on illegal crypto mining, and power outages can be costly for everyone in a region. So next year, Russia will ban crypto mining in 10 regions for six years and place seasonal restrictions that would disrupt some crypto mining operations during the coldest winter months in regions like Irkutsk, CoinTelegraph reported.
Illegal mining is still reportedly thriving in Irkutsk, though, despite the government’s attempts to shut down secret farms. To deter any illegal crypto mining disrupting power grids last year, authorities seized hundreds of crypto mining rigs in Irkutsk, Crypto News reported.
In July, Russian president Vladimir Putin linked blackouts to illegal crypto mines, warning that crypto mining currently consumes “almost 1.5 percent of Russia’s total electricity consumption,” but “the figure continues to go up,” the Moscow Times reported. And in September, Reuters reported that illegal mines were literally going underground to avoid detection as Russia’s crackdown continues.
Even though illegal mines are seemingly common in parts of Siberia and increasingly operating out of the public eye, finding an illegal mine hidden on state land controlled by an electrical utility was probably surprising to officials.
The power provider was not named in the announcement, and there are several in the region, so it’s not currently clear which one made the controversial decision to lease state land to an illegal mining operation.
“I’m fighting with Google now,” Townsend told Ars. “I don’t expect any real answers from them.”
How YouTubers can avoid being targeted
As YouTube appears evasive, Townsend has been grateful for long-time subscribers commenting to show support, which may help get his videos amplified more by the algorithm. On YouTube, he also said that because “the outpouring of support was beyond anything” he could’ve expected, it kept him “sane” through sometimes 24-hour periods of silence without any updates on when his account would be restored.
Townsend told Ars that he rarely does sponsorships, but like many in the fighting game community, his inbox gets spammed with offers constantly, much of which he assumes are scams.
“If you are a YouTuber of any size,” Townsend explained in his YouTube video, “you are inundated with this stuff constantly,” so “my BS detector is like, okay, fake, fake, fake, fake, fake, fake, fake. But this one just, it looked real enough, like they had their own social media presence, lots of followers. Everything looked real.”
Brian_F echoed that in his video, which breaks down how the latest scam evolved from more obvious scams, tricking even skeptical YouTubers who have years of experience dodging phishing scams in their inboxes.
“The game has changed,” Brian_F said.
Townsend told Ars that sponsorships are rare in the fighting game community. YouTubers are used to carefully scanning supposed offers to weed out the real ones from the fakes. But Brian_F’s video pointed out that scammers copy/paste legitimate offer letters, so it’s already hard to distinguish between potential sources of income and cleverly masked phishing attacks using sponsorships as lures.
Part of the vetting process includes verifying links without clicking through and verifying identities of people submitting supposed offers. But if YouTubers are provided with legitimate links early on, receiving offers from brands they really like, and see that contacts match detailed LinkedIn profiles of authentic employees who market the brand, it’s much harder to detect a fake sponsorship offer without as many obvious red flags.
A bitcoin investor who went to increasingly great lengths to hide $1 million in cryptocurrency gains on his tax returns was sentenced to two years in prison on Thursday.
It seems that not even his most “sophisticated” tactics—including using mixers, managing multiple wallets, and setting up in-person meetings to swap bitcoins for cash—kept the feds from tracing crypto trades that he believed were untraceable.
The Austin, Texas, man, Frank Richard Ahlgren III, started buying up bitcoins in 2011. In 2015, he upped his trading, purchasing approximately 1,366 using Coinbase accounts. He waited until 2017 before cashing in, earning $3.7 million after selling about 640 at a price more than 10 times his initial costs. Celebrating his gains, he bought a house in Utah in 2017, mostly funded by bitcoins he purchased in 2015.
Very quickly, Ahlgren sought to hide these earnings, the Department of Justice said in a press release. Rather than report them on his 2017 tax return, Ahlgren “lied to his accountant by submitting a false summary of his gains and losses from the sale of his bitcoins.” He did this by claiming that the bitcoins he purchased in 2015 were much higher than his actual costs, even being so bold as to claim he as charged prices “greater than the highest price bitcoins sold for in the market prior to the purchase of the Utah house.”
First tax evasion prosecution centered solely on crypto
Ahlgren’s tax evasion only got bolder as the years passed after this first fraud, the DOJ said.
In 2018 and 2019, he sold more bitcoins, earning more than $650,000 and deciding not to report any of it on his tax returns for those years. That meant that he needed to actively conceal the earnings, but he’d been apparently researching how mixers are used to disguise where bitcoins come from since at least 2014, the feds found, referencing a blog he wrote exhibiting his knowledge. And that’s not the only step he took to try to trick the Internal Revenue Service.
Unsurprisingly, he and his family were doxed by angry traders.
On the evening of November 19, art adviser Adam Biesk was finishing work at his California home when he overheard a conversation between his wife and son, who had just come downstairs. The son, a kid in his early teens, was saying he had made a ton of money on a cryptocurrency that he himself had created.
Initially, Biesk ignored it. He knew that his son played around with crypto, but to have turned a small fortune before bedtime was too far-fetched. “We didn’t really believe it,” says Biesk. But when the phone started to ring off the hook and his wife was flooded with angry messages on Instagram, Biesk realized that his son was telling the truth—if not quite the full story.
Earlier that evening, at 7: 48 pm PT, Biesk’s son had released into the wild 1 billion units of a new crypto coin, which he named Gen Z Quant. Simultaneously, he spent about $350 to purchase 51 million tokens, about 5 percent of the total supply, for himself.
Then he started to livestream himself on Pump.Fun, the website he had used to launch the coin. As people tuned in to see what he was doing, they started to buy into Gen Z Quant, leading the price to pitch sharply upward.
By 7: 56 pm PT, a whirlwind eight minutes later, Biesk’s son’s tokens were worth almost $30,000—and he cashed out. “No way. Holy fuck! Holy fuck!” he said, flipping two middle fingers to the webcam, with tongue sticking out of his mouth. “Holy fuck! Thanks for the twenty bandos.” After he dumped the tokens, the price of the coin plummeted, so large was his single trade.
To the normie ear, all this might sound impossible. But in the realm of memecoins, a type of cryptocurrency with no purpose or utility beyond financial speculation, it’s relatively routine. Although many people lose money, a few have been known to make a lot—and fast.
In this case, Biesk’s son had seemingly performed what is known as a soft rug pull, whereby somebody creates a new crypto token, promotes it online, then sells off their entire holdings either swiftly or over time, sinking its price. These maneuvers occupy something of a legal gray area, lawyers say, but are roundly condemned in the cryptosphere as ethically dubious at the least.
After dumping Gen Z Quant, Biesk’s son did the same thing with two more coins—one called im sorry and another called my dog lucy—bringing his takings for the evening to more than $50,000.
The backlash was swift and ferocious. A torrent of abuse began to pour into the chat log on Pump.Fun, from traders who felt they had been swindled. “You little fucking scammer,” wrote one commenter. Soon, the names and pictures of Biesk, his son, and other family members were circulating on X. They had been doxed. “Our phone started blowing up. Just phone call after phone call,” says Biesk. “It was a very frightening situation.”
As part of their revenge campaign, crypto traders continued to buy into Gen Z Quant, driving the coin’s price far higher than the level at which Biesk’s son had cashed out. At its peak, around 3 am PT the following morning, the coin had a theoretical total value of $72 million; the tokens the teenager had initially held were worth more than $3 million. Even now, the trading frenzy has died down, and they continue to be valued at twice the amount he received.
“In the end, a lot of people made money on his coin. But for us, caught in the middle, there was a lot of emotion,” says Biesk. “The online backlash became so frighteningly scary that the realization that he made money was kind of tempered down with the fact that people became angry and started bullying.”
Biesk concedes to a limited understanding of crypto. But he sees little distinction between what his son did and, say, playing the stock market or winning at a casino. Though under California law, someone must be at least 18 years old to gamble or invest in stocks, the unregulated memecoin market, which has been compared to a “casino” in risk profile, had given Biesk’s teenage son early access to a similar arena, in which some must lose for others to profit. “The way I understand it is he made money and he cashed out, which to me seems like that’s what anybody would’ve done,” says Biesk. “You get people who are cheering at the craps table, or angry at the craps table.”
Memecoins have been around since 2013, when Dogecoin was released. In the following years, a few developers tried to replicate the success of Dogecoin, making play of popular internet memes or tapping into the zeitgeist in some other way in a bid to encourage people to invest. But the cost and complexity of development generally limited the number of memecoins that came to market.
That equation was flipped in January with the launch of Pump.Fun, which lets people release new memecoins instantly, at no cost. The idea was to give people a safer way to trade memecoins by standardizing the underlying code, which prevents developers from building in malicious mechanisms to steal funds, in what’s known as a hard rug pull.
“Buying into memecoins was a very unsafe thing to do. Programmers could create systems that would obfuscate what you are buying into and, basically, behave as malicious actors. Everything was designed to suck money out of people,” one of the three anonymous cofounders of Pump.Fun, who goes by Sapijiju, told WIRED earlier in the year. “The idea with Pump was to build something where everyone was on the same playing field.”
However, Pump.Fun has found it impossible to insulate users from soft rug pulls. Though the platform gives users access to information to help assess risk—like the proportion of a coin belonging to the largest few holders—soft rug pulls are difficult to prevent by technical means, claims Sapijiju.
“People say there’s a bunch of different stuff you can do to block [soft rug pulls]—maybe a sell tax or lock up the people who create the coin. Truthfully, all of this is very easy to manipulate,” he says. “Whatever we do to stop people doing this, there’s always a way to circumnavigate if you’re smart enough. The important thing is creating an interface that is as simple as possible and giving the tools for users to see if a coin is legitimate or not.”
The “overwhelming majority” of new crypto tokens entering the market are scams of one form or another, designed expressly to squeeze money from buyers, not to hold a sustained value in the long term, according to crypto security company Blockaid. In the period since memecoin launchpads like Pump.Fun began to gain traction, the volume of soft rug pulls has increased in lockstep, says Ido Ben-Natan, Blockaid founder.
“I generally agree that it is kind of impossible to prevent holistically. It’s a game of cat and mouse,” says Ben-Natan. “It’s definitely impossible to cover a hundred percent of these things. But it definitely is possible to detect repeat offenders, looking at metadata and different kinds of patterns.”
Now memecoin trading has been popularized, there can be no putting the genie back in the bottle, says Ben-Natan. But traders are perhaps uniquely vulnerable at present, he says, in a period when many are newly infatuated with memecoins, yet before the fledgling platforms have figured out the best way to protect them. “The space is immature,” says Ben-Natan.
Whether it is legal to perform a rug pull is also something of a gray area. It depends on both jurisdiction and whether explicit promises are made to prospective investors, experts say. The absence of bespoke crypto regulations in countries like the US, meanwhile, inadvertently creates cloud cover for acts that are perhaps not overtly illegal.
“These actions exploit the gaps in existing regulatory frameworks, where unethical behavior—like developers hyping a project and later abandoning it—might not explicitly violate laws if no fraudulent misrepresentation, contractual breach, or other violations occur,” says Ronghui Gu, cofounder of crypto security firm CertiK and associate professor of computer science at Columbia University.
The Gen Z Quant broadcast is no longer available to view in full, but in the clips reviewed by WIRED, at no point does Biesk’s son promise to hold his tokens for any specific period. Neither do the Pump.Fun terms of use require people to refrain from selling tokens they create. (Sapijiju, the Pump.Fun cofounder, declined to comment on the Gen Z Quant incident. They say that Pump.Fun will be “introducing age restrictions in future,” but declined to elaborate.)
But even then, under the laws of numerous US states, among them California, “the developer likely still owes heightened legal duties to the investors, so may be liable for breaching obligations that result in loss of value,” says Geoffrey Berg, partner at law firm Berg Plummer & Johnson. “The developer is in a position of trust and must place the interests of his investors over his own.”
To clarify whether these legal duties apply to people who release memecoins through websites like Pump.Fun—who buy into their coins like everyone else, albeit at the moment of launch and therefore at a discount and in potentially market-swinging quantities—new laws may be required.
In July 2026, a new regime will take effect in California, where Biesk’s family lives, requiring residents to obtain a license to take part in “digital financial asset business activity,” including exchanging, transferring, storing or administering certain crypto assets. President-elect Donald Trump has also promised new crypto regulations. But for now, there are no crypto-specific laws in place.
“We are in a legal vacuum where there are no clear laws,” says Andrew Gordon, partner at law firm Gordon Law. “Once we know what is ‘in bounds,’ we will also know what is ‘out of bounds.’ This will hopefully create a climate where rug pulls don’t happen, or when they do they are seen as a criminal violation.”
On November 19, as the evening wore on, angry messages continued to tumble in, says Biesk. Though some celebrated his son’s antics, calling for him to return and create another coin, others were threatening or aggressive. “Your son stole my fucking money,” wrote one person over Instagram.
Biesk and his wife were still trying to understand quite how their son was able to make so much money, so fast. “I was trying to get an understanding of exactly how this meme crypto trading works,” says Biesk.
Some memecoin traders, sensing there could be money in riffing off the turn of events, created new coins on Pump.Fun inspired by Biesk and his wife: QUANT DAD and QUANTS MOM. (Both are now practically worthless.)
Equally disturbed and bewildered, Biesk and his wife formed a provisional plan: to make all public social media accounts private, stop answering the phone, and, generally, hunker down until things blew over. (Biesk’s account is active at the time of writing.) Biesk declined to comment on whether the family made contact with law enforcement or what would happen to the funds, saying only that his son would “put the money away.”
A few hours later, an X account under the name of Biesk’s son posted on X, pleading for people to stop contacting his parents. “Im sorry about Quant, I didnt realize I get so much money. Please dont write to my parents, I wiill pay you back [sic],” read the post. Biesk claims the account is not operated by his son.
Though alarmed by the backlash, Biesk is impressed by the entrepreneurial spirit and technical capability his son displayed. “It’s actually sort of a sophisticated trading platform,” he says. “He obviously learned it on his own.”
That his teenager was capable of making $50,000 in an evening, Biesk theorizes, speaks to the fundamentally different relationship kids of that age have with money and investing, characterized by an urgency and hyperactivity that rubs up against traditional wisdom.
“To me, crypto can be hard to grasp, because there is nothing there behind it—it’s not anything tangible. But I think kids relate to this intangible digital world more than adults do,” says Biesk. “This has an immediacy to him. It’s almost like he understands this better.”
On December 1, after a two-week hiatus, Biesk’s son returned to Pump.Fun to launch five new memecoins, apparently undeterred by the abuse. Disregarding the warnings built into the very names of some of the new coins—one was named test and another dontbuy—people bought in. Biesk’s son made another $5,000.
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Bitcoin hit a new record high late Monday, its value peaking at $89,623 as investors quickly moved to cash in on expectations that Donald Trump will end a White House crackdown that intensified last year on crypto.
While the trading rally has now paused, analysts predict that bitcoin’s value will only continue rising following Trump’s win—perhaps even reaching $100,000 by the end of 2024, CNBC reported.
Bitcoin wasn’t the only winner emerging from the post-election crypto trading. Crypto exchanges like Coinbase also experienced surges in the market, and one of the biggest winners, CNBC reported, was dogecoin, a cryptocurrency linked to Elon Musk, who campaigned for Trump and may join his administration. Dogecoin’s value is up 135 percent since Trump’s win.
On the campaign trail, Trump began wooing the cryptocurrency industry, seeking donations and votes by promising to make the US the “crypto capital of the planet,” Fortune reported. He announced the launch of his own crypto platform, World Liberty Financial (WLFI), and vowed to “fire” Gary Gensler—the Securities and Commission Exchange (SEC) chair leading the US crypto crackdown—on “day one” in office, Al Jazeera reported.
Whether Trump can actually fire Gensler is still up in the air, The Washington Post reported. It seems more likely that Trump may demote Gensler, The Post reported, since people familiar with the matter suggested that “fully outing” the current SEC chair “could trigger a novel and complicated legal battle over the president’s authorities.” So far, Gensler has made no indications that he will step down once Trump takes office, although The Post noted that wouldn’t be considered unusual.
Sources told The Post that Trump is considering “a mix of current regulators, former federal officials, and financial industry executives,” for leadership positions, “many of whom have publicly expressed pro-crypto views.”
Reportedly under consideration to replace Gensler are Daniel Gallagher, a former SEC official currently serving as chief legal officer for the financial technology firm Robinhood, and two Republican SEC commissioners, Hester Peirce and Mark Uyeda, The Post’s sources said. Other names in the mix include a former SEC commissioner, Paul Atkins, and a former commissioner at the Commodity Futures Trading Commission, Chris Giancarlo.
Enlarge/ Caroline Ellison, former chief executive officer of Alameda Research LLC, was sentenced Tuesday for helping Sam Bankman-Fried cover up FTX’s fraudulent misuse of customer funds.
Addressing the judge at sentencing, Ellison started out by explaining “how sorry I am” for concealing FTX’s lies, Bloomberg reported live from the hearing.
“I participated in a criminal conspiracy that ultimately stole billions of dollars from people who entrusted their money with us,” Ellison reportedly said while sniffling. “The human brain is truly bad at understanding big numbers,” she added, and “not a day goes by” that she doesn’t “think about all of the people I hurt.”
Assistant US Attorney Danielle Sassoon followed Ellison, remarking that the government recommended a lighter sentence because it was important for the court to “distinguish between the mastermind and the willing accomplice.” (Bankman-Fried got 25 years.)
US District Judge Lewis Kaplan noted that he is allowed to show Ellison leniency for providing “substantial assistance to the government.” He then confirmed that he always considered the maximum sentence she faced of 110 years to be “absurd,” considering that Ellison had no inconsistencies in her testimony and fully cooperated with the government throughout their FTX probe.
“I’ve seen a lot of cooperators in 30 years,” Kaplan said. “I’ve never seen one quite like Ms. Ellison.”
However, although Ellison was brave to tell the truth about her crimes, Ellison is “by no means free of culpability,” Kaplan said. He called Bankman-Fried her “Kryptonite” because the FTX co-founder so easily exploited such a “very strong person.” Noting that nobody gets a “get out of jail free card,” he sentenced Ellison to two years and required her to forfeit about $11 billion, Bloomberg reported.
The judge said that Ellison “can serve the sentence at a minimum-security facility,” Bloomberg reported.
Ellison was key to SBF’s quick conviction
Ellison could have faced a maximum sentence of 110 years, for misleading customers and investors as the former CEO of the cryptocurrency trading firm linked to the FTX exchange, Alameda Research. But after delivering devastatingly detailed testimony key to exposing Bankman-Fried’s many lies, the probation office had recommended a sentence of time served with three years of supervised release.
Kaplan’s sentence went further, making it likely that other co-conspirators who cooperated with the government probe will also face jail time.
Both Ellison and the US government had requested substantial leniency due to her “critical” cooperation that allowed the US to convict Bankman-Fried in record time for such a complex criminal case.
Partly because Ellison was romantically involved with Bankman-Fried and partly because she “drafted some of the most incriminating documents in the case,” US attorney Damian Williams wrote in a letter to Kaplan, she was considered “crucial to the Government’s successful prosecution of Samuel Bankman-Fried for one of the largest financial frauds in history,” Williams wrote.
Williams explained that Ellison went above and beyond to help the government probe Bankman-Fried’s fraud. Starting about a month after FTX declared bankruptcy, Ellison began cooperating with the US government’s investigation. She met about 20 times with prosecutors, digging through thousands of documents to identify and interpret key evidence that convicted her former boss and boyfriend.
“Parsing Alameda Research’s poor internal records was complicated by vague titles and unlabeled calculations on any documents reflecting misuse of customer funds,” Ellison’s sentencing memo said. Without her three-day testimony at trial, the jury would likely not have understood “Alameda’s intentionally cryptic records,” Williams wrote. Additionally, because Bankman-Fried systematically destroyed evidence, she was one of the few witnesses able to contradict Bankman-Fried’s lies by providing a timeline for how Bankman-Fried’s scheme unfolded—and she was willing to find the receipts to back it all up.
“As Alameda’s nominal CEO and Bankman-Fried’s former girlfriend, Ellison was uniquely positioned to explain not only the what and how of Bankman-Fried’s crimes, but also the why,” Williams wrote. “Ellison’s testimony was critical to indict and convict Bankman-Fried, and to understanding both the timeline of the fraud schemes, and the various layers of wrongdoing.”
Further, where Bankman-Fried tried to claim that he was “well-meaning but hapless” in causing FTX’s collapse, Ellison admitted her guilt before law enforcement ever got involved, then continually “expressed genuine shame and remorse” for the harms she caused, Williams wrote.
A lighter sentence, Ellison’s sentencing memo suggested, “would incentivize people involved in a fraud to do what Caroline did: publicly disclose a fraud, immediately accept responsibility, and cooperate immediately with civil and criminal authorities.”
Williams praised Ellison as exceptionally forthcoming, even alerting the government to criminal activity that they didn’t even know about yet. He also credited her for persevering as a truth-teller “despite harsh media and public scrutiny and Bankman-Fried’s efforts to publicly weaponize her personal writings to discredit and intimidate her.”
“The Government cannot think of another cooperating witness in recent history who has received a greater level of attention and harassment,” Williams wrote.
In her sentencing memo, Ellison’s lawyers asked for no prison time, insisting that Ellison had been punished enough. Not only will she recover “nothing” from the FTX bankruptcy proceedings that she’s helping to settle, but she also is banned from working in the only industries she’s ever worked in, unlikely to ever repeat her crimes in finance and cryptocurrency sectors. She also is banned from running any public company and “has been rendered effectively unemployable in the near term by the notoriety arising from this case.”
“The reputational harm is not likely to abate any time soon,” Ellison’s sentencing memo said. “These personal, financial, and career consequences constitute substantial forms of punishment that reduce the need for the Court to order her incarceration.”
Kaplan clearly disagreed, ordering her to serve 24 months and forfeit $11 billion.
A federal judge sentenced a 53-year-old Kansas man to more than 24 years in prison after the former bank CEO abused his trusted position to embezzle $47 million after falling for a cryptocurrency scam that he believed would make him wildly rich.
In a press release, the US Attorney’s Office said that Shan Hanes was driven by “greed” when directing bank employees to transfer millions in funds to a sketchy crypto wallet managed by still-unknown third parties behind the so-called “pig butchering” scheme.
Hanes was first targeted by scammers in late 2022, apparently when he got a message from an unidentified co-conspirator on WhatsApp, prosecutors said. After blowing through his own funds seeking promised profits, Hanes stole tens of thousands from a local church, then a local investor club, and finally his daughter’s college fund, NBC News reported. Then when all those wells dried up, he started stealing bank funds—all in the false hopes that sending more and more money to the scammers would somehow “unlock the supposed returns” on his crypto investments.
In total, Hanes made 11 wire transfers using bank funds between May 2023 and July 2023. But instead of getting rich quick, Hanes never realized any profits at all, the US Attorney’s Office said.
He pleaded guilty to one count of embezzlement by a bank officer after he singlehandedly caused the collapse of Heartland Tri-State Bank (HTSB) in Elkhart, Kansas, the press release said.
Because the bank was insured by the Federal Deposit Insurance Corporation (FDIC), the FDIC “absorbed the $47.1 million loss” after “Hanes’ fraudulent actions caused HTSB to fail and the bank investors to lose $9 million,” the US Attorney’s Office said. On top of those losses, Hanes’ fraudulent actions caused “catastrophic losses to bank customers who relied on the bank for the safekeeping of their savings,” the press release confirmed.
According to NBC News, Hanes missed at least one opportunity to realize that he was being scammed. After he asked for a $12 million loan from a neighbor, Brian Mitchell, his neighbor detected the scam and refused to lend the money.
“I said, ‘You’re in a scam, walk away,'” Mitchell told NBC News.
But Hanes didn’t walk away. Going the other direction, he directed bank employees to wire millions more to scammers after he got the warning from Mitchell. It wasn’t until Mitchell heard from a bank employee that Hanes had wired money out of the bank that Mitchell insisted on speaking to the bank’s board.
Days later, Hanes was fired, NBC News reported. But even then, Hanes never believed he was being scammed, reportedly telling Mitchell that he was still scheming to find a way to recover his make-believe profits right up to the moment he was arrested.
“He said … ‘If I just had another two months, I could get the money back,'” Mitchell told NBC News.
Law enforcement and government officials have warned that pig-butchering scams are growing increasingly common, urging people to “think twice” to avoid being victimized. Last year, the US Department of the Treasury’s Financial Crimes Enforcement Network issued an alert, which explained in detail how the scams commonly work and laid out red flags to watch out for.
Victims may never fully recover losses, DOJ says
A Kansas FBI agent, Stephen Cyrus, said in the press release that as CEO, Hanes violated “the trust and confidence of the community of Elkhart” by embezzling the funds.
Mitchell described Hanes’ deceptions and manipulations as “pure evil,” while Cyrus said that it was Hanes’ “job” and “the bank’s job” to “protect its customers and identify fraudulent scams—not to participate in them.”
In a court filing at sentencing, Hanes’ lawyer, John Stang, chalked up his client’s misdeeds to “bad choices,” reminding the court that Hanes had been deceived, too, by “an extremely well-run cryptocurrency scam.”
“He was the pig that was butchered,” Stang wrote. “Mr. Hanes’s vulnerability to the Pig Butcher scheme caused him to make some very bad decisions, for which he is truly sorry for causing damage to the bank and loss to the Stockholders.”
Hanes faced a maximum penalty of 30 years. While Judge John Broomes ordered him to serve less time than that, his sentence of more than 24 years is 29 months longer than prosecutors had requested, NBC News reported.
Right now, it’s unclear how or when victims will be repaid for losses. Broomes ordered “that restitution be finalized at a separate hearing within the next 90 days,” the US Attorney’s Office said.
In the community, people are still struggling to recover, Mitchell told NBC News, noting that some people lost up to 80 percent of their retirement savings. For at least one woman, retirement is impossible now, Mitchell said, and for another local woman, it has become difficult to pay for her 93-year-old mother’s nursing home.
US Attorney Kate E. Brubacher said that it’s hard to say when or if victims will be made whole again.
“Hanes is a liar and a master manipulator” who squandered away “tens of millions of dollars in cryptocurrency” while orchestrating “schemes to cover his tracks concerning the losses at the bank,” Brubacher said. “Many victims will never fully recoup losses to their life savings and retirement funds, but at least we at the Department of Justice can see that Hanes is held criminally responsible for his actions.”
Cryptocurrency has always made a ripe target for theft—and not just hacking, but the old-fashioned, up-close-and-personal kind, too. Given that it can be irreversibly transferred in seconds with little more than a password, it’s perhaps no surprise that thieves have occasionally sought to steal crypto in home-invasion burglaries and even kidnappings. But rarely do those thieves leave a trail of violence in their wake as disturbing as that of one recent, ruthless, and particularly prolific gang of crypto extortionists.
The United States Justice Department earlier this week announced the conviction of Remy Ra St. Felix, a 24-year-old Florida man who led a group of men behind a violent crime spree designed to compel victims to hand over access to their cryptocurrency savings. That announcement and the criminal complaint laying out charges against St. Felix focused largely on a single theft of cryptocurrency from an elderly North Carolina couple, whose home St. Felix and one of his accomplices broke into before physically assaulting the two victims—both in their seventies—and forcing them to transfer more than $150,000 in bitcoin and ether to the thieves’ crypto wallets.
In fact, that six-figure sum appears to have been the gang’s only confirmed haul from its physical crypto thefts—although the burglars and their associates made millions in total, mostly through more traditional crypto hacking as well as stealing other assets. A deeper look into court documents from the St. Felix case, however, reveals that the relatively small profit St. Felix’s gang made from its burglaries doesn’t capture the full scope of the harm they inflicted: In total, those court filings and DOJ officials describe how more than a dozen convicted and alleged members of the crypto-focused gang broke into the homes of 11 victims, carrying out a brutal spree of armed robberies, death threats, beatings, torture sessions, and even one kidnapping in a campaign that spanned four US states.
In court documents, prosecutors say the men—working in pairs or small teams—threatened to cut toes or genitalia off of one victim, kidnapped and discussed killing another, and planned to threaten another victim’s child as leverage. Prosecutors also describe disturbing torture tactics: how the men inserted sharp objects under one victim’s fingernails and burned another with a hot iron, all in an effort to coerce their targets to hand over the devices and passwords necessary to transfer their crypto holdings.
“The victims in this case suffered a horrible, painful experience that no citizen should have to endure,” Sandra Hairston, a US attorney for the Middle District of North Carolina who prosecuted St. Felix’s case, wrote in the Justice Department’s announcement of St. Felix’s conviction. “The defendant and his coconspirators acted purely out of greed and callously terrorized those they targeted.”
The serial extortion spree is almost certainly the worst of its kind ever to be prosecuted in the US, says Jameson Lopp, the cofounder and chief security officer of Casa, a cryptocurrency-focused physical security firm, who has tracked physical attacks designed to steal cryptocurrency going back as far as 2014. “As far as I’m aware, this is the first case where it was confirmed that the same group of people went around and basically carried out home invasions on a variety of different victims,” Lopp says.
Lopp notes, nonetheless, that this kind of crime spree is more than a one-off. He has learned of other similar attempts at physical theft of cryptocurrency in just the past month that have escaped public reporting—he says the victims in those cases asked him not to share details—and suggests that in-person crypto extortion may be on the rise as thieves realize the attraction of crypto as a highly valuable and instantly transportable target for theft. “Crypto, as this highly liquid bearer asset, completely changes the incentives of doing something like a home invasion,” Lopp says, “or even kidnapping and extortion and ransom.”
Two years ago when “Michael,” an owner of cryptocurrency, contacted Joe Grand to help recover access to about $2 million worth of bitcoin he stored in encrypted format on his computer, Grand turned him down.
Michael, who is based in Europe and asked to remain anonymous, stored the cryptocurrency in a password-protected digital wallet. He generated a password using the RoboForm password manager and stored that password in a file encrypted with a tool called TrueCrypt. At some point, that file got corrupted, and Michael lost access to the 20-character password he had generated to secure his 43.6 BTC (worth a total of about 4,000 euros, or $5,300, in 2013). Michael used the RoboForm password manager to generate the password but did not store it in his manager. He worried that someone would hack his computer and obtain the password.
“At [that] time, I was really paranoid with my security,” he laughs.
Grand is a famed hardware hacker who in 2022 helped another crypto wallet owner recover access to $2 million in cryptocurrency he thought he’d lost forever after forgetting the PIN to his Trezor wallet. Since then, dozens of people have contacted Grand to help them recover their treasure. But Grand, known by the hacker handle “Kingpin,” turns down most of them, for various reasons.
Grand is an electrical engineer who began hacking computing hardware at age 10 and in 2008 cohosted the Discovery Channel’s Prototype This show. He now consults with companies that build complex digital systems to help them understand how hardware hackers like him might subvert their systems. He cracked the Trezor wallet in 2022 using complex hardware techniques that forced the USB-style wallet to reveal its password.
But Michael stored his cryptocurrency in a software-based wallet, which meant none of Grand’s hardware skills were relevant this time. He considered brute-forcing Michael’s password—writing a script to automatically guess millions of possible passwords to find the correct one—but determined this wasn’t feasible. He briefly considered that the RoboForm password manager Michael used to generate his password might have a flaw in the way it generated passwords, which would allow him to guess the password more easily. Grand, however, doubted such a flaw existed.
Michael contacted multiple people who specialize in cracking cryptography; they all told him “there’s no chance” of retrieving his money. But last June he approached Grand again, hoping to convince him to help, and this time Grand agreed to give it a try, working with a friend named Bruno in Germany who also hacks digital wallets.
Billy Restey is a digital artist who runs a studio in Seattle. But after hours, he hunts for rare chunks of bitcoin. He does it for the thrill. “It’s like collecting Magic: The Gathering or Pokémon cards,” says Restey. “It’s that excitement of, like, what if I catch something rare?”
In the same way a dollar is made up of 100 cents, one bitcoin is composed of 100 million satoshis—or sats, for short. But not all sats are made equal. Those produced in the year bitcoin was created are considered vintage, like a fine wine. Other coveted sats were part of transactions made by bitcoin’s inventor. Some correspond with a particular transaction milestone. These and various other properties make some sats more scarce than others—and therefore more valuable. The very rarest can sell for tens of millions of times their face value; in April, a single sat, normally worth $0.0006, sold for $2.1 million.
Restey is part of a small, tight-knit band of hunters trying to root out these rare sats, which are scattered across the bitcoin network. They do this by depositing batches of bitcoin with a crypto exchange, then withdrawing the same amount—a little like depositing cash with a bank teller and immediately taking it out again from the ATM outside. The coins they receive in return are not the same they deposited, giving them a fresh stash through which to sift. They rinse and repeat.
In April 2023, when Restey started out, he was one of the only people hunting for rare sats—and the process was entirely manual. But now, he uses third-party software to automatically filter through and separate out any precious sats, which he can usually sell for around $80. “I’ve sifted through around 230,000 bitcoin at this point,” he says.
Restey has unearthed thousands of uncommon sats to date, selling only enough to cover the transaction fees and turn a small profit—and collecting the rest himself. But the window of opportunity is closing. The number of rare sats yet to be discovered is steadily shrinking and, as large organizations cotton on, individual hunters risk getting squeezed out. “For a lot of people, it doesn’t make [economic] sense anymore,” says Restey. “But I’m still sat hunting.”
Rarity out of thin air
Bitcoin has been around for 15 years, but rare sats have existed for barely more than 15 months. In January 2023, computer scientist Casey Rodarmor released the Ordinals protocol, which sits as a veneer over the top of the bitcoin network. His aim was to bring a bitcoin equivalent to non-fungible tokens (NFTs) to the network, whereby ownership of a piece of digital media is represented by a sat. He called them “inscriptions.”
There had previously been no way to tell one sat from another. To remedy the problem, Rodarmor coded a method into the Ordinals protocol for differentiating between sats for the first time, by ordering them by number from oldest to newest. Thus, as a side effect of an apparatus designed for something else entirely, rare sats were born.
By allowing sats to be sequenced and tracked, Rodarmor had changed a system in which every bitcoin was freely interchangeable into one in which not all units of bitcoin are equal. He had created rarity out of thin air. “It’s an optional, sort of pretend lens through which to view bitcoin,” says Rodarmor. “It creates value out of nothing.”
When the Ordinals system was first released, it divided bitcoiners. Inscriptions were a near-instant hit, but some felt they were a bastardization of bitcoin’s true purpose—as a system for peer-to-peer payments—or had a “reflexive allergic reaction,” says Rodarmor, to anything that so much as resembled an NFT. The enthusiasm for inscriptions resulted in network congestion as people began to experiment with the new functionality, thus driving transaction fees to a two-year high and adding fuel to an already-fiery debate. One bitcoin developer called for inscriptions to be banned. Those that trade in rare sats have come under attack, too, says Danny Diekroeger, another sat hunter. “Bitcoin maximalists hate this stuff—and they hate me,” he says.
The fuss around the Ordinals system has by now mostly died down, says Rodarmor, but a “loud minority” on X is still “infuriated” by the invention. “I wish hardcore bitcoiners understood that people are going to do things with bitcoin that they think are stupid—and that’s okay,” says Rodarmor. “Just, like, get over it.”
The hunt for rare sats, itself an eccentric mutation of the bitcoin system, falls into that bracket. “It’s highly wacky,” says Rodarmor.
