United States v. Approximately 69

Background

This civil forfeiture case concerns approximately 69,370 Bitcoin, Bitcoin Gold, Bitcoin SV, and Bitcoin Cash that the government seized in 2020. The government alleged that “Individual X” hacked Silk Road in 2012 and transferred more than 70,000 Bitcoin through 54 transactions to two addresses, later consolidating most of it in the 1HQ3 wallet. The government alleged that the seized cryptocurrency was derived from unlawful activity. Individual X and Ross Ulbricht consented to its forfeiture.

Several people and entities asserted ownership interests in the seized cryptocurrency. The government moved to strike the claims of Roman Hossain, Illija Matsuko, and Battle Born Investments Company, LLC, First 100, LLC, and 1st One Hundred Holdings, LLC. Nobuaki Kobayashi, the foreign representative in the Mt. Gox bankruptcy case, moved for direct access under 11 U.S.C. § 1509 or permission to intervene under Federal Rule of Civil Procedure 24.

Legal framework

The court explained that a claimant in a civil forfeiture case must establish statutory standing and Article III standing before contesting the forfeiture. Article III standing requires a claimant to show a sufficient interest in the property to create a genuine legal dispute. In this setting, a claimant may show a colorable interest through actual possession, control, title, or a financial stake. Supplemental Rule G(6) allows the government to serve special interrogatories seeking information about the claimant’s identity and relationship to the property. Under Rule G(8)(c), the government may move to strike a claim if the claimant fails to comply with the rule or lacks standing.

Roman Hossain

Hossain claimed that he owned at least 245.922 of the seized Bitcoin. He said he deposited $2,475 into a Mt. Gox account, acquired 245.92 Bitcoin, and later lost it when hackers transferred it to Silk Road and then to the 1HQ3 wallet.

Hossain did not identify his Mt. Gox wallet address or provide account information in his claim. He objected to the government’s special interrogatories and did not provide the requested information. The court nevertheless focused on the lack of evidence connecting his Bitcoin to the seized cryptocurrency. Mt. Gox records showed transfers of 200 Bitcoin and 45.92 Bitcoin from Hossain’s account on February 8 and 9, 2013—nine months after the Bitcoin was stolen from Silk Road. The court found that Hossain’s assertions that his Bitcoin had been transferred to Silk Road and then to 1HQ3 were unsupported speculation. The court granted the government’s motion to strike Hossain’s claim.

Illija Matsuko

Matsuko filed a claim months after the deadline, asserting that he held at least 48 Bitcoin in a Silk Road account under the username “hanson5.” He said the Bitcoin remained unused in that account and that he lost access to it after the 2013 government seizure and shutdown of Silk Road. The opinion notes that Matsuko later acknowledged the exact amount was 47.52 Bitcoin.

The court assumed, without deciding, that Matsuko could be relieved from the filing deadline. It held that he still had not shown a colorable claim to the seized Bitcoin because he did not dispute that his Bitcoin remained in his Silk Road account and was available for use or withdrawal until the 2013 seizure. The court rejected his argument that the fungibility of Bitcoin connected his account holdings to the Bitcoin later stolen from Silk Road and transferred to 1HQ3. The court also held that his complaint about notice of the earlier seizure was not relevant to this proceeding. The court granted the government’s motion to strike Matsuko’s claim.

Battle Born Investments Company and related entities

Battle Born Investments Company, LLC; First 100, LLC; and 1st One Hundred Holdings, LLC claimed ownership of the entire 1HQ3 wallet. They relied on a judgment exceeding $2.2 billion against Raymond Ngan, their belief that Ngan was Individual X or associated with Individual X, and their purchase of the bankruptcy estate’s disclosed and undisclosed property interests.

The parties agreed that Ngan was not Individual X. Battle Born found email correspondence on Ngan’s laptop about a proposed Bitcoin sale, including an image of the 1HQ3 wallet from blockchain.com. The court said Ngan’s conduct could reasonably be viewed as a representation that he owned the wallet, but it was not enough to establish that the Bitcoin belonged to him or lawfully became part of the bankruptcy estate. The court found that Battle Born offered only speculation about Ngan’s connection to Individual X and did not plead facts plausibly placing the wallet in the bankruptcy estate. The court granted the government’s motion to strike Battle Born’s claim.

Nob uaki Kobayashi

Kobayashi sought direct access or permission to intervene because he speculated that some Bitcoin stolen from Mt. Gox might have gone to Silk Road and ultimately to the 1HQ3 wallet. The court found that this conjecture, particularly in light of the government’s showing that the Mt. Gox thefts did not go into Silk Road, was insufficient to support either request. The court denied Kobayashi’s motion for direct access or to intervene.

Disposition

The court ordered that the claims of Hossain, Matsuko, and Battle Born be stricken. It denied Kobayashi’s motion for direct access or to intervene. The court also granted the government’s sealing motion concerning material submitted with its opposition to Kobayashi’s motion. Chief Judge Richard Seeborg signed the order on March 25, 2022.