USA V Tether Virtual Currency

Case 2:20-cv-09714 Document 1 Filed 10/22/20 Page 1 of 11 Page ID #:1
1 NICOLA T. HANNA
United States Attorney
2 BRANDON D. FOX
Assistant United States Attorney
3 Chief, Criminal Division
STEVEN R. WELK
4 Assistant United States Attorney
Chief, Asset Forfeiture Section
5 DAN G. BOYLE (Cal. Bar No. Pending)
6 Asset Forfeiture Section
1400 United States Courthouse
7 312 North Spring Street
Los Angeles, California 90012
8 Telephone: (213) 894-2426
Facsimile: (213) 894-0142
9 E-mail: [email protected]
10 Attorneys for Plaintiff

UNITED STATES OF AMERICA
11
12
UNITED STATES DISTRICT COURT
13
FOR THE CENTRAL DISTRICT OF CALIFORNIA
14
WESTERN DIVISION
15
UNITED STATES OF AMERICA, NO. CV 20-09714
16
Plaintiff, VERIFIED COMPLAINT FOR FORFEITURE
17
v. 18 U.S.C. § 981(a)(1)(C)
18
300,901 TETHER VIRTUAL CURRENCY, [U.S.S.S.]
19
20 Defendant.
21
22 The United States of America brings this claim against the
23 defendant 300,901 Tether virtual currency, and alleges as follows:
24 JURISDICTION AND VENUE
25 1. This is a civil forfeiture action brought pursuant to 18
26 U.S.C. §§ 981 (a)(1)(C).
27 2. This Court has jurisdiction over this matter under 28
28 U.S.C. §§ 1345 and 1355.

1 3. Venue lies in this District pursuant to 28 U.S.C.
2 § 1395(a).
3 PERSONS AND ENTITIES

4 4. The plaintiff is the United States of America (the
5 “plaintiff” or the “government”).
6 5. The defendant is 300,901 Tether virtual currency (the
7 “Defendant Currency”), seized by agents of the United States Secret
8 Service (“USSS”) on or about July 7, 2020, pursuant to a seizure
9 warrant issued by the Hon. Pedro Castillo, United States Magistrate
10 Judge.
11 6. The Defendant Currency is currently in the custody of the
12 United States Secret Service, where it shall remain subject to this
13 Court’s jurisdiction pending this action.
14 7. The interests of Shixuan Cai, Lin Jian Chen and “Kamil”
15 (real name, address, and identity unknown, as described herein) may
16 be adversely affected by these proceedings.
17 EVIDENCE SUPPORTING FORFEITURE
18 Background on Virtual Currency
19 8. Virtual currency (also known as cryptocurrency or digital
20 currency) 1 is generally defined as an electronic-sourced unit of
21 value that can be used as a substitute for fiat currency (i.e.,
22 currency created and regulated by a government). Virtual currencies
23 exhibit properties similar to other currencies, but do not have a
24 physical form, existing entirely on the internet. Virtual currency is
25 not issued by any government or bank (in contrast with conventional
26 currencies) and is instead generated and controlled through computer
27
1 For purposes of this complaint, the terms “digital currency,”
28
“cryptocurrency,” and “virtual currency” address the same concept.
2
1 software operating on a decentralized peer-to-peer network. The use
2 of virtual currency is legal in the United States and it may be
3 exchanged for goods or services or otherwise utilized in legitimate
4 financial transactions. However, it is often used for conducting
5 illegal transactions or to conceal or disguise the true nature,
6 source, location, ownership or control of illegally obtained
7 proceeds.
8 9. A virtual currency exchange (an “exchange”) is a business
9 that allows customers to trade digital currencies for other virtual
10 or fiat currencies. An exchange can be a brick and mortar business,
11 or strictly online. Both types of exchangers accept a wide variety of
12 virtual currencies, and exchange them for fiat and traditional
13 payment methods, other virtual currencies, or facilitate transfers
14 between digital currency owners.
15 10. Tokens are a form of digital asset that often function
16 similarly to virtual currency. Tokens are generally created by an
17 issuing company and then used like currency by and within companies
18 (including but not limited to the issuer), but are generally distinct
19 from other blockchain-based cryptocurrencies such as Bitcoin. 2
20 Digital tokens are often issued by companies attempting to launch a
21 new digital product or digital service, where investors purchase
22 tokens for cash and expect that they will exchange these tokens at a
23
2 “Blockchain” is the name for the system by which virtual
24
currency transactions and exchanges are recorded. It consists of a
25 growing list of records, called blocks, that are linked using
cryptography. It generates a decentralized, publicly-available
26 digital ledger that records transactions across many computers in a
way that prevents retroactive alteration without additional changes
27 to all successive blocks and the consent of the network. Blockchain
recordation provides high security by design, as transactions are
28 verified with advanced cryptography and spread across many computers
in a peer-to-peer network or distributed ledger.
3
1 later date for greater value if the issuer is successful. While
2 tokens can be used as a limited form of payment, these tokens may
3 remain the property of the issuer until a token is exchanged for
4 another asset, which may be goods, services, or other virtual
5 currency. In this way, a token may be analogized to a voucher or I-O-
6 U, in that they are not specifically a currency, but represent value
7 and may be exchanged at that value. Many tokens can be bought and
8 transferred within certain exchangers.
9 11. One type of token is “Tether,” issued by Tether Limited.
10 Tether is a decentralized, peer-to-peer form of virtual currency
11 having no association with any bank or government. Users purchase
12 Tether tokens, which are stored in a user’s digital or cryptocurrency
13 wallet (a “wallet”).
14 12. A wallet is identified by a unique electronic address that
15 essentially stores the access code that allows an individual to
16 conduct transactions on the public ledger. To access a wallet on the
17 public ledger, an individual must use a public address (or “public
18 key”) and a private address (or “private key”). The public address
19 can be analogized to an account number, while the private address is
20 similar to a password used to access that account. Even though the
21 public addresses of those engaging in digital currency transactions
22 are recorded on the public ledger, the true identities of the
23 individuals or entities behind the public address are not necessarily
24 public. If a specific, identifiable individual or entity is linked to
25 a public address, it may be possible to determine what transactions
26 were conducted by that individual or entity. However, many digital
27 transactions are described as “pseudonymous” because they are
28 partially or completely anonymous. Most individuals are identified
4
1 when they use a virtual currency exchanger to make a transaction
2 between virtual currency and fiat, or through digital currency
3 exchangers that voluntarily or through legal order, cooperate with
4 law enforcement.
5 Evidence Supporting Forfeiture

6 13. On or about February 25, 2020, at approximately 6:36 AM
7 +UTC, Shixuan Cai (“Cai”) purchased 300,900 Tether tokens through the
8 Binance exchange (the “Tether Purchase”). 3
9 14. Cai directed the Tether Purchase into a wallet with a
10 public address ending ‘517c (the “Victim Wallet”). Cai and his
11 business partner Lin Jian Chen (“Chen”) controlled the Victim Wallet
12 and were the only persons with authorized access to the Victim
13 Wallet.
14 15. Roughly four minutes after the Tether Purchase, at
15 approximately 06:40 AM +UTC, the Tether Purchase, plus one additional
16 Tether token already in the Victim Wallet (collectively, the “Victim
17 Funds”), were transferred from the Victim Wallet to a wallet not
18 controlled by either Cai or Chen, with a public address ending in
19 ‘8869 (the “‘8869 Wallet”). Neither Cai nor Chen authorized or
20 executed this transfer of the Victim Funds.
21 16. Approximately ten hours later, on or about February 25,
22 2020, at 04:17:38 PM +UTC, the Victim Funds were split, with 200,600
23 Tether transferred from the ’8869 Wallet to another wallet not
24 controlled by Cai or Chen, with public address ending ‘44c2 (the
25 “‘44c2 Wallet”). Neither Cai nor Chen authorized or executed this
26
3 Tether is commonly known as a “stablecoin,” meaning that
27
Tether tokens ordinarily hold a static value roughly equal to one
28 United States dollar. As such, the total value of the Tether
Purchase was approximately $300,900.
5
1 transfer. The residual 100,301 of the Victim Funds remained in the
2 ‘8869 Wallet.
3 17. The next day, February 26, 2020, Cai discovered that a
4 portion of the Victim Funds had been transferred from the Victim
5 Wallet to the ‘8869 Wallet without his authorization.
6 18. Cai contacted his partner, Chen, who was the only other
7 person with authorized access to the Victim Wallet. Cai inquired
8 whether Chen had authorized the transfer of the Victim Funds to the
9 ’8869 Wallet, and Chen denied that he (Chen) had made any recent
10 transactions to or from the Victim Wallet. Chen stated that he did
11 not know who had transferred the Victim Funds from the Victim Wallet
12 to the ‘8869 Wallet.
13 19. Chen informed Cai that he (Chen) had recorded the private
14 key for the Victim Wallet in his Evernote 4 account, using an
15 application on his smartphone.
16 20. Chen reviewed his Evernote account and discovered that it
17 had been accessed without his permission from several unknown IP
18 addresses. As a result, persons unknown had been able to access the
19 private key to the Victim Wallet recorded in Chen’s Evernote. With
20 this private key, these intruders gained control over the Victim
21 Wallet and the ability to transfer the Victim Funds without the
22 knowledge or authorization of Cai or Chen. These intrusions occurred
23 between January 28, 2020 and February 5, 2020, and it appeared that
24
25
26
27 4 Evernote is an application used for note taking, organizing,

28 task management, and archiving.
6
1 the intruders had used virtual private networks to disguise their
2 location. 5
3 21. Based on this information, Cai believed that the person or
4 persons who had accessed Chen’s Evernote account without
5 authorization had used the private key found in Chen’s Evernote
6 account to control the Victim Wallet and transfer the Victim Funds to
7 the ‘8869 Wallet without authorization.
8 22. On or about April 9, 2020, Cai reported the theft of the
9 Victim Funds to the Los Angeles Police Department. Cai also notified
10 Tether Limited of the unauthorized transfer of the Cai Funds, and was
11 informed that Tether Limited would temporarily restrict any transfers
12 of the Victim Funds pending an investigation.
13 23. On or about April 18, 2020, Special Agent Patrick Leighton
14 (“SA Leighton”) of the USSS was contacted by a representative of
15 Tether Limited, who informed SA Leighton that an unidentified
16 individual was seeking to lift the restriction on the Victim Funds in
17 order to convert them to another form of virtual currency. SA
18 Leighton requested that Tether Limited pass his contact information
19 to the person seeking to release the Victim Funds.
20
21
22
23
5 It is common for computer hackers to infiltrate computers or
24
mobile telephones of unsuspecting parties through the use of a
25 virtual private network (or “VPN”). This technique allows criminals
to effectively hide their own IP address, making it appear as though
26 they conducted their intrusion from locations throughout the world.
Although using a VPN is legal, criminals commonly use them to create
27 additional layers of anonymity while committing cybercrimes. They do
this as a tactic to throw off law enforcement and prevent experts
28 from tracking the original IP address of the unauthorized actor.
7
1 24. On or about April 18, 2020, SA Leighton was contacted
2 electronically by an individual who identified himself only as
3 “Kamil,” using the email address “[email protected]. 6
4 25. Kamil stated that he controlled both the ‘8869 and the
5 ‘44c2 Wallets, and that he wanted Tether Limited to lift the freeze
6 on the Victim Funds. Kamil claimed that an unidentified business
7 partner had transferred the Victim Funds to him and asked him to use
8 the Victim Funds to buy Ethereum 7 on the Kyber 8 network. Kamil claimed
9 that the unidentified partner received the Victim Funds from an
10 undisclosed person in China who asked Kamil to handle the transfer of
11 the Victim Funds because he (the person in China) was not familiar
12 with digital currency. Kamil stated that he intended to split the
13 Victim Funds into equal amounts in three wallets, and that he would
14 receive 15% of the Victim Funds for conducting these intended
15 transactions on behalf of his partner. Kamil would not provide any
16 identifying information for his purported partner, and Kamil claimed
17 that he had deleted all of his partner’s information.
18 26. On or about May 21, 2020, Magistrate Judge Castillo issued
19 a seizure warrant (the “Warrant”) for the Victim Funds and, on June
20 25, 2020, issued an order extending the time for the USSS to execute
21 the Warrant.
22
23
24
6 Protonmail is an encrypted email service often used by
25
criminals to hide their true identity by creating anonymous email
26 accounts.
7 Ethereum is a type of digital currency, considered the second
27 most popular in the world (behind Bitcoin).
8 Kyber is a decentralized platform used to exchange Ethereum
28
and other tokens.
8
1 27. On July 7, 2020, Tether Limited lifted the freeze on the
2 Victim Funds and the USSS executed the Warrant by transferring the
3 Victim Funds into a wallet controlled by the government.
4 //
5 //
6 //
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1 FIRST CLAIM FOR RELIEF

2 18 U.S.C. § 981(a)(1)(C)
3 28. Based on the facts set out above, Plaintiff alleges that
4 the Defendant Currency constitutes or is derived from proceeds
5 traceable to a violation of 18 U.S.C. § 1030 (Fraud and related
6 activity in connection with computers). The Defendant Currency is
7 therefore subject to forfeiture to the United States pursuant to 18
8 U.S.C. § 981(a)(1)(C).
9 WHEREFORE, plaintiff United States of America prays:
10 (a) that due process issue to enforce the forfeiture of the
11 Defendant Currency;
12 (b) that due notice be given to all interested parties to
13 appear and show cause why forfeiture should not be decreed;
14 (c) that this Court decree forfeiture of the Defendant Currency
15 to the United States of America for disposition according to law; and
16 (d) for such other and further relief as this Court may deem
17 just and proper, together with the costs and disbursements of this
18 action.
19 Dated: October 22, 2020 NICOLA T. HANNA

United States Attorney
20 BRANDON D. FOX
21 Chief, Criminal Division
STEVEN R. WELK
Chief, Asset Forfeiture Section
23
24 /s/ DRAFT
DAN G. BOYLE
26 Attorneys for Plaintiff

UNITED STATES OF AMERICA
27
28
10
1 VERIFICATION
2 I, PATRICK LEIGHTON, hereby declare that:
3 1. I am a Special Agent of the United States Secret Service
4 and the case agent for the forfeiture matter entitled United States
5 of America v. 300,901 Tether Virtual Currency.
6 2. I have read the above Verified Complaint for Forfeiture and
7 know its contents. It is based upon my own personal knowledge and
8 reports provided to me by other law enforcement agents.
9 3. Everything contained in the Complaint is true and correct,
10 to the best of my knowledge and belief.
11 I declare under penalty of perjury that the foregoing is true
12 and correct.
13 Executed October 22, 2020 in Los Angeles, California.
14 Digitally signed by PATRICK

PATRICK LEIGHTON LEIGHTON
Date: 2020.10.22 05:37:18 -07'00'
15
PATRICK LEIGHTON
16 Special Agent
United States Secret Service
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11

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Case 2:20-cv-09714 Document 1 Filed 10/22/20 Page 1 of 11 Page ID #:1

10 Attorneys for Plaintiff

22 The United States of America brings this claim against the

23 defendant 300,901 Tether virtual currency, and alleges as follows:

24 JURISDICTION AND VENUE

25 1. This is a civil forfeiture action brought pursuant to 18

26 U.S.C. §§ 981 (a)(1)(C).

27 2. This Court has jurisdiction over this matter under 28

28 U.S.C. §§ 1345 and 1355.

1 3. Venue lies in this District pursuant to 28 U.S.C.

3 PERSONS AND ENTITIES

5 “plaintiff” or the “government”).

6 5. The defendant is 300,901 Tether virtual currency (the

7 “Defendant Currency”), seized by agents of the United States Secret

8 Service (“USSS”) on or about July 7, 2020, pursuant to a seizure

9 warrant issued by the Hon. Pedro Castillo, United States Magistrate

11 6. The Defendant Currency is currently in the custody of the

12 United States Secret Service, where it shall remain subject to this

13 Court’s jurisdiction pending this action.

14 7. The interests of Shixuan Cai, Lin Jian Chen and “Kamil”

15 (real name, address, and identity unknown, as described herein) may

16 be adversely affected by these proceedings.

17 EVIDENCE SUPPORTING FORFEITURE

18 Background on Virtual Currency

19 8. Virtual currency (also known as cryptocurrency or digital

20 currency) 1 is generally defined as an electronic-sourced unit of

21 value that can be used as a substitute for fiat currency (i.e.,

22 currency created and regulated by a government). Virtual currencies

23 exhibit properties similar to other currencies, but do not have a

24 physical form, existing entirely on the internet. Virtual currency is

25 not issued by any government or bank (in contrast with conventional

26 currencies) and is instead generated and controlled through computer

1 software operating on a decentralized peer-to-peer network. The use

2 of virtual currency is legal in the United States and it may be

3 exchanged for goods or services or otherwise utilized in legitimate

4 financial transactions. However, it is often used for conducting

5 illegal transactions or to conceal or disguise the true nature,

6 source, location, ownership or control of illegally obtained

8 9. A virtual currency exchange (an “exchange”) is a business

9 that allows customers to trade digital currencies for other virtual

10 or fiat currencies. An exchange can be a brick and mortar business,

11 or strictly online. Both types of exchangers accept a wide variety of

12 virtual currencies, and exchange them for fiat and traditional

13 payment methods, other virtual currencies, or facilitate transfers

14 between digital currency owners.

15 10. Tokens are a form of digital asset that often function

16 similarly to virtual currency. Tokens are generally created by an

19 from other blockchain-based cryptocurrencies such as Bitcoin. 2

20 Digital tokens are often issued by companies attempting to launch a

21 new digital product or digital service, where investors purchase

1 later date for greater value if the issuer is successful. While

2 tokens can be used as a limited form of payment, these tokens may

3 remain the property of the issuer until a token is exchanged for

4 another asset, which may be goods, services, or other virtual

5 currency. In this way, a token may be analogized to a voucher or I-O-

6 U, in that they are not specifically a currency, but represent value

8 transferred within certain exchangers.

9 11. One type of token is “Tether,” issued by Tether Limited.

10 Tether is a decentralized, peer-to-peer form of virtual currency

11 having no association with any bank or government. Users purchase

12 Tether tokens, which are stored in a user’s digital or cryptocurrency

14 12. A wallet is identified by a unique electronic address that