MtGox bankruptcy trustee updates on status of prosecution against Alexander Vinnik

Nobuaki Kobayashi, in his capacities as the bankruptcy trustee and foreign representative of MtGox Co., Ltd., a/ka/ MtGox KK and as the trustee of the Second Civil Rehabilitation Proceeding and foreign representative of MtGox in connection with that proceeding has provided a status update concerning the criminal prosecution and civil action against Alexander Vinnik and BTC-e.

The trustee submitted the documents at the Texas Northern Bankruptcy Court on July 14, 2022. The documents, seen by FX News Group, include information on two pending actions against Alexander Vinnik and BTC-e, both of which were initiated by the U.S. Attorney’s Office for the Northern District of California, and which stem from Vinnik and BTC-e’s involvement in a series of hacking incidents concerning the Mt. Gox bitcoin exchange between approximately 2011 and 2014.

The first action is a criminal prosecution, United States of America v. BTC-e and Vinnik, N.D. Cal., Case No CR 16-00227 (SI). The indictment charges BTC-e and Vinnik with one count of operation of an unlicensed money service business, in violation of 18 U.S.C. § 1960, and one count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h). In addition, the indictment charges Vinnik with seventeen counts of money laundering, in violation of 18 U.S.C. § 1956(a)(1), and two counts of engaging in unlawful monetary transactions, in violation of 18 U.S.C. § 1957. The indictment also contains a criminal forfeiture allegation pursuant to 18 U.S.C. § 982(a)(1).

The indictment alleges that Vinnik operated and controlled BTC-e, and that after that Mt. Gox hack, approximately “530,000 of the bitcoin . . . stolen from Mt. Gox was deposited into wallets at three different digital currency exchanges [including] BTC-e . . . .” The proceedings in this action remain sealed.

The second action is a civil action, United States of America v. BTC-e and Vinnik, N.D. Cal., Case No 19-CV-04281 (KAW). The complaint in the Civil Case reflects an action to “recover civil money penalties imposed under the Currency and Foreign Transactions Reporting Act of 1970, 31 U.S.C. §§ 5311-5314, and 5316-5332, which is commonly referred to as the Bank Secrecy Act.”

The Civil Case seeks a judgment against BTC-e and Vinnik for failure to register BTC-e as a “Money Service Business,” for failure to “develop, implement, and maintain an effective [Anti-Money Laundering] program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities,” and for failure to files Suspicious Activity Reports.

Further, the Civil Case notes that FinCEN imposed on BTC-e and Vinnik “civil monetary penalties in the amounts of $88,596,314 and $12,000,000, respectively” for such violations.

As of July 14, 2022, Vinnik is currently serving a prison term in France in connection with violations of French law, and there have been recent reports of his potential release and extradition, either to Greece, the United States, or Russia, where Vinnik faces further criminal prosecution.

Throughout the last several years, the US Government has, upon information and belief, sought to extradite Vinnik to the United States, and effectuate service of the Civil Complaint on Vinnik and BTC-e. In a May 18, 2022 Status Report filed by the Government in the Civil Case, the Government confirmed that service is complete via Federal Rule of Civil Procedure 4(f)(1) and the Hague Service Convention. Vinnik and BTC-e have not appeared in the case, nor have they filed a responsive pleading to the Government’s complaint. The Government reports that is “intends to seek entry of default against Defendants . . . no later than July 18, 2022.”

The MtGox Trustee says that he has diligently monitored the proceedings concerning Vinnik and BTC- e, including direct correspondence with the Government concerning requests for information on the hack of Mt. Gox and Vinnik’s involvement, developments of Vinnik’s extradition, and specifically, the Government’s intention to initiate civil and/or criminal forfeiture proceedings against Vinnik and BTC-e, in the event that the Government obtains a default judgment.

The Trustee maintains that it has a property interest in any and all bitcoin stolen or impermissibly transferred by Vinnik or his agents from Mt. Gox and has informed the United States of such property interests and of this Bankruptcy Case. The Trustee intends to take all actions necessary and proper in order to recover the bitcoin recovered from Vinnik, his agents or BTC-e and has informed the United States of this intent to do so in accordance with 11 U.S.C. § 1521(a)(5).

Given the current status of the Civil Case and Criminal Case, including Vinnik’s extradition, the Trustee reserves all rights to seek relief from this Court to effectuate or otherwise protect the Trustee’s interests in any such bitcoin or fiat currency in Vinnik and BTC-e’s possession that was stolen from Mt. Gox, and which would, upon information and belief, be subject to any future Government’s forfeiture proceedings.