Feds seize money from Dwolla account belonging to top Bitcoin exchange Mt. Gox

[Mousey]

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by Joe Mullin - May 14 2013, 5:55pm CDT


The Department of Homeland Security has apparently shut down a key mobile payments account associated with Mt. Gox, the largest Bitcoin exchange.

Chris Coyne, the co-founder of online dating service OKCupid, tweeted out an e-mail he received from Dwolla this afternoon. The e-mail states that neither Coyne, nor presumably any other Dwolla user, will be able to transfer funds to Mt. Gox.

Dwolla confirmed the change to the New York Observer, which first reported the story. Dwolla received a seizure warrant from a federal court.

"The Department of Homeland Security and US District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillum’s Dwolla account (a.k.a. Mt. Gox)," a Dwolla spokesperson told NYO's BetaBeat. "Dwolla has ceased all account activities... for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillum’s balance, per the warrant."

It isn't yet clear why this seizure happened, and Dwolla isn't saying anything beyond confirming the court order. Mt. Gox didn't immediately responded to an inquiry from Ars about the seizure. A user on Bitcoin StackExchange published this short reply received from an inquiry to Mt. Gox about the shut-down: "Thank you for the e-mail. We can see that the Dwolla transactions are not getting processed right now. We will contact Dwolla and post an announcement regarding this. Your patience is appreciated....

 

[cheetahwind]

I can't help but wonder if this was because they figure Bit Coins could be used to fund online gaming or other "illegal" activities. So they decided since Bit Coin couldn't be track per se. That maybe it was time to target it and remove it before it becomes popular in the US.

I'm surprised Coin Base hasn't suffered the same fate.

 

[jetset]

Perhaps this is just poor reportage, but I find it incredible that US authorities can seize funds without having to give chapter and verse for their justification in doing so?

However, I doubt that this is a pre-emptive strike aimed at internet gambling funding by the feds - there are other vehicles using Bitcoin and other virtual currencies, so I think this is a more general action, perhaps associated with the recent volatility in the currency, the DDoS attacks and suggestions of criminal activity...and perhaps the potential dangers of money laundering.

Later: Having read a little more on this I note that the initiative appears to have come from the Maryland enforcement centre, which perhaps does suggest the possibility of online gambling involvement - they've been behind many of the recent big anti-online gambling actions.

 

[vinylweatherman]

Perhaps this is just poor reportage, but I find it incredible that US authorities can seize funds without having to give chapter and verse for their justification in doing so?

However, I doubt that this is a pre-emptive strike aimed at internet gambling funding by the feds - there are other vehicles using Bitcoin and other virtual currencies, so I think this is a more general action, perhaps associated with the recent volatility in the currency, the DDoS attacks and suggestions of criminal activity...and perhaps the potential dangers of money laundering.

Later: Having read a little more on this I note that the initiative appears to have come from the Maryland enforcement centre, which perhaps does suggest the possibility of online gambling involvement - they've been behind many of the recent big anti-online gambling actions.

This is the "collateral damage" I mentioned concerns about when all this started. This is going to further destabilise an already teetering Bitcoin, and will have implications for the other cryptocurrencies that are emerging. With no idea as to WHY this has happened, and no-one is saying yet, it is going to look like the Feds are determined to kill off all such Cryptocurrencies by seizing key underlying assets. I am sure this will also get the conspiracy theorists going, perhaps thinking that the secret services were behind the massive attack on MtGox all along, and it was an attempt to force the total collapse of Bitcoin.

Bitcoin itself barely features in online gambling (yet), but it does seem to offer a means for underground markets to flourish, a reason for authorities being determined to kill off the whole concept for good.

It will, however, deal a blow to the emerging use of Bitcoin in legitimate commerce, including companies making high end mining gear (for Bitcoin).

There is also the risk that far from killing Bitcoin, it will force it further underground, and funds will not be stored in institutions that the Feds can so easily seize. Bitcoin itself cannot be seized as it can be stored on user's hard drives, and backed up locally. It seems it is the online wallet services and exchange accounts used by users to convert between Bitcoin and real money that are at risk. It does not stop users, (including criminals) deciding to always store their coin locally, and only ever exchange for goods, not convert to cash via an exchange.

 

[Mousey]

Update: warrant revealed

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The Department of Homeland Security is investigating Mt. Gox, the largest Bitcoin exchange, for violating laws on US money exchange and money transfers—and it's grabbing the exchange's money in the process.

DHS officials refused to comment on the ongoing investigation, but they did provide a copy of the warrant that was used yesterday to seize funds that Mt. Gox had in Dwolla, a money transfer service. Dwolla is a Des Moines, Iowa company that provides one of the most popular ways to move US dollars to Mt. Gox, where they can be used to buy bitcoins.

In the warrant, a special agent with Homeland Security Investigations (HSI), states that there's probable cause to believe Mt. Gox is engaging in "money transmitting" without a license, a crime punishable by a fine or up to five years in prison. The warrant goes on to demand that Dwolla hand over the keys to account number 812-649-1010, which is owned by Mt. Gox subsidiary Mutum Sigillum LLC.

The funds in that account "are those of Mt. Gox customers that withdraw said funds from Mt. Gox and direct their transfer to Dwolla."

Homeland Security used a confidential informant, based in Maryland, to conduct the investigation. The informant simply created accounts with Dwolla and Mt. Gox, bought bitcoins, and then changed them back into dollars. Tracing that money, HSI was able to see that the money passed through a Wells Fargo account, number 7657841313, which was created by a single authorized singer: Mark Karpeles, the president and CEO of Mt. Gox. The account shows transfers to Dwolla going back to at least December 2011, according to the warrant.

....

 

[MisterBJ]

FEDS SEIZE BITCOIN

The Bitcoin trading platform Mt. Gox in Tuesday was issued a warrant that stopped its ability to send or accept transfers of the electronic currency through its Dwolla payment service.

The Department of Homeland Security issued a “seizure warrant” for the Dwolla account, and a copy of the warrant revealed it was for “unlicensed money transmitting.”

The warrant, in part, states:

(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.
(b) As used in this section—
(1) the term “unlicensed money transmitting business” means a money transmitting business which affects interstate or foreign commerce in any manner or degree…

The warrant identifies Mark Karpeles, the president and CEO of Mt. Gox, as opening a Wells Fargo bank account in May 2011 under Mt. Gox’s subsidiary company Mutum Sigillum. The application for the account, the warrant states, explicitly asked if the company exchanges currency for customers and if it “[accepts] funds from customers or [sends] the funds based on customer instructions (Money Transmitter)?”