Bitcoin Investor Must Disclose Pass Codes to Unlock $124 Million in Digital Assets

An early Bitcoin investor convicted of tax fraud related to cryptocurrency sales has been ordered to disclose his secret pass codes so US officials can unlock digital assets now valued at about $124 million.

Frank Richard Ahlgren III, who owes the government about $1 million in restitution from the criminal case, must hand over the pass codes and identify any devices used to store them, along with disclosing all his cryptocurrency accounts, US District Judge Robert Pitman ruled Monday in federal court in Austin, Texas. 

Prosecutors had asked the judge in December to force Ahlgren to disclose the location of at least 1,287 Bitcoin he moved in 2020 through a “mixing” service that jumbled crypto tokens and made them harder to trace. Those tokens, which have more than doubled in value over the past year, are now worth more than $124 million.

Ahlgren, who lives in Austin, was the first American convicted of tax crimes tied solely to the sale of cryptoassets. He’s agreed to pay $1 million in restitution to the US to cover tax losses from underreporting capital gains on the sale of $3.7 million in Bitcoin. Prosecutors said he used some of the proceeds to buy a house in Park City, Utah.

In their request, prosecutors said Ahlgren’s property “cannot be attached by ordinary physical means.” The government asked “not only to restrain any virtual currency by order of this court, but to obtain the private keys to enable it access so that it cannot be moved by others. Should the private keys be lost or destroyed, the virtual currency is irretrievable.”

The judge’s order said that Ahlgren cannot “dissipate,” transfer or sell any property without prior approval of the court, but he can spend on “normal monthly living expenses.”

Ahlgren, who pleaded guilty on Sept. 12, was sentenced on Dec. 12. His attorney, Dennis Kainen, said his client will comply with the order.

“We will comply with a court directive, or to the extent that we have a question, we will direct it to the court,” Kainen said. “We appreciate the care that Judge Pitman has taken throughout this case.”

The case is US v. Ahlgren, 24-cr-00031, US District Court, Western District of Texas (Austin).

--With assistance from Olga Kharif.

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