battle over billions of stolen bitcoin recovered in DOJ seizure

When the Justice Department announced it was seizing billions in stolen cryptocurrency earlier this year, it seemed like good news for victims of a hack that drained about $70 million from customers’ accounts on the Bitfinex trading platform in 2016.

“It was the biggest relief of my life,” said Frankie Cavazos, who lost 15 bitcoins in the hack.

Over the past six years, the value of the stolen crypto has skyrocketed. At the time of the hack, a single bitcoin was worth less than a thousand dollars. Today it would trade for around 20,000 dollars.

For Cavazos, getting his bitcoins back would be “a life-changing amount of money.”

But so far, thousands of victims like him have not experienced the happy ending they hoped for. Instead, they are embroiled in a battle over who is the legal owner of all the stolen crypto.

On the day news broke that the funds had been recovered, Bitfinex publicly asserted that the stolen bitcoins should be returned to the platform in a statement: “Bitfinex will cooperate with the DOJ and follow appropriate legal processes to establish our rights to return the stolen bitcoin.”

That’s because the company believes it has already made its customers whole by giving them a range of digital tokens that customers can sell in exchange for cash after the hack. A company spokesperson told CNBC that Bitfinex customers could have sold tokens for cash and then used the cash to buy more bitcoins at the time.

The decision to offer customers tokens came after the company decided to generalize its losses across all account holders by 36%. That meant everyone who had a Bitfinex account lost 36% of their holdings – not just users whose accounts were hacked.

The first token the company created was called a BFX token. Customers received one BFX token for every dollar they lost.

Cavazos told CNBC that he felt Bitfinex was just “dumping” these tokens on its customers and said he was not given the option to decline the BFX token.

He and several other Bitfinex hack victims spoke exclusively to CNBC for the documentary “Crocodile of Wall Street,” which reports on the theft of bitcoins and the alleged attempt to launder the stolen crypto.

One issue that customers brought up to CNBC is that when they decided to sell their tokens, they were actually worth pennies on the dollar.

“They pegged them at $1 per BFX token,” Cavazos said. “They put them on the open market and it went from $1 to 20 cents, so they were essentially allowed to FOMO everyone out of their debt.”

Rafal Bielenia, who had 91 bitcoins on the platform said: “I sold these tokens as fast as possible immediately when they became available. And I was only able to get like 25% of their value.” He believes, “at no point did they reimburse me — not in dollar terms, and not in bitcoin terms.”

For customers who did not sell tokens immediately, the company later gave BFX token holders a chance to convert their tokens into shares in iFinex, the corporate entity behind Bitfinex through other tokens the company created called RRT and LEO.

To put it simply, Bitfinex feels that its customers have already been fairly compensated, and if they chose to sell their tokens before their value reached a dollar, that was their choice to make. In a statement, the company told CNBC, “Upon receipt of bitcoins recovered from the 2016 security breach, Bitfinex has pledged to use 80 percent of the proceeds to buy back and burn LEO tokens, after all RRTs have been redeemed.”

Essentially, Bitfinex wants the bitcoins stolen in the 2016 hack to be returned to the company, and it will give a portion of it back to some of its customers in cash, not in bitcoins.

But some of the hack victims still claim that the bitcoins belong to them. And the idea that they could lose their bitcoins not once, but twice, seems impossible.

“Why would anyone question me getting my money back? It was my property,” Bielenia said.

“I’m still going to try to get these 15 bitcoins because I really believe they’re mine,” Cavazos said. “I can prove it through the blockchain explorers.”

Will Hogarth, who also had his crypto stolen in the Bitfinex hack, told CNBC: “I still expect my bitcoin back and I see no reason why they want to keep it.”

Deputy US Attorney Lisa Monaco told CNBC: “Ore, individuals and entities whose money, who claimed it was their money, that they were subjected to this money laundering scheme, will file claims in a court that will determine how the money should be distributed.” However, no further details of this process have been provided.

For now, the wait appears to be that there has been no resolution in the court case involving the couple investigators say were caught with the stolen cryptocurrency. Heather Morgan and Ilya Lichtenstein are charged with conspiring to launder billions in bitcoin.

Morgan is an aspiring rapper who called himself “the crocodile of Wall Street” and Lichtenstein a self-described “tech entrepreneur, explorer and part-time magician.” The duo face more than two decades in prison if found guilty. They have not yet made a claim. CNBC reached out to Morgan and Lichtenstein to get their side of the story, and neither agreed to an interview. So far, no one has been charged with hacking Bitfinex in the first place.

As their case works its way through the court system, there is a multi-billion dollar battle over what happens to the money.

“At the end of the day, it’s going to be a dogfight over who gets this money. Whether the government gets to keep it or not, whether Bitfinex gets to keep it or not, whether the customers get it back or not – anyone who tells you that is a clear answer is to lie for their own benefit,” said cryptocurrency attorney David Silver.

With billions of dollars at stake, Silver expects “people are going to spend hundreds of millions of dollars to get their hands on that pot of gold.”

“I think it’s going to be a battle,” Cavazos agreed,

“The end of this story – we don’t know yet,” he said. “But you can’t just walk away with a hack like this. There’s somebody who’s going to get caught up in this who’s going to have to tell the truth, and when that shoe drops, it’s going to be very interesting and it’s going to affect who gets the money.”