Approximately $20 million were stolen from a crypto wallet linked to the United States government on Thursday according to reports from the blockchain analytics firm Arkham Intelligence.

The research firm identified various unusual transactions made by this wallet following eight months of total inactivity.

 

The transactions executed by the perpetrators of the alleged hack included withdrawals via the Aave lending protocol. A total of $13.7 million worth of aUSDC were drained initially alongside $5.4 million in USDC, $1.1 million worth of USDT, and $446,000 Ether (ETH) tokens.

The wallet’s address (0xE2F699AB099e97Db1CF0b13993c31C7ee42FB2ac) was seized by the US federal government in 2016 following the Bitfinex hack as it was revealed in court documents back then.

Unusual Transaction Patterns Indicated Malicious Activity

The unlawful nature of the incident seems evident as the crypto wallet that received all of the assets initially was created just five days ago. Arkham also revealed that the wallet had connections to the crypto exchange CoinSpot while the use of instant exchanges and rapid transfers is inconsistent with government protocols and usual fund management practices.

The popular blockchain analyst ZachXBT highlighted that it is highly unlikely that government officials will turn to services like Switchain and N.Exchange to move the assets contained in the wallets they oversee.

The money stolen is being laundered at the moment according to Arkham’s insights through addresses that have been previously linked to criminal activities while the malicious crypto wallet used initially to siphon the funds still holds approximately $13 million.

The Stolen Assets Are Linked to the 2016 Bitfinex Hack

The compromised funds originated from one of the crypto industry’s most notorious crimes, the 2016 Bitfinex hack, where a total of 119,754 BTC tokens were stolen. These were valued at $71.8 million at the time and are worth approximately $8.2 billion at current market prices.

There was an apparent breakthrough in the case when US authorities arrested Ilya Lichtenstein and his wife Heather Morgan in 2022 and managed to seize approximately $3.6 billion in stolen crypto assets from the couple.

Both suspects pleaded guilty to money laundering and conspiracy charges in July 2023. Prosecutors recently recommended an 18-month sentence for Morgan as she has been cooperating with authorities to uncover the extent of Lichtenstein’s scheme while she played a minor role in the fraudulent venture.

Meanwhile, Lichtenstein could receive a five-year sentence, reduced from a potential 20-year term based on his cooperation with investigators throughout and the lack of prior criminal history.

US Marshals Services Has Not Yet Commented on the Alleged Hack

According to the latest reports, the government-linked wallet only contains $127 worth of a politically-themed meme coin that the hackers may have considered worthless. The US Department of Justice and US Marshals Service – the agency in charge of overseeing seized assets – have not yet commented on the incident.

The transparency of the blockchain allows third parties to verify the scope and reach of this type of incident which means that government officials will have to, at some point, provide an explanation of what happened.

Losing this much money is not a usual situation for law enforcement agencies, which raises questions about how trained they are to manage digital assets at a point when cases like the Bitfinex hack continue to pop up in the crypto industry.

US Marshals may need to provide additional details about their security protocols and propose changes to their current practices to ensure that incidents like this don’t happen anymore.

In July this year, the US Marshals Service selected Coinbase as its partner to manage the agency’s portfolio of “Class 1” digital assets. It is unclear if this Bitfinex-linked wallet was managed by the Coinbase Prime program – an asset management service that oversees more than $300 billion in assets for institutional clients.

Since the wallet was dormant for eight months, it is highly likely that this address may have not been managed by Coinbase. However, the breach raises questions about the agency’s practices in overseeing the funds it seizes from third parties as part of its proceedings.

The US Government Owned Over $5 Billion Worth of BTC in 2023

Cryptocurrency-related crimes have been rising lately with reports indicating that the number of incidents has increased by 900% in the first half of 2024, resulting in losses exceeding $1 billion for victims.

The Bitfinex hack remains one of the largest cryptocurrency thefts in history and this latest incident involving the case’s seized assets represents one of the most significant developments affecting a government-linked crypto wallet.

The hack raises serious questions about how the attackers gained access to the wallet, what kind of security measures were in place to protect the seized assets, and how transparent US Marshals are about their activities and practices.

A Forbes report from 2023 indicated that the US government holds over $5 billion worth of Bitcoin (BTC). Most of these tokens have been seized by law enforcement agencies as part of their regular proceedings.

At that time, Forbes journalists reached out to the Justice Department and the US Marshals Services and did not receive an answer from them either to provide details about how much money they held in digital assets.

The obscurity with which seized digital assets are managed may raise lawmakers’ eyebrows, which means that this incident could result in changes in internal proceedings and rules concerning how transparent the agency is with its financial operations.