Crypto ‘Whodunnit?’ As Coins Held By US Prosecutors In Locked Up Cold Wallet Are Spirited Away

Justin Freeman

Midday Update 11.10.2022

  • A successful FBI and IRS clampdown on fraudsters takes an interesting turn
  • $5m of coins held in an apparently secure offline evidence locker disappeared
  • A plea bargain by one of those charged, Larry Harmon, reveals how the coins were accessed remotely

The clampdown on crypto by authorities has taken a new twist after coins held in a supposedly secure wallet vanished, possibly syphoned away by the brother of one of the criminals it was initially taken from.

The 713 digital tokens which were spirited away have a value of approximately $4m, which is relatively small-scale in terms of crypto scams. The main question is, how did they disappear from a cold wallet held by authorities in a secure evidence locker?

Cold Wallet Code Cracked

FBI and IRS officials were left scratching their heads after a relatively successful anti-fraud investigation was thrown a last-minute curveball. The investigation into the activities of Larry Harmon resulted in tens of millions of dollars worth of cryptocurrencies being obtained by the authorities and the activities of Hamon’s Helix platform being derailed.

So far, so good. Then a hard wallet device, wholly disconnected from the internet and held by authorities in a secure evidence locker, was found to have had $4m coins removed.

One of the major advantages of ‘cold wallets’ is that by not being connected to the internet, they can be considered less prone to online hacking attacks. The corresponding downside is that if you lose the physical hardware device, you also lose your crypto. But in this instance, with the cold wallet having remained in its secure locker, there were few clues as to who took the coins and how.

Luckily for the authorities, brotherly love extends only so far. Larry Harmon, already facing 20 years in prison and a $60m fine, upped his chances of a plea bargain when he directed the FBI and IRS to his younger brother, Gary.

Gary is believed to have used a ‘seed phrase’ to access the coins in the hard wallet and divert them to his own account. These phrases are a combination of as many as 24 words that can recreate the private access keys to crypto on another device. Designed as a fail-safe for those who lose their hardware device, it means anyone who knows the combination of words and pin-code can take control of the coins. Gary Harmon’s court date has been set for February.

 

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Justin Freeman

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