WASHINGTON, DC - There is another area DOGE and Elon Musk can look into in search of government abuse, with the US Marshals Service (USMS) reporting that it has lost track of how much Bitcoin it holds, along with experiencing what is described as “serious organizational issues,” a blog called the Leading Report said.
The report says that the USMS is charged with managing assets seized during criminal investigations, including real estate, cash, jewelry, antiques, and vehicles. It is also charged with handling cryptocurrencies, including billions of dollars worth of Bitcoin seized by the FBI from Silk Road, a darknet marketplace, in 2013.
Unfortunately, according to a source familiar with the matter, the USMS has no clue how much crypto it currently holds and cannot even estimate its Bitcoin holdings.
Earlier this month, Trump-appointed Crypto Czar David Sacks announced that the federal government wants to create a national crypto reserve. If the plan moves ahead, the government could stop liquidating seized crypto and, in fact, may even consider purchasing crypto.
“When you start talking about reserves, you need to be familiar with the unique properties of the assets, like forks, airdrops, and the constant volatility,” said Les Borsai, co-founder of Wave Digital Assets. Wave Digital provides asset management services and has disputed with the USMS over not getting hired as a contractor.
Even without the proposed crypto reserve, the USMS is integral to managing and liquidating seized digital assets, especially since asset forfeiture helps fund the Department of Justice (DOJ) budget.
“As far as I’m aware, the USMS is currently managing this with individual keystrokes in an Excel spreadsheet,” according to Chip Borman, vice president of capture strategy and proposals at Addx Corporation, which provides technological solutions to the US government who was also turned down for a government contract. Borman said he looked at the USMS processes up close in 2023.
“They’re one bad day away from a billion-dollar mistake,” Borman said.
The Marshals Service has long mishandled crypto. ECC Solutions CEO Timothy Clarke, a former special agent at the Department of Treasury, told CoinDesk that frustration with USMS has been building for years in both the public and private sectors.
In 2019, USMS “only handled a handful of cryptocurrency assets, like eight or 10, so all the different U.S. government agencies had to do their own storage, instead of the USMS doing its job and intaking seizures,” Clarke said.
Clarke added that when agencies requested Bitcoin deposit addresses after making a seizure, the USMS wouldn’t respond for weeks, and even then, it sent them via unencrypted email without requiring a verification process.
Conversely, agencies such as the IRS Criminal Investigation Service communicate any such information through video calls, read-only encrypted attachments with password-protected follow-ups or in-person handling by specialists, Leading Report said.
“It was very, very unsecure,” Clarke said of the USMS’ handling of crypto. “It’s just shocking that nothing happened in the years they did that.”
Leading Report reached out to the USMS for comment, however, the agency declined to do so.
In 2022, the Office of the Inspector General (OIG) said that the USMS was having issues with managing and tracking its crypto holdings.
“The USMS did not have adequate policies related to seized cryptocurrency storage, quantification, valuation, and disposal, and, in some instances, guidance was conflicting,” the OIG report stated.
There were many issues, including the agency having nothing in place to track “forked assets” or cryptocurrencies created when a blockchain splits, like Bitcoin Cash (BCH) or Bitcoin Satoshi Vision (BSV). “As a result, the USMS may fail to identify and track forked assets and thereby lose the opportunity to sell those assets when they are forfeited,” the OIG said.
The report also found that the spreadsheets utilized by the agency to track crypto holdings contained inaccuracies.
In November 2022, the USMS said they lost access to two Ethereum wallets due to a software update.
“It is unclear if the private key is incorrect or the wallet malfunctioned,” the agency stated. “The Contractor will identify the issue(s) and potentially open the wallet. If the wallet cannot be opened, documentation of efforts taken to unlock or open the wallet will be provided to the USG.”
It was unclear, Clarke said if the Ethereum wallet issues occurred before, during, or after the OIG audit since the report never mentioned missing either (ETH).
“At a minimum, it speaks to a lack of a backup wallet and a lack of competent storage, update, and handling procedures,” Clarke said.
“The perception is that everything has remained the same since the 2022 OIG findings,” said John Millward, COO at Addx.
He added that only a single employee is currently managing asset disposal “right now on a retail account,” despite massive financial responsibilities being involved. USMS has not confirmed this.
Last July, President Trump, speaking at a Bitcoin conference in Nashville, said he would order the federal government to stop selling seized Bitcoin if elected. This idea was supported by Sen. Cynthia Lummis (R-WY), one of crypto’s biggest supporters in Congress, who introduced legislation to establish a national Bitcoin reserve. Only days before Trump’s inauguration, Lummis wrote to Ronald L. Davis, then-director of the USMS, and expressed concern that DOJ attorneys were pressing to liquidate 69,370 Bitcoin (worth about $6.6 billion) seized from Silk Road.
“Recent court filings from earlier this month show that the Department of Justice is citing Bitcoin price volatility to justify an expedited sale of these assets,” Lummis wrote. She also criticized the DOJ’s expedited liquidation plans despite pending legal challenges, calling it an “unusual urgency” that she said ran counter to the incoming administration’s plans for a national Bitcoin stockpile.
The senator requested details on USMS’s Bitcoin holdings and asked why the information was not being disclosed to the public. She also wanted to know how the agency tracks and manages its assets. Despite a January 31 deadline, the USMS has yet to respond, according to sources familiar with the matter.
Although the Marshals Service has since contacted her office, they could not answer how much Bitcoin they hold and blamed the change in administrations.
Sources say numerous federal agencies, including the DOJ and the Department of the Treasury, are holding Bitcoin; however, USMS doesn’t have a reconciliation process to determine where it is all.
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