Over 300.000 units of the tether cryptocurrency (USDT on Bitcoin Revolution), owned by Shixuan Cai and business partner Lin Jian Chen, were frozen by operator Tether Ltd. after Cai reported the theft to the Los Angeles Police Department (LAPD) in April, according to court documents filed last week. Now the US government wants to finalize the legal seizure of those assets, claiming they violate section 1030 of the Civil Confiscation Code.
How the theft happened
In February, Cai had purchased 300.900 USDT - a stablecoin linked to the US dollar - through the cryptocurrency exchange Binance. Cai then transferred those funds to a personal portfolio co-owned and managed with Chen.
Just four minutes after Cai transferred the tethered sum from Binance to the personal wallet, the funds were transferred back, but without the partner pair's permission, to a wallet address ending in 8869.
Hours later the funds were split with a wallet ending in 44c2, and only USDT 100.301 remained in the 8869 wallet. Cai contacted Chen the next day in an attempt to find out how the funds had been moved, learning that Chen had registered their private key, used to authorize transfers from your wallet, into an Evernote account. The hackers found the wallet key in Evernote and carried out several intrusions between January 26 and February 5, which Chen only later discovered.
The investigation of the secret services
Cai reported the theft two months later, on April 9, to both Tether Ltd. and the LAPD. Funds have been temporarily frozen by Tether pending an investigation. A week later, Special Agent Patrick Leighton of the US Secret Service (USSS) was contacted by a representative from Tether, who said an unidentified individual was asking for the USDT freeze to be lifted so that the person could transfer USDT on another cryptocurrency.
Leighton asked Tether to provide the contact details of the unidentified person and request the person to get in touch with the agent. Shortly thereafter, Leighton was contacted by an individual who identified himself only as "Kamil", using the email address "[email protected]".
Kamil told Leighton that the funds originally belonging to Cai and Chen were transferred to him by an unidentified business partner who, in turn, had received the funds from an unknown person.
No further details were provided regarding the alleged partner, with Kamil claiming that he has already destroyed evidence of his partner's information. The stolen cryptocurrencies of Cai and Chen will remain in the possession of the government under the jurisdiction of the court pending the U.S. government fraud report, court documents say. The case is a reminder to never store your wallet keys or recovery phrases online, as they may be accessible to thieves and cybercriminals.
