The Department of Homeland Security (DHS) executed a seizure warrant to shut down the world’s largest bitcoin exchange for operating an unlicensed money transmitting service, according to documents filed in a Maryland court on Tuesday.
The DHS seized bank accounts belonging to Mt. Gox, a company that converts government-backed currencies into the untraceable, digital currency called bitcoins. The agency said the company violated U.S. laws that require money exchanges to register with the federal government and prohibit commerce that is derived from or could be used to support unlawful activity.
“In order not to compromise this ongoing investigation being conducted by ICE [Immigration and Customs Enforcement] Homeland Security Investigations (HSI) Baltimore, we cannot comment beyond the information in the warrant, which was filed in the District of Maryland yesterday,” Navas told The Hill in an email.
According to the court documents, Mt. Gox owner Mark Karpeles, whose company is based in Tokyo, opened a Wells Fargo account to run the bitcoin exchange in the U.S. According to the account documents Karpeles signed when opening the Wells Fargo account, he said the account would not be used to engage in money services or as an exchange.
Exchanges are required to register with the Financial Crimes Enforcement Network (FinCEN), a division of the Treasury Department. FinCEN said last month it had the right to regulate virtual currency markets under the Bank Secrecy Act.
Mt. Gox would charge customers a fee for bitcoin transfers and maintained a registry of bitcoin ownership by assigning numbered accounts. Customers would set up accounts at Mt. Gox and with Iowa-based payments processor Dwolla to complete the exchange and use the bitcoins for payments.
The DHS used a confidential informant in Maryland while building its case. The informant conducted a round-trip transaction, converting U.S. dollars to bitcoins and back into U.S. dollars.
Bitcoins have caught on in the last year as investors, consumers and technology buffs sought independent and decentralized alternatives to government-backed currencies. The price of a bitcoin skyrocketed last month from $40 to more than $250, in what many believed to be a short-lived speculative bubble.
However, the price stabilized at around $110 a bitcoin before the government crackdown. There are presently more than $1 billion worth of bitcoins in circulation, and the volume of transactions has grown as some online retailers have begun accepting them.
OKCupid, an online dating site, is one of the retailers that accepts bitcoins as a method of electronic payment. OKCupid founder Chris Coyne on Tuesday said over Twitter that he received an email from Dwolla saying the company could no longer process his company’s bitcoin payments.