The U.S. Marshals Service’s Struggles with Cryptocurrency Management
The U.S. Marshals Service (USMS) bears the critical responsibility of managing assets seized by law enforcement during criminal investigations. These assets can range from real estate and cash to jewelry, antiques, and vehicles. More recently, the agency has also ventured into managing cryptocurrencies—most notably, the significant amounts of bitcoin (BTC) seized from the infamous Silk Road darknet marketplace by the Federal Bureau of Investigation (FBI) back in 2013. However, a troubling revelation has surfaced: the USMS appears to lack a comprehensive understanding of its current cryptocurrency holdings. Sources familiar with the issue have disclosed that the agency struggles even to provide a rough estimate of its bitcoin reserves, raising concerns as the U.S. government, under White House Crypto Czar David Sacks, is exploring the establishment of a national crypto reserve. This initiative could halt the liquidation of seized cryptocurrencies and may even lead to government purchases of crypto assets.
“When discussing reserves, it is essential to grasp the unique characteristics of these assets, including forks, airdrops, and the ever-changing market volatility,” stated Les Borsai, co-founder of Wave Digital Assets, a firm specializing in asset management services. Borsai, who has been in a dispute with the USMS regarding a contract that was not awarded to his firm, emphasized the need for agencies to be well-informed or to engage with professionals who can guide them in achieving their objectives. Even if the proposed crypto reserve never materializes, the USMS’s role in managing and liquidating seized digital assets remains paramount, particularly as asset forfeiture contributes to funding the Department of Justice (DOJ).
“As far as I can tell, the USMS is currently tracking its crypto holdings through individual keystrokes on an Excel spreadsheet,” remarked Chip Borman, vice president of capture strategy and proposals at Addx Corporation, which provides technological solutions to the U.S. government and has also faced rejection for a USMS contract. Borman witnessed USMS processes unfold in real-time in 2023. “They are just one misstep away from committing a billion-dollar blunder.”
USMS’s Historical Challenges with Cryptocurrency Management
The agency’s difficulties with managing cryptocurrencies are not new. Timothy Clarke, CEO of crypto consulting firm ECC Solutions, highlighted the long-standing frustration within both the public and private sectors regarding USMS practices. In 2019, the agency was reportedly handling only a small number of cryptocurrency assets—merely eight or ten—which forced various U.S. government agencies to manage their own storage instead of allowing the USMS to fulfill its responsibilities in processing seizures.
Clarke, a former special agent at the Department of Treasury, noted that the USMS would take weeks to provide bitcoin deposit addresses to agencies after seizures, often sharing them via unencrypted emails without any verification process. In contrast, other agencies, such as IRS Criminal Investigation (IRS-CI), employed more secure methods of communication, including encrypted attachments and video calls, or even direct on-site assistance for handling crypto wallets. “The lack of security was astonishing,” Clarke commented. “It’s shocking that nothing untoward occurred during that time.” The USMS declined to provide a comment on these practices.
In 2022, the Office of the Inspector General (OIG) issued a warning about the USMS’s struggles in managing and tracking its crypto holdings. The OIG report indicated that the agency lacked adequate policies concerning the storage, quantification, valuation, and disposal of seized cryptocurrencies, with conflicting guidance compounding the issue. Notably, the USMS failed to implement measures for tracking forked assets—cryptocurrencies generated from blockchain splits, such as Bitcoin Cash (BCH) or Bitcoin Satoshi Vision (BSV)—which could result in missed opportunities to sell these assets upon forfeiture. The OIG further found inaccuracies within the spreadsheets used by the agency to track its crypto holdings.
In November 2022, five months after the OIG report, the USMS announced that it had lost control of two Ethereum wallets due to a software update. “It remains unclear if the private key is incorrect or if the wallet malfunctioned,” the agency stated. “The Contractor will assess the issue(s) and potentially recover access to the wallet. If recovery is not possible, documentation of the efforts undertaken will be provided to the U.S. Government.” Clarke remarked that it was uncertain whether the concerns regarding the Ethereum wallets arose before, during, or after the OIG audit, as the report did not mention any mismanagement of Ethereum wallets or missing ether (ETH). “At the very least, this points to a lack of a backup wallet and inadequate protocols for storage, updates, and handling,” he added.
“The perception is that nothing has changed since the findings of the 2022 OIG report,” John Millward, chief operating officer at Addx, told CoinDesk. Millward indicated that a single employee currently manages the asset disposal, although the agency was unavailable for confirmation. He expressed concern that this critical task had not been assigned to a senior employee, despite the significant financial implications and liabilities associated with the management of these assets.
Liquidating Crypto Before a Stockpile Decision
In July 2024, during a Bitcoin conference in Nashville, former President Trump announced that, if elected, he would direct the federal government to cease the sale of seized bitcoin. This proposal was initially advocated by Senator Cynthia Lummis (R-WY), a prominent supporter of bitcoin in Congress, who has introduced legislation aimed at establishing a national bitcoin reserve. Just days before Trump was set to take office, Lummis wrote to Ronald L. Davis—then-director of the USMS—expressing her alarm over the DOJ’s apparent plans to expedite the liquidation of 69,370 bitcoin (valued at approximately $6.6 billion) seized from Silk Road.
Lummis cited recent court filings indicating that the DOJ was using bitcoin price volatility as justification for an expedited sale of these assets. “Even more concerning, the Department continues to push forward with liquidation plans despite ongoing legal challenges, demonstrating an unusual urgency to dispose of these assets,” she added, emphasizing that this hurried approach contradicted the incoming administration’s stated policy objectives regarding the establishment of a National Bitcoin Stockpile. Lummis requested that the USMS disclose the total amount of bitcoin in its possession, explain why this information had not been made publicly available, and outline its tracking and management procedures. The agency was given until January 31 to respond but has not yet formally addressed Lummis’s inquiries, according to sources familiar with the situation.
Reports suggest that substantial quantities of bitcoin are being held across various agencies, including the DOJ and the Department of Treasury, yet the USMS lacks a reconciliation process to ascertain the total holdings across these departments.
Challenges in USMS Procurement
The OIG noted in 2022 that the USMS was taking steps to enhance its management procedures by seeking private sector assistance. The goal was to address the issues identified in previous assessments. However, the agency has faced significant delays in awarding the necessary contracts, and its decision-making has come under scrutiny from involved parties.
The USMS began exploring procurement options in 2018, initially awarding a contract to crypto exchange Bitgo in April 2021. However, the contract was later revoked as Bitgo did not meet the definition of a “small business,” a requirement for the award. The contract was subsequently assigned to crypto custody firm Anchorage Digital in July 2021, only for it to be discovered that Anchorage was also too large to qualify as a small business.
In 2024, the agency shifted its approach and awarded two separate contracts: one for managing so-called Class 1 cryptocurrencies (those supported on centralized exchanges and in cold-storage wallets) and another for Class 2-4 cryptocurrencies (those not meeting Class 1 criteria). Crypto exchange Coinbase was awarded the Class 1 contract in July, while Command Services & Support (CMDSS), a technology service provider with experience working with the DOJ, received the Class 2-4 contract in October.
Controversial Contract Awards
Both awards have faced legal challenges. Anchorage’s protest against Coinbase was dismissed, although it remains unclear if Anchorage has filed another protest. According to the U.S. government spending website, Coinbase has yet to receive payment for the contract. (Anchorage declined to comment, and Coinbase did not respond to requests for comment.) Meanwhile, the award for Class 2-4 is currently subject to an ongoing protest from Wave, which argues that CMDSS lacks the appropriate licensing for the contract, as CMDSS is not licensed with the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). Wave also claims that the agency failed to adequately investigate a potential conflict of interest due to CMDSS employing a former USMS official who had access to nonpublic information.
In its defense, the USMS has stated that the winning bidder was not required to be licensed with the SEC or FINRA in the first place and claims to have thoroughly investigated any conflicts of interest related to former USMS employees. “If they are not concerned about fundamental requirements, such as licensing to handle securities, it raises serious questions about their understanding of the digital asset landscape,” Borsai remarked. CMDSS did not respond to requests for comment.
Addx competed against Wave and CMDSS for the contract. Millward expressed that awarding the contract to Wave, which offered superior technical capabilities and a more competitive price, would have been more sensible than choosing CMDSS. “It seems there is a considerable degree of personal trust in the leadership of the winning firm to figure it out without making the USMS look bad,” Millward observed.
Challenges in Understanding Smaller Cryptocurrencies
Critics of the USMS consistently highlight the agency’s insufficient understanding of digital assets. “They treat cryptocurrency like it’s a boat or a piece of real estate,” Borsai stated. “The USMS could not possibly grasp the full scope of their holdings unless they adopt a comprehensive, multi-agency shared system.” Millward and Borman noted that the USMS struggles to comprehend that custody firms require similar resources to manage any number of Class 2-4 coins, irrespective of whether their value is in the billions or mere cents. The agency had suggested to Addx that any awarded contract might involve compensation based on a percentage of the assets under management rather than a flat fee. The agency reportedly seemed surprised when Addx clarified how costly custody solutions could be.
“They said, ‘We anticipate never having more than $500 in value at any given time,’” Borman recalled. “They don’t realize that, by judicial decree, that fob containing 20 cents worth of bitcoin needs to be meticulously tracked and analyzed. Destroying someone’s 20 cents is just as unacceptable as wrecking a Lamborghini on the way to the impound lot.”
