Early Bitcoin investor ordered to unlock $124M stash

An early Bitcoin investor convicted of tax fraud has been ordered by a Texas court to unlock $124 million in cryptocurrency tied to his case.

Frank Ahlgren III, sentenced to two years in prison last month, pleaded guilty to underreporting his profits from a $3.7 million Bitcoin sale. As part of his punishment, he must pay a $1 million restitution penalty and disclose the codes and location of 1,287 BTC, valued at more than $124 million.

Ahlgren, one of Bitcoin’s early adopters, purchased the cryptocurrency in 2011. By 2015, he had acquired 1,366 BTC through his Coinbase account, selling 640 BTC in October 2017. Prosecutors allege he used some of his crypto proceeds to buy a house in Utah.

When preparing his 2017 taxes, Ahlgren submitted a false report to his accountant, inflating the price he claimed to have paid for Bitcoin. According to the US Department of Justice (DOJ), “to conceal the full extent of his gain, Ahlgren claimed that he bought the Bitcoins at prices much higher than he actually did.”

This tactic, known as inflating the cost basis, allowed him to underreport his taxable profits, resulting in an estimated tax loss of more than $1 million.

On September 12, Ahlgren pleaded guilty, and on December 12, he was sentenced in Austin’s federal court, becoming the first American convicted of crypto-related tax fraud. Legal experts believe this case may serve as a benchmark for future enforcement.

This week, US District Judge Robert Pitman ordered Ahlgren to reveal the codes and provide information on the location of the remaining Bitcoin, which prosecutors say was transferred in 2020. The ruling also restricts Ahlgren from selling, transferring, or using his assets without court approval, except for basic living expenses.

Ahlgren’s attorney, Dennis Kainnes, expressed their intent to comply with the ruling, stating, “We will comply with a court directive, or to the extent that we have a question, we will direct it to the court.”

The DOJ issued a warning: “All taxpayers are required to report any sale proceeds and gains or losses from the sale of cryptocurrency, such as Bitcoin, on a tax return.” This case underscores a growing focus on cryptocurrency transactions in the US and the importance of accurate reporting.