Trader Is Charged With Stealing Millions Worth of Bitcoin to Cover His Own Losses

February 16, 2018, 10:42 AM UTC

A Chicago trader working for Consolidated Trading LLC faces charges he stole $2 million in cryptocurrencies from his firm to cover his losses and then lied about it to cover gambling debts.

Joseph Kim, 24, was charged with one count of wire fraud on Thursday in the first criminal prosecution involving the cryptocurrency trading industry to be brought by John Lausch, the U.S. Attorney for Chicago. Kim is scheduled to appear in federal court in Chicago on Friday.

Consolidated formed a cryptocurrency group in September to engage in currency trading and that same month moved Kim to the unit. Kim had worked as an assistant bond trader for the Chicago-based company, according to the criminal complaint. Kim’s crime appears to have started within weeks of his transfer to the new division, according to the U.S.

Kim told a superior that he held personal cryptocurrency accounts and was ordered to cease all personal trading outside of his work to avoid a conflict of interest, prosecutors said. He agreed to do so, the U.S. said.

Digital Wallet

Nonetheless, on a weekend just after joining the unit, Kim transferred about 980 Litecoins valued at $48,000 from a Consolidated account to an account that wasn’t affiliated with the company, the U.S. said. Days later, a supervisor discovered the Litecoin transfer and questioned Kim, who claimed that he’d moved the funds to his “personal digital wallet for safety reasons.” Kim claimed it was intended to serve as “an intermediary holding space” to avoid issues he claimed to be having with the cryptocurrency exchange Bitfinex, located in Hong Kong.

When supervisors questioned Kim about the transfers, Kim repeatedly claimed he sent the Litecoin to a Consolidated wallet where he said they were being securely held, according to the U.S.

Agents with the Federal Bureau of Investigation searched currency-exchange records and determined the Litecoin were never transferred into a Consolidated wallet.

In a second instance in November, a supervisor noticed that Kim transferred about 55 Bitcoins valued at about $433,000 from a company account into an unrecognized account. Kim claimed the transfer of the Bitcoin had been “blocked” and he had taken steps to unblock them. The supervisor understood that to mean the Bitcoins would be returned to Consolidated’s account.

Margin Calls

While Kim later transferred 27 Bitcoins back into Consolidated’s account on Nov. 20, 28 Bitcoins remained missing into the weekend of Nov. 25, according to the U.S.

Prosecutors allege Kim had actually stolen the Bitcoin, secretly transferring about 284 Bitcoins worth about $2.8 million from Consolidated’s account to a personal wallet he controlled. Records show that Kim later transferred about 102 of those Bitcoins—worth more than $1 million— back into a Consolidated account during the same period. He also transferred the remaining 182 Bitcoins from a wallet he controlled, losing a portion by personally trading.

When confronted, Kim told superiors he’d engaged in personal trading using about 55 Bitcoins that belonged to Consolidated’s account and invested them in short future positions, according to the U.S. He later admitted converting Consolidated’s Litecoin that he’d taken into Bitcoin.

Kim also admitted transferring Bitcoins from Consolidated’s accounts to cover his margin calls and for his personal investments and losses, prosecutors said. Consolidated was able to recover about 144 Bitcoins from Kim’s personal accounts worth about $1.4 million but the company still lost about $603,000 from funds it hasn’t been able to recover, according to the U.S.

Kim referred to himself as a “degen” or slang for a degenerate gambler, the U.S. said, and later confessed to superiors in an email, “It was not my intention to steal for myself,” he said. “I was perversely trying to fix what I had already done. I can’t believe I did not stop.”

A lawyer for Kim couldn’t immediately be located for comment about the case.

The case is U.S. v. Kim, 18-cr-107, U.S. District Court, Northern District of Illinois (Chicago).