Court Denies Claim for Lost Bitcoin
A man convicted of identity theft, who alleged that the FBI seized and wiped his hard drive containing over 3,400 Bitcoin, has been unsuccessful in his lawsuit against the government. A three-judge panel at the Eleventh Circuit Court of Appeals ruled on Tuesday that Michael Prime cannot sue the government for the loss of access to approximately 3,443 Bitcoin, which is currently valued at $345 million. This decision stems from Prime's prior claims that he did not own such a significant amount of cryptocurrency.
Following his release from prison in July 2022, Prime requested the return of a hard drive he claimed contained the Bitcoin. However, the FBI had reportedly wiped the drive as part of its standard procedures. Prime argued that this action was illegal, but the judges disagreed.
The judges noted that for years, Prime denied possessing a substantial amount of Bitcoin, and cryptocurrency was not included in his requests for the recovery of missing assets after his release. The court stated, "Only later did Prime claim to be a bitcoin tycoon."
The panel upheld a lower court's decision, finding that Prime's delay in asserting his claim to the Bitcoin was unreasonable and therefore bars his lawsuit. The judges concluded, "even if the bitcoin existed—and that’s a big if—awarding Prime an equitable remedy here would be inequitable."
Inconsistent Claims Regarding Bitcoin Holdings
According to the panel's opinion, Prime initially claimed to own "approximately 3,500 Bitcoin" before entering a plea deal in November 2019. This plea deal involved admitting to charges of device fraud, identity theft, and illegally possessing a firearm.
The judges observed a shift in Prime's statements after the plea, writing, "But after the plea, Prime changed his tune—he no longer claimed to own a significant amount of cryptocurrency."
The panel highlighted that in February 2020, Prime's financial disclosure to the government reported holdings of "only $200 to $1,500 in bitcoin." He later informed his probation officer that these holdings represented "his only remaining asset."
After serving two years in prison and being moved to a halfway house, Prime filed a lawsuit seeking the return of the hard drives. However, an Orlando federal court denied his request, as the drives had already been destroyed.
The appeals court opinion noted that Prime attempted to justify his lower reported figures by claiming he was referring to the market value of a single Bitcoin at that time, which he stated was between $200 and $1,500. The judges dismissed this explanation, calling the valuation "preposterous" given that Bitcoin's price exceeded $10,000 at various points in February 2020.
Understanding Lost Bitcoin and Cryptographic Keys
A cryptographic key serves as the sole method for accessing Bitcoin stored on physical devices such as hard drives or wallets. Losing this key results in the permanent loss of access to the funds held within.
Data from Glassnode indicates that approximately 1.46 million BTC, representing nearly 7% of Bitcoin's total supply of 21 million, is considered likely lost forever. Estimates vary, with Chainalysis reporting in 2018 that the amount of Bitcoin permanently lost could be as high as 3.7 million BTC, which is over 17.5% of its total supply.