Lost Bitcoin Case: Judges Clear FBI in $345M Crypto Hard Drive Saga

The digital asset landscape is fraught with complexities, particularly concerning ownership and forfeiture in legal contexts. A recent landmark decision by the US Court of Appeals for the Eleventh Circuit has underscored the critical importance of timely and transparent disclosure of digital assets. The court affirmed a lower court's refusal to grant a Florida defendant, Michael Prime, the substantial value of approximately 3,443 Bitcoin, which at the time of the ruling was "worth over $345 million." This outcome stems from the government's destruction of an external hard drive that Prime belatedly claimed held the keys to his cryptocurrency fortune.

Authored by Judge Elizabeth “Lisa” Branch Grant and joined by Judges Jill Pryor and Marcus, the published opinion upheld the district court’s ruling that the United States cannot be compelled to replace the Bitcoin, even under the assumption that the drive indeed contained the alleged cryptocurrency. This ruling sets a significant precedent regarding the responsibilities of defendants in disclosing digital assets and the limitations on equitable relief when such disclosures are delayed or inconsistent.

Judicial Scrutiny: FBI Not At Fault in Bitcoin Hard Drive Destruction

Contrary to some sensationalized headlines, the Eleventh Circuit’s ruling emphatically states that the Federal Bureau of Investigation (FBI) was not at fault for the destruction of the hard drive containing the alleged 3,443 Bitcoin. The case, formally recognized as United States v. Prime, No. 23-13776, originated from a 2019 arrest that exposed a vast network of counterfeiting and identity-theft operations. Michael Prime subsequently pleaded guilty to multiple federal charges, including access-device fraud, aggravated identity theft, and illegal firearm possession.

The Chronology of Denials and Disposal

During the initial phases of the investigation, federal agents made three unsuccessful attempts to locate any cryptocurrency linked to Prime's activities, operating under valid federal warrants. By the time of his sentencing in June 2020, Prime and his legal counsel had substantially retracted earlier claims of possessing thousands of Bitcoin, instead representing that any remaining cryptocurrency holdings were trivial in value. Based on these representations, the government proceeded with its standard protocols for seized evidence.

As Judge Grant meticulously summarized, Prime unequivocally represented "at least three times" that he owned "very little Bitcoin." Crucially, even after his release, he failed to identify any specific device as holding valuable cryptocurrency keys when he sought the return of his property. In adherence to its "ordinary practices," the government proceeded to wipe devices that could be cleared after proper notice. The remaining items, including the specific orange external hard drive central to this dispute, were subsequently destroyed due to Prime's non-cooperation in removing contraband data. It was only much later, as the court noted, that Prime suddenly asserted himself as a "Bitcoin tycoon." By this point, the opportunity for recovery had irrevocably passed.

The Role of the US Secret Service

It is important to clarify that while media attention often fixated on the FBI, the court record indicates that it was the US Secret Service that engaged with Prime in mid-2022. They offered to wipe and return certain devices if he provided necessary passwords. Prime initially requested a pickup time but instead filed a series of pro se motions. None of these filings mentioned Bitcoin or the now-disputed hard drive. The drive was ultimately destroyed alongside other electronic devices because Prime consistently refused to cooperate in the removal of contraband data, rendering the items unsalvageable through ordinary means.

The Doctrine of Laches: A Bar to Equitable Relief

The Eleventh Circuit's decision hinged on the equitable doctrine of laches, which prevents a party from asserting a claim or right due to undue delay in asserting it. The court found compelling evidence of both causation and prejudice against the government. "We have little difficulty concluding that the government would not have destroyed the hard drive if it had thought that it contained millions of dollars in Bitcoin," the opinion stated. With the physical drive no longer existing, "the government cannot return it."

Furthermore, the court expressed significant doubt regarding the actual existence of the Bitcoin, but even assuming its existence, ordering the United States to "find and hand over almost 3,443 replacement Bitcoin" would inflict substantial prejudice, "now to the tune of over $345 million." The judges noted that Prime's multi-year denials and lack of cooperation directly induced the government to cease searching for digital assets and to process seized electronics according to standard operating procedures. This conduct, the panel repeatedly emphasized, was a direct consequence of Prime's non-cooperation and delay, rather than any governmental bad faith.

Skepticism and Inconsistent Disclosures

The panel openly scrutinized Prime's attempts to reinterpret his prior disclosures. For instance, he argued that his February 2020 report of "$200 to $1,500 in Bitcoin" referred to the then-market price of a single Bitcoin, not his total holdings. The court dismissed this claim, stating, "We don’t buy it." It highlighted that in February 2020, BTC traded between "about $8,500 and $10,500," making Prime's explanation implausible. Moreover, Prime had previously pledged "complete, accurate and truthful" asset disclosures encompassing any asset in which he held "any interest" or control. The opinion further cited defense counsel's own admission at sentencing that the original claim to "some great amount of Bitcoin" was "not supported by the evidence."

Having affirmed the ruling based on the doctrine of laches, the Eleventh Circuit deliberately avoided addressing broader questions, such as whether any Bitcoin—had it existed—would have been subject to forfeiture. The court also noted that Prime forfeited any challenge to the factual finding regarding the drive's destruction by failing to raise such objections in the lower court.

Conclusion: A Precedent for Digital Asset Disclosure

The narrow yet impactful holding of this case is that equitable relief is unavailable when a claimant's prolonged denials actively induce the government to discontinue its search for assets and to process seized electronic devices in the ordinary course of business. This decision firmly places the onus on individuals to provide accurate and timely disclosures of their digital assets, especially within the confines of legal proceedings. As Judge Grant concluded, "laches barred his Bitcoin request. We agree and affirm," reinforcing the principle that deliberate obfuscation or extreme delay in asserting claims can have severe, irreversible financial consequences in the rapidly evolving world of cryptocurrency and digital forensics. At the time of reporting, Bitcoin traded at approximately $102,825, underscoring the immense value at stake in such disputes.