The Crypto Brothers that Turned on Each Other
This is the story of two brothers. One went to prison for laundering $311 million through cryptocurrency transactions. The other was arrested for stealing the cryptocurrency seized from his brother on a wallet in FBI custody.
Enter: the Harmon brothers.
Larry Harmon, who pleaded guilty to the theft and laundering of cryptocurrency, was arrested in February 2020. It was the first time anyone had been charged with a crime related to “mixing”, a practice that shields the identity of a token owner by bouncing it through different cryptocurrency addresses. In 2014, Larry created a search engine, Grams, which scoured the dark web for illegal drugs, guns, and hacking services. Users of Grams could then pay with Larry’s mixing service, Helix, to prevent law enforcement from tracing the transaction. Larry earned 2.5% of each transaction.
A couple years later, AlphaBay, then the largest market on the darknet, began using Helix with its customers. Months later, Larry closed down Helix, having performed 356,000 Bitcoin transactions.
U.S. authorities shut down AlphaBay, claiming it was a major source of heroin and fentanyl. Law enforcement agencies didn’t yet know who ran Helix. That changed when the IRS criminal division joined the investigation. Bitcoin, along with other major blockchains, have public ledgers — a database of transaction information between parties identified by public keys. While difficult, transactions can be tracked with the right tools.
Working in conjunction with Chainalysis, an investigative blockchain and analytics company, investigators studied numerous Helix transactions. Eventually, investigators uncovered a website that allows users to buy gift cards with Bitcoin, with an email associated with Larry. They arrested him in 2020, along with his Trezor crypto storage device and a small, MP3 like computer attachment.
And here comes Gary.
Gary lived across the hall from his brother. The day he was arrested, Gary spoke to agents regarding his brother’s arrest. He even wrote a letter of support during Larry’s bail hearing on his brother’s positive influence in his life: he “truly made me a better person.”
It was also established that Larry had “potentially tens of millions of dollars” in illegal digital assets. Investigators, having studied the transaction history on the ledger, knew that Larry had collected the money. But they couldn’t access his hard wallet storage device. Assistant U.S. Attorney Christopher Brown noted for the record that Larry’s hard wallet could be accessed remotely, by anyone holding the passwords. “Until we can secure them and transfer them to a government wallet, those are available for him or his family members to transfer,” he said.
A month after his bail hearing, IRS agents noticed that Bitcoin was leaving the addresses associated with Larry. Prosecutors returned to court, reprimanding Larry, who swore to have no knowledge of the Bitcoin transfers. The court ordered him to turn over his passwords, and agents transferred the remaining 4,164 Bitcoins — then valued at $40 million — to a government secure wallet. Larry continued to state he had no knowledge of where the funds were moved to, or who moved them.
Larry later told prosecutors that Gary was the culprit. His testimony supports a confidential informant that had told the police the same thing. After over a year of negotiating, Larry pled guilty to money laundering and provided evidence against Gary. He may spend up to 20 years in prison and has been fined $60 million by the U.S. Treasury.
That same confidential informant told agents that Gary asked him about Bitcoin gambling services. The source believed it was to mix the Bitcoin stolen from Larry. As agents built their case, they found that Gary had recreated wallets, even though he denied taking the Bitcoin: “If I took it, why wouldn’t I take all of it?”
Government agents eventually traced the Bitcoin back to Gary. He attempted to mix the tokens, to hide their origins, but prosecutors noticed a “dramatic transformation” in Gary’s finances. He got a loan of $1.2 million from BlockFi, using the stolen Bitcoin as collateral. He then purchased a luxury condo in Cleveland. Infamously, among the government’s findings was a photo of Gary in a bathtub full of U.S. bills.
Gary was arrested in 2021 for money laundering. His trial is scheduled for February 2023.
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