A convicted identity thief has lost his appeal against Uncle Sam after claiming federal agents destroyed a seized hard drive containing cryptocurrency worth more than $345 million.

Michael Prime sought to recover his belongings from police custody following his release from prison, including a bright orange external hard drive that he claimed held 3,443 Bitcoins.

The Secret Service sent letters to Prime after his release, saying he could have some of his devices back, although they would be wiped, if he provided them with relevant passwords within 30 days. If not, they'd be wiped and destroyed in the stated timeframe. The court opinion explains the US govt wipes devices before returning as a matter of practice, although it did not clarify whether exceptions are made for those devices that contain crypto keys to access Bitcoin. As a footnote, the circuit judges write [PDF]: "We need not and do not decide whether the bitcoin would have been subject to forfeiture if it existed."

The three judges for the Eleventh Circuit Court of Appeals, who rejected his appeal this week, add in their opinion that Prime had responded to the letters requesting a pickup time, but three days before he was due to meet with the Secret Service, he filed his first lawsuit instead.

This motion mentioned "boats and cars," but not Bitcoin, and after seeking private counsel, he filed a second motion claiming he was entitled to the return of his hard drive containing close to 3,443 Bitcoins.

A Florida district court previously denied his motion, saying the property had been "properly destroyed" and Prime was entitled to nothing.

Before his sentencing in 2020, for which he pleaded guilty to a range of offenses, including access device fraud, aggravated identity theft, and illegal possession of a firearm, Prime made competing claims to this Bitcoin.

Shortly after his 2019 arrest, he admitted to domestic violence against his wife, and to making and selling counterfeit credit cards and IDs on the dark web - a venture he claimed netted him around $1,000 per month.

Prime also said he held around 3,500 Bitcoins, which he used to pay for cars, boats, and other assets. 

FBI agents secured numerous warrants to seize the cryptocurrency, and after three attempts, they were not able to find any tokens, private keys, or recovery seeds that could lead to a seizure, nor could they find anything in his Coinbase account.

Prime agreed to fully disclose all of his assets as part of his 2019 plea agreement, in which he again claimed to own approximately 3,500 Bitcoins. 

However, an asset investigation conducted shortly before his June 2020 sentencing demanded another financial asset disclosure. 

Prime's submission contained an admission that he only owned Bitcoin worth between $200 and $1,500, and he later told the probation office that his $1,500 worth of the cryptocurrency was "his only remaining asset," the appeals court judges stated.

His counsel also mentioned, in response to the FBI saying it could not locate any of the Bitcoin Prime reportedly owned, that the fraudster's claims were "not supported by the evidence."

"Frankly, at this juncture [the bitcoin] doesn't exist other than what [Prime] had from his mining days in Seattle back almost ten years ago, a lot of which was used to purchase the assets that were seized by the government in this case," counsel added.

Prime's lawsuit, inconsistent claims

Prime invoked a Rule 41(g) claim, arguing that the district court retained the right to fashion an equitable remedy in cases where property was unjustly lost or destroyed.

Central to Prime's argument was his claim to have never specified the amount of Bitcoin he owned in his pre-sentencing financial disclosure. 

Of the $200 to $1,500 sum he previously admitted, the felon claimed he was not disclosing his assets, but was instead quoting the price range of a single bitcoin at the time.

The appeals court quickly waved this away. "We don't buy it," wrote circuit judges Jill Pryor, Britt Grant, and Stanley Marcus, noting the price in February 2020 fluctuated between $8,500 and $10,500.

They also pointed out Prime's plea agreement included a promise to provide a "complete, accurate, and truthful" disclosure of all his assets, not simply quote the value of Bitcoin at the time.

Other pieces of evidence suggested he understood what was required of him during this disclosure. He told the probation office about the two vehicles and two boats, saying these "represented the majority of his assets."

Further, Prime did not submit his claim to the hard drive for more than a year after an initial request, meaning he did not make the claim for more than three years after signing his plea agreement.

The US government won the case citing laches case law, in which a "court denies relief to a claimant who has unreasonably delayed in asserting the claim."

It also agreed that the government had acted upon three search warrants that yielded no signs of the Bitcoin stash, and said Prime was uncooperative when asked to help remove contraband evidence on his devices.

"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. But now that the hard drive is destroyed, the government cannot return it," the judges wrote:

"To the extent that the Bitcoin ever existed (and we have our doubts), the government would now have to find and hand over almost 3,443 replacement Bitcoins to make Prime whole. That is prejudice in anyone's book – now to the tune of over $345 million.

"Even if the bitcoin existed – and that's a big if – awarding Prime an equitable remedy here would be inequitable. His delay in claiming a right to the Bitcoin and requesting its return bars his suit. We affirm the district court's judgment." ®