← Coin Stories with Natalie Brunell
Coin Stories with Natalie Brunell
Samourai Wallet CEO Keonne Rodriguez: Guilty Plea, Prison Ahead, and the Fight for Privacy in Bitcoin
00:57:02
Loading summary
Transcript79 lines
- [00:00]
A
They sentenced you to five years in federal prison. Did you know there was criminal activity happening through your services?
- [00:10]
B
So I knew that criminals would use Samurai Wallet. Just like there's criminal activity on any piece of software or any piece of technology facilitating crime is not what I'm about. I have no interest in it.
- [00:20]
A
Prosecutors said that when asked to explain mixing, you described it as money laundering.
- [00:26]
B
For Bitcoin, as is everything that the government has produced in their indictment against us. It all lacks context because this is a weaponized DOJ operating under a novel new theory that somehow a software provider is responsible for the actions of their end users.
- [00:49]
A
Hey, everyone. Welcome back to the show. Joining me this week is Keone Rodriguez. He is one of the founders of Samurai Wallet alongside Bill William Hill, who was the cto. And in July of this year, they both pled guilty to one count of conspiracy to operate an unlicensed money transmitting business, knowing it transmitted crime proceeds. In November, they sentenced you, Keon, to five years in federal prison, which is the maximum for that count, plus three years of supervised release and a $250,000 fine. I know you go report to prison this month. I know. I can't even imagine what you must be thinking and feeling. So thank you for taking the time, first of all, to join me.
- [01:34]
B
Thank you for inviting me. I'm excited to be here and able to share my story with your audience.
- [01:40]
A
Well, I know there's an active petition hoping that President Trump will offer you a pardon. But before we get to all of that, I really want to better understand this case. My audience may or may not be familiar with it. So let's just start at the very beginning. What was Samurai Wallet and Whirlpool?
- [01:57]
B
Sure. So Samurai Wallet was a non custodial software wallet, Bitcoin wallet, that I and bill developed in 2015. The point that we were trying, what we were trying to solve with Samurai Wallet was addressing the fundamental privacy concerns that exist on the transparent blockchain that Bitcoin uses. And using mathematics and clever tricks, you could say, we were able to obtain a pretty basic transactional privacy model for Bitcoin. And Whirlpool was one of those tools, software tools that we created to help improve privacy when transacting on a transparent open ledger such as Bitcoin.
- [02:54]
A
Now, Whirlpool was a coin mixer, right? So essentially you send your Bitcoin through this software and it mixes it, so to speak, with other people's Bitcoin so that when it comes out the other end, you can't sort of trace it back to you all for the purpose of privacy. Is that, is that correct? Or I mean, how would you technically explain it to someone that doesn't have an understanding of computer science and development?
- [03:16]
B
Yeah, you're sort of correct. And I think as a, you know, a general layman's explanation, that's pretty good. But there's a couple of important nuances to address. The the first important nuance to address is that it's not like a traditional Bitcoin mixer. A traditional Bitcoin mixer is you, Natalie, send your Bitcoin to a service and that service then mixes it and sends it back to you, thus mixing your Bitcoin. That's not how Whirlpool worked in Samurai Wallet, because in that model what you're actually doing is giving up control of your Bitcoin to a third party to do something with it. In Samurai Wallet, you never gave up control of your Bitcoin. You always had your Bitcoin in your wallet. Your private key always belonged to you. So it's the the outcome was the same, right? The outcome is to to separate what happened on this side of the transaction from what happens on this side of the transaction. But the method is different, right? And it's a very important distinction, right, that you never give up custody of your private keys.
- [04:38]
A
Coinstories is proudly brought to you by Gemini. Start your Bitcoin savings account today. Plus, investing in Bitcoin has never been easier than with Gemini's orange Bitcoin credit card. Earn up to 4% back in Bitcoin on everyday purchases like gas, dining, groceries and more with no annual fee, no foreign transaction fees and no exchange fees on your rewards. Plus sign up today and get a $200 Bitcoin bonus when you spend 3,000 in your first 90 days. Apply now@gemini.com Natalie if you want to stay on top of Bitcoin without getting lost in all the noise, check out the Weekly CIO Memo from Bitwise Asset Management. CIO Matt Hogan puts together a quick five minute memo that breaks the biggest stories in digital assets each week. Bitwise has been around since 2017 and manages more than $10 billion across 30 plus strategies. The weekly CIO Memo is bold, sharp and totally free. Just go to bitwiseinvestments.com cio memo and always, of course, carefully consider the extreme risks associated with crypto. Coinstories is also brought to you by Leden. Need cash but don't want to sell your Bitcoin? Leden is the global leader in Bitcoin backed loans issuing over $9 billion in loans since 2018 and they were the first to offer proof of reserves. With Leden, you get custody loans, no monthly payments and more. Visit Leden IO Natalie and get a quarter percentage point off your first loan. Make sure to get your copy of my new Bitcoin 101 book, Bitcoin is for everyone. The book explains why money is broken and how Bitcoin can help you build lasting wealth and freedom. It makes the perfect gift for those new to Bitcoin. Just visit the link in my show notes. And did you program it that way essentially, to avoid some of the issues that come with being a custodian of people's Bitcoin? Because I'm. I'm not sure how the regulations have evolved specifically within this realm, but it seems like the custody aspect has even, you know, more requirements that you have to report than something that's non custodial.
- [06:35]
B
Absolutely, yeah. So when we were designing Samurai wallet, architecturally in 2015, we made a conscious decision never to take custody of customer funds. As soon as you take custody of customer funds, you are put into a whole new category of a regulated entity. So, for example, an exchange like Coinbase or Kraken, they hold customer funds, they are a money service business and they are subject to certain regulations that require them to do data collection, do something called kyc, which is know your customer and AML anti money laundering. So they have legal obligations to do that because they take custody. So when we were designing Samurai Wallet, we decided very early on that custody was something we never wanted to handle. And, and we always wanted to the user to be in total control of their funds.
- [07:31]
A
And when you were building this, did you examine the laws and think that you were doing anything wrong?
- [07:38]
B
We certainly examined the laws, yes. And we certainly did not think we were doing anything wrong. In 2013, the primary regulator in charge of money transmission and illicit finance is called FinCEN, the financial crime Enforcement Network. And they put out very common sense guidelines in 2013. And they said in order to become a money service business or a money transmitter, you have to take custody of the customer's funds. Right. It's pretty common sense. You can't transmit something that you never have. So they wrote this in their guidelines in 2013. We started Samurai Wallet in 2015, conscious of FinCEN's guidance, but they also reiterated this guidance in 2019, and they even made it more specific and said if you're an anonymity service provider, such as a tumbler or a mixer, and you don't take Possession of customer funds, then you are not classified as a money service business. So we were under the impression that what we were doing was entirely legal because of the custody component. By never taking custody, we never stepped into the realm of money transmission.
- [08:58]
A
So what bucket does that, does that put you in? If you're not actually a transmitter, what are you, like, a privacy service or because Samurai also allowed you to, like, send Bitcoin, right? Send and receive Bitcoin?
- [09:10]
B
Yes. Primarily it was a bitcoin wallet. Right. So sending and receiving Bitcoin was the primary focus of the software. And when you would do a whirlpool transaction, you were still sending bitcoin. You were just sending it from an address you owned and controlled to another address you owned and controlled. So the way FinCEN classified an anonymity service provider who doesn't take custody of customer funds is a. Just that, a service provider that isn't a money transmitting business, but may offer service to money transmitters, depending on who those people are. So, for example, you as an individual use our software and use Samurai Wallets Whirlpool. That doesn't make you a money transmitter because you're just an individual. But let's say, for the sake of argument, Western Union makes use of Samurai Wallets Whirlpool. Well, they're still a money transmitter making use of technology, of software that helps them transmit money, but that doesn't make the people who created the software money transmitters. So the way FinCEN saw it is there's a difference between software providers and money transmitters, and the difference hinges on who has custody.
- [10:31]
A
Got it. Okay. So before we get into the case, I mean, let's just talk about the privacy aspect, because I know one of the reasons why so many people in the community are rallying behind you is because there is a threat to your privacy within the Bitcoin network. It's an open, public ledger. If someone knows what address that you're tied to, they can effectively kind of see your bank balance. And if you hold a lot of Bitcoin, especially over time, that could put a target on your back. Right. So privacy is sort of a bit of a vulnerability of Bitcoin. Can you speak to that? And maybe what caused you to feel so passionate that you wanted to address this through technology?
- [11:14]
B
Yeah, absolutely. When I first got involved in bitcoin, it was about mid-2012, and that's when I first discovered it and became really enraptured in it. And I saw it as a way to separate one, to separate money from state. So as an Ideological component having a form of value that the state doesn't control, that they just have to accept was attractive to me. And I saw it also as a censorship resistant form of currency, something that I could use to donate to WikiLeaks when the government really didn't like that. Right. Or I could use it to fund campaigns that were important to me and no one could stop me from doing that. Censorship resistance. And because I was so into it and I loved it so much, I said, I need to find a way to work in this industry. And I found a way to do it. I got a job@blockchain.info now it's called blockchain.com who created a web wallet back then, which is a bitcoin wallet in your web browser that didn't take custody. Really interesting and cool product. And I worked there for about five years. And something changed between 2012 and 2015 where people stopped talking about privacy and people started talking more about scaling and legacy finance entering the space and bitcoin being more of a investment vehicle rather than a censorship resistant form of cash. So to me, I think they, you need, you need both of those things, right? If you want bitcoin to be an attractive investment, there needs to be censorship resistance. And you can't have censorship resistance without privacy. Right. The two are married. And with people focusing less on privacy, I saw that as a risk to bitcoin. And instead of going to a different coin that is out there like Monero or forking to a new version of bitcoin, my heart was with bitcoin and I wanted to build on it. So instead of saying, oh, I'm done with this thing, I said, let's build what we want to see. We want to see better privacy on bitcoin. Let's build software that makes it happen. There's an old saying from the early days of the cypherpunk movement, and it's cypherpunks write code. And it means stop complaining and get busy coding to make the future you want to see. So that's kind of the way we went about it.
- [14:08]
A
Well, I've never used a mixing service and I didn't use Samurai Wallet. But if I was early to bitcoin and I had mined a lot or was lucky enough to have purchased a lot, I certainly would be really concerned about my privacy and I might be enticed to use a service like this. And the fact that the ledger is so open and now there are forensic analysts that can literally connect the dots pretty easily. Actually, it's something that I think more and more bitcoiners will think about. But when did something become an issue? Was it that raid that happened where all of a sudden you were being charged, or how did this go from you starting a feeling like you were doing something great for the community and building a company that was going to serve this, you know, privacy initiative to you're now essentially charged with a very, very serious federal crime?
- [15:00]
B
Yeah, well, it didn't happen very quick. Like I said, we started samurai wallet in 2015 and operated it openly and notoriously for almost 10 years before a dramatic raid on my, my house by 50 armed FBI agents occurred in April 2024. No, that was completely unexpected. Didn't see that coming at all points throughout this journey. I thought we were clearly in, in bounds of the law. It's not like we didn't have lawyers. We talked with legal counsel, legal counsel agreed we're in the bounds of the law. The wider industry in general agreed we were in the bounds of the law because as everyone understood it up until the day we were raided and charged, custody was the key component. Custody was what mattered. But so, yeah, on, on April 24, 2024, I was raided, arrested, and charged with two quite serious federal offenses.
- [16:07]
A
So can you, can you share a little bit more about why you decided to plea?
- [16:11]
B
Yes, absolutely. It does require some backstory, though. We're about a year in to the pre trial process, we're reviewing discovery, and my lawyer has an idea to write to the government and ask them a very specific question. My lawyer asks them, have you ever had any conversations or with FinCEN, the regulator, about my client or about Samurai Wallet? The government responded and said, yes, we have had conversations with FinCEN about your client. Here they are. Now, here's the thing that in a criminal trial, the government is required to give you all the evidence they have against you, whether that's good evidence or bad evidence. It's called exculpatory evidence. When it's good for you. For you. In this case, the government didn't do that. They withheld this communication they had with FinCEN. And when we read the communication they had with FinCEN, our jaws dropped. The government asked FinCEN point blank. FinCEN, you're in charge of issuing money service business licenses. You're in charge of money transmission. Do you think what Samurai Wallet has done is illegal or operating as an unlicensed money transmitter? FinCEN responded emphatically, no, because they don't take custody. They haven't. According to our guidelines, custody is what matters. And because Samurai Wallet doesn't take custody, we wouldn't consider them a money service business. The government had this information six months before indicting us and then indicted us anyway on a charge that Finn said said they didn't think was appropriate. Not only that, then the government hid this information from us for a year and only turned it over when we asked for about it explicitly. That was a pretty jaw dropping turn of events that culminated into a motion to the court. Right when. So when something happens in a trial, the government does something we don't like, we do something the government doesn't like, they write a motion and they tell the judge, judge, this is what's happened and this is what we're looking for. Right. In our case, we wrote a motion saying, judge, we found this exculpatory information that was hidden from us. We would like certain things, we would like to know why it was hidden from us. We would like to know who made the decision to hide it from us. And we would like to know is there anything else they're hiding from us. And we would like you to order them to produce this information for us. It's a pretty standard motion when there's something called a Brady violation, which is what this was potentially. And we also had various other motions on the table at this time because this was the deadline to get all of your pre trial motions before trial. And one of the other motions we had was very important motion called a motion to dismiss indictment. And this is one of the biggest pre trial motions you can have. And I'll be very brief for your listeners. In a pre trial motion to dismiss, you assume that everything the government has said about you in the indictment is true. Right. You're not arguing the facts of the case. You're saying even if everything they said is true, the case should still be dismissed because as a matter of law, it doesn't hold water. And then you cite the law, you cite Supreme Court precedents, you cite all of the legal aspects that you that support your case. So we had this, we had the Brady violation and we had a number of other motions on the table. We're feeling pretty confident at this point. We're feeling like we have a good case and we have a lot going on for us here. Then two days before we're supposed to argue these motions, our judge changes, we get a new judge, which is somewhat unusual in a criminal trial. I mean, it does happen, but not very often. And our new judge has a reputation for being quite a pro prosecutor judge, a Lot of judges were formerly prosecutors. This one was formerly the head of the criminal division at the Southern District of New York. So pretty top level prosecutor. And she also has a reputation for being a tough sentencer. So if you go to trial and you lose, you're getting the max. Not great for feeling with a new judge like that. But also we've never met her, you know, and you expect judges to be, you know, relatively fair. So, so be it. We're going to plead our case in front of a new judge when we go to plead the. These motions, to argue these motions. It was a pretty unfortunate scenario. And this is a very long answer to your question, but I'm getting there, I promise. We go to argue the motions, we don't even get a chance to do that. The judge says she's read the motions and she's denying all of them. And so no argument, which a little disappointing. But then she fails to give a written opinion as to why she's denied them and she's failed to give a verbal opinion as to why she's denied them. It's just very unusual because you use the judge's opinion to understand her thought process as to why it was denied and you might even use that opinion later on an appeal. Right. Where you can appeal her decision and say appeal court. We think the judge is wrong because she said this and that's really not the law or whatever. So we had no verbal opinion, no written opinion, just a denial. And it was at that point that I started to shift in my head thinking, I don't think this is going to be a very fair trial. I don't think I'm going to be able to really defend myself in the way that we think we should be able to defend ourself in front of this judge in this court. And the stakes with this particular judge are so high. Right. It's a 25 year potential prison sentence if you take that gamble and you lose.
- [22:12]
A
Can we talk a little bit about some of the evidence they found against you?
- [22:16]
B
Sure.
- [22:17]
A
It says that prosecutors said that in a private WhatsApp chat, when asked to explain mixing, you described it as money laundering for bitcoin. And apparently there are some things that made it seem as though you knew that criminals were essentially using this and you didn't stop that. You even maybe encouraged it. What do you say to that?
- [22:41]
B
So I think let's talk about the first, first thing, which was the WhatsApp message. Money laundering for bitcoin, as is everything that the government has produced in their indictment against us. It all lacks context. Right? So what they've done is they've taken a one sentence out of a very long conversation that I was having with a school friend in 2018. So this conversation predates the creation of Whirlpool. Whirlpool doesn't exist yet. And I'm having a conversation with a friend from elementary school who, years prior, I had told, hey, you should buy some bitcoin. You know, get, get. I evangelize Bitcoin to this person. And this person would ask me questions about Bitcoin every once in a while. And at this particular time, he asked me a question about what is coin mixing. And quite frankly, I didn't really feel like answering him. And because he's not technical, he doesn't really understand Bitcoin. So I give him the most generalized answer I could think of, which, when in retrospect, was unfortunate. Right. But you don't think that a federal prosecutor is going to be going through your messages and, you know, scrutinizing them. We all make analogies that aren't really accurate for the sake of convenience, and that's what that was. In that case, had they released the rest of the messages with this person just a few lines down because he was actually interested in the technical side of it. I did go into further detail and explain it and explicitly say it wasn't about facilitating crime, it was about protecting your identity from criminals. So they don't release that part. They only release the one sentence, money laundering for Bitcoin.
- [24:39]
A
And prosecutors claim that there was this. There was a Twitter hack in, like, 2020. I kind of vaguely remember that a bunch of really big accounts were hacked, right? And they were tweeting out like, if you send me one bitcoin, I'll send you two. I don't know who could have fallen for that. But people sent funds, and prosecutors claim that you were essentially tracking it and encouraging the hackers to use Whirlpool. What do you say to that?
- [25:04]
B
So the way they. They justify that as my intent is because someone asked the Twitter handle Samurai Wallet. I think I forgot exactly what they asked, but they asked about hackers using Whirlpool, and I quote, tweeted him and gave a. A satire of the inscription that appears on the Statue of Liberty, the New Colossus. Feed me you're tired, you're yearning. Dirty masses. And I quote, tweeted it with a version of the New Colossus and replaced masses with UTXOs. It was not an incitement for the Twitter hacker to use Whirlpool. It was a joke. And in fact the Twitter hacker I'm the one who unmasked who it was. I'm the one who de anonymized their transactions through another mixer, right? Because facilitating crime is not what I'm about. I have no interest in it and all I really care about is financial privacy. And the Twitter hacker used a mixer that made it easy for someone who knows how to read the blockchain to demix them, which is what I did. I filmed a YouTube video about it and showed how to do that. So I you know, someone who is interested in attracting criminals to use a tool wouldn't be the same person who is actively demixing criminals, right? What criminal would be interested in using something run by someone who is going after criminals and trying to expose them.
- [26:51]
A
Want to accept Bitcoin and Stablecoin Payments? Speed makes it simple. Customers can pay via QR code in app online or pos. Speed helped Steak n Shake accept Bitcoin nationwide. Here's what Dan Edwards COO says and.
- [27:05]
B
When customers choose to pay in Bitcoin instead of credit cards, we are saving about 50% in our processing fees.
- [27:13]
A
This led to more support for from Bitcoin users and a 10% revenue boost. Getting started is easy. Sign up@trispeed.com or integrate the API in hours. Start accepting Bitcoin today. Download Speed at Speed app Coinstories or the QR code on the screen and use code COINSTORIES10 for 5000 free sats. BitKey is a Bitcoin hardware wallet with multisig security, inheritance and a recovery system designed for real life. No complex setup and no seed phrases, just true self custody without the stress. It was named one of Time's best inventions in 2024. Use code STORIES for 20% off at BitKey World. Up next, the Bitcoin way. There's only one way to protect your Bitcoin from government, politicians and third party risk and that is 100% self custody. My friends at the Bitcoin Way will train you how to do this the right way the first time. No compromises. Go to thebitcoinway.com Natalie to speak with the experts about making sure your Bitcoin is secure and in private. And finally, Coin Stories is brought to you by Genius Group, a Bitcoin treasury company listed on the NYSE. American undertaker GNS Genius is building a 10,000 Bitcoin treasury and just launched the Genius Academy featuring free courses from sa, myself and more. Start learning today at Genius Academy AI Genius group. Genius isn't measured in iq. It's measured in Bitcoin. So did you know that there was criminal activity happening through your services that you were offering?
- [28:46]
B
I didn't know about specific criminal activity. What I knew is that there would be criminal activity, just like there's criminal activity on any piece of software, any piece of technology criminals use, Signal criminals use, VPNs, criminal use, Tor criminal use, everything. So I knew that. That criminals would use something like Samurai Wallet because criminals have a desire for privacy. So, yes, that's what I knew. And that's what the government used in my plea allocation to accept responsibility, the fact that I knew criminals would use it, but the government never gave any evidence of specific criminals using the tools, me and them talking about it. So I never had specific knowledge of a specific crime.
- [29:33]
A
They also, prosecutors allege that you sort of intended to serve this gray market, like the dark web and the ability to facilitate illicit activity. Do you feel like you that that's correct?
- [29:48]
B
Yes and no. It depends on what they mean by the gray market or the black market. To a bitcoiner like myself from, you know, the early days of 2012 or so, what the black market means is the permissionless market. The white market is a permissioned market, and the black market is the permissionless market. So if I'm serving the permissionless market. Absolutely. That was the whole point. It's not necessarily the criminal market. Right. There's a lot of activity in the quote unquote, black market that absolutely is not criminal at all. But it's not permissioned. Right. So you see it in New York City all the time. And I would laugh about it when I go to court in New York City. Walking up the street, you have street vendors selling clothes and books and DVDs and everything. None of that stuff is illegal, but they certainly don't have permission to be there from the city. Right. That's. That's a gray market. So that's the way I see it. And when I would discuss gray markets, that's what I meant. Permissionless markets, not criminal markets.
- [30:55]
A
Yeah. You know, sometimes I hear the analogy with tools like Bitcoin, of. It's like a knife. Right. A knife can be used for good. It can also be used by someone very evil to do something extremely bad. And I think what's interesting about when you read this case is the prosecutors were essentially laying out that, okay, the knife exists, but you were almost encouraging people to use it for bad reasons. And you were condoning it, and you were okay with that, but what you're saying is absolutely not. I mean, there are reasons why someone might facilitate transactions in an underground economy. And I say that actually because my family in communism, half of the economy went underground and it was just because people were desperate and they needed goods and services and there were shortages. Right. And I don't think, think that they, any of them were, were criminals, but surely the government would see them as so. Right. So like there are a lot of gray areas here, but ultimately if you were to make it black and white, it's like there should probably be punishment if you're facilitating fentanyl being transacted or human trafficking. Right. So like, I mean, how do you distinguish for that? Because with some of these services, I mean people use them not just to hide because they want to be private, they're using them because they're criminals and they want to do something very, very bad. And there's a chance that the service provider could find out about that. Right. And can you, can you stop it?
- [32:23]
B
Unfortunately, no. We wouldn't have been able to stop it because it's not a whirlpool and Samurai Wallet wasn't a traditional money service business that could actually stop these things. So it would have been pretty difficult to determine in real time if a crime, if the proceeds were from some sort of horrible crime like human trafficking or fentanyl. But even if we were able to detect that somehow we wouldn't have been able to stop them from transacting. And it's just, look, it's the, it's the tragedy of freedom, of our system. People are going to do bad things and you're not. The way to stop that, unfortunately, isn't to give up your privacy. Right. It's the way to stop it isn't to say here I'm an open book government, look at everything I've ever done in hopes of stopping one human trafficker. That's just not the best way to go about it. So of course I'm against crime in general, but obviously horrible crimes like that, I don't want to facilitate it, I don't want to help facilitate it. But it does exist and those people will use software. So what we have to do is really rely on the law enforcement to go after those people and to investigate crimes appropriately and go after them. I don't think in this case law enforcement did that. We never received one request from law enforcement in 10 years. We had legal counsel that was open to accepting requests. They never did that. They never said keoni. We think a human Trafficker is using Whirlpool and we want as much information about them as you can give us. None of that ever happened. And they still within this indictment of what you've read, and I think you've read the indictment, or most of it. They still haven't tied me to an actual criminal planning this stuff because that just never happened. They're all about intent. That the only reason I could have built this software was because I intended to entice criminal activity to use it. And that's simply not true.
- [34:28]
A
Well, so According to the DOJ, they say that specifically between 200 and 237 million in clear illicit funds flowed through your service out of about a $2 billion volume. So you're saying that that's, that's false. That is not true. That did not happen and you were not.
- [34:44]
B
Oh, it may have happened. That absolutely could be true. I don't know. I haven't checked their, their numbers. If we're just going to accept the indictment as, as truth, then yes, that probably did happen. And it really wouldn't surprise me if that was the level we're talking to about. So out of 2 billion in total transactions, 237 million were of illicit origins. Not that surprising. That's like 10%. That's far lower than cash. Right. And that's far lower than in some banks even. Right. So no, that wouldn't surprise me, but I didn't know about it specifically. It's not like I knew that there was 237 million worth of illicit proceeds. I never knew that.
- [35:28]
A
Can you explain a little bit about the business model? Because I'm sure that some people would look at this and say, oh, well, if they facilitated $2 billion worth of transactions or mixing that, you guys probably extracted quite a bit of profit from that and you're probably doing pretty well despite everything that's happened. Is that the case?
- [35:49]
B
No, that's certainly not the case. The business model surrounding Whirlpool in particular, which was a what we would call a premium transaction, something that a user paid a fee for to use. The fee was very small, it was very minute. It was a, a flat fee. Right. So here's an example. Most mixers, even non custodial coin join mixers, charge a percentage of the amount being mixed. We didn't do that. We charged a flat, tiny fee. So the whole point of the fee wasn't necessarily to increase revenue and get rich. The point of the fee primarily was the same point of the minor fee in a bitcoin transaction. It's to prevent spam. Right. You prevent an attack on the system by adding some friction in terms of a monetary fee. So we earned in total over a 10 year period, $6 million. And when you consider, and that sounds like pretty good, but not really, it's a 10 year period. And you, when you consider that the government has said we facilitated 2 billion worth of, of currency, it's a pretty small amount. And that was the entirety of what we had out of Samurai Wallet. We really, we weren't running Samurai Wallet to get ultra wealthy, to get a lot of riches. We were running it because we truly believe in privacy and we wanted to bring privacy to as many people as possible. And we didn't want to have a fee structure that prevented people who really need it on the ground from using it.
- [37:27]
A
Well, so did the government seize those funds? Because I would imagine that just defending yourself is extremely expensive. Like how have you been paying for all this?
- [37:38]
B
They didn't seize them because they couldn't. Right. They didn't have the bitcoin keys to seize it. What they did was is put a bail condition on Bill and myself saying you can't make any cryptocurrency transactions directly or indirectly. So it was an effectively seizing it. Right. Because if we would have secretly made a transaction and they found out about it, that's an obstruction of justice charge. So how did we pay for our legal or legal expenses? Haven't yet, haven't figured out how we're going to do that. I'm in debt to my law firm. Over two million dollars, about two and a half million dollars. I'm in debt to friends who have loaned me money to get started on a retainer. About a million, 1.3 million. Because once we pled, the government demanded that we forfeit the entire 6 million that we earned over a 10 year period to them, which we did as part of the deal. So it's a, it's a pretty dire situation, that's all.
- [38:44]
A
In Bitcoin, like you, you forfeited your bitcoin keys?
- [38:48]
B
Yes, they, they provided a bitcoin address to send to and we sent the bitcoin to them with their permission.
- [38:56]
A
So this is, is this part of like the civil forfeitures that are essentially going to make up the strategic Bitcoin reserve?
- [39:02]
B
You would think that it would be considering that the President made an executive order saying that all final forfeiture accepted in Bitcoin is to be part of the strategic Bitcoin reserve. But no. The Southern District of New York operating as a lawless U.S. attorney's office sold those bitcoins almost immediately, $4, thereby violating the executive order that the president put out months and months ago. Wow.
- [39:31]
A
I just. I. I can't. I can't believe some of this. Just what is your message to President Trump?
- [39:40]
B
Here we go again, right? President Trump, you have a lawless U.S. attorney's office, the same U.S. attorney's office that targeted you and your family. They are now ignoring your administration. They are ignoring your Deputy Attorney General, Todd Blanch, who said specifically, we will not prosecute software developers for the acts of their end users, who said specifically, we are ending regulation by prosecution. And they are ignoring your executive orders about the strategic Bitcoin Reserve. This is a organization that you need to deal with before you get out of office, because once you get out of office, they are going to come for you and your family again, and you won't have the presidency to protect you. So you have to deal with them.
- [40:26]
A
I mean, so basically, you were staring at the possibility of 25 years, and you decided to take five.
- [40:32]
B
But.
- [40:35]
A
There'S a chance that President Trump, I mean, what if he's listening to this? What do you say to the people who are requesting that he pardon you?
- [40:46]
B
Well, I. To them, I say thank you. To President Trump, I would say that he better than anyone knows what a weaponized DOJ is like, and he better than anyone would recognize a weaponized DO DOJ holdover from the Biden administration coming against me and Bill, because that's what this was. This was a weaponized DOJ operating under a novel new theory that somehow a software provider is responsible for the actions of their end users. They've never done that before. That's brand new. So I think President Trump is ultimately someone who understands deals, and he understands a raw deal. And this was a raw deal to.
- [41:30]
A
Those listening to this who believe that we should have privacy, especially if more and more people are going to be using Bitcoin. I mean, what is the solution? Because basically, I mean, from what you just shared, it sounds like it's very difficult to have both privacy and also prevent some of the most serious crimes from happening and facilitating the transactions of Bitcoin for very illicit activities.
- [41:56]
B
I mean, I don't think it's that difficult. I think law enforcement has always been able to carry out operations being constrained by the privacy rights of the individual. That's what the whole the Constitution's about. It would be a lot easier for law enforcement if they could knock on any door, go and search it. You Know, go under the bed, open any bank account. But they can't do that. Right. They have to go through the court process, they have to get a subpoena, they have to have probable cause. So our whole society is built on, you know, these fundamental rights that we have that frustrate law enforcement and doing their jobs. But we are, we accept that as a society because the alternative is far worse. Right. You mentioned that your family came from a communist country. So did mine. My dad came from Cuba. So we saw it firsthand. When you have a government going out of control and having no, no check on their power. So it's again, just one of those things. It's unfortunate, but it's better than the alternative.
- [42:58]
A
And do you feel like you have a chance at this pardon?
- [43:03]
B
I think if we can get this case in front of the President or his top people in the administration, I think we do have a chance. Because I think if you, if you look further than just the government's indictment, then you see what really went on. You see the Brady violation, you see the novel theory that the government is proposing and some of their acrobatics are going through to try to justify those new theories. And especially because the President has gone through a weaponized Department of Justice, he gets it better than most. I think most Americans want to believe that our Justice Department is just, and I certainly do and did. And until you're toe to toe with that Department of Justice, you really have no idea. Truth is inconsequential. The result is what they're looking for. So they will twist the truth to get what they want. And most people don't realize this, but any person who has interacted with the federal government knows this story. I'm not unique. Our case isn't unique. This is what they do. So because President Trump has been touched by a DOJ that was weaponized against him, I think when he sees the facts laid out on the table, he'll know exactly what's going on.
- [44:23]
A
Can you appeal this? And what are the chances that you actually have to serve five years? Especially since this is a first time offense and, you know, it seems like they probably would let you out sooner. Right.
- [44:35]
B
So my understanding is it can't be appealed. When you take a plea deal, you waive your right to appeal unless the appeal is on constitutional grounds. I believe. I'm not 100% sure on that, but my understanding is appeal is pretty unlikely. And, you know, you get different calculations from different people in terms of how much of the five years you'll actually spend, I think it's probably safe to say, as long as everything goes well and there's no incidents in. In the prison, you're probably looking at three and a half to four years to serve. You know, that's taking into account good behavior. Then there's some. There's some other programs that you can do that may reduce the amount of time you have to spend inside the actual facility, but I think three and a half to four is a pretty conservative estimate.
- [45:29]
A
Do you regret any of the things that you said that ultimately prosecutors were able to use against you?
- [45:36]
B
No. No, I don't. No, I don't regret it. I. You know, the prosecution took what were obvious jokes out of context, right? They claimed that I was enticing Russian oligarchs to use Samurai Wallet because of a tweet, but I know that they KNEW There were 18 or 20 of those same format of tweets. Welcome new X users. Right. The Japan implemented a tax of 100 on Bitcoin. Welcome new Japanese Samurai Wallet users. The Federal Reserve banned their employees from buying and selling Bitcoin. Welcome new Federal Reserve Samurai Wallet users. It was a meme format. Do I regret it? No, I. I thought it was funny, and I still think it's funny. And I don't think that the government should be able to take tweets and messages out of context and use it to get you convict you on a conspiracy charge. The whole idea of a conspiracy charge is absolutely nonsense. It's a prosecutor's best friend. If they thought I was laundering money and they charged me as laundering money or operating a money service business instead of conspiracy, they would have had to bring someone up to say that we conspired to launder money together, we were going to do that together. That person doesn't exist. And the reason, that's the reason why these were conspiracy charges and not actual charges. Conspiracy is the prosecutor's best friend.
- [47:07]
A
Do you regret pleading guilty instead of just seeing how a trial might go?
- [47:13]
B
No, that I. I did until sentencing. I. There was a lot of arithmetic involved in deciding whether to take the plea or not. And there's a lot of uncertainty there as to whether that's the right thing to do. But the downside of 25 years versus 5 years, the fact that conviction is, is likely that with, especially with this judge, again, people don't realize this, but the judge determines a lot about a. About a jury trial. The judge determines what evidence the jury is going to hear. So we were pretty certain with this judge, the jury wasn't going to hear that. We had a lawyer who told us that we were doing everything legally. The jury wasn't going to hear that. FinCEN, you know, said we weren't breaking their guidelines. The jury wasn't going to hear any of that. And that makes it difficult to put on the defense you want to put on. Makes conviction more likely. With this judge, conviction means 25 years. Even if you appeal that, you're sitting in prison for five years waiting for your appeal. Your appeal is going to cost you another $7 million on top of the four and a half million you've already spent to get to this point. So the numbers just didn't make any sense.
- [48:32]
A
Can I just ask, how are you feeling? I mean, a couple weeks away, it's the holidays. You're about to be sitting in prison. Like, what are you feeling and thinking right now?
- [48:43]
B
Well, a couple things. I'm somewhat relieved that the saga is over, so to speak. Right. I'm not waking up anymore wondering what fresh new filing the DOJ is gonna put out there, what fresh new thing they're gonna say I did. That's part of the proceeding is over. So that's a little bit of a stress off. Off of me. But then, of course, you know, sadness that I need to leave my family and leave my wife for the next five years. It's obviously not. Not something anyone wants to go through, but I'm trying to keep it together. I'm trying to be practical about it. I'm trying to make sure that everything that I take care of in the household is understood by my wife. Here's what you need to do when the printer doesn't work like things that. Of that banality. Right. She's not very technical. Printer breaks. She calls me and says, hey, the printer's not printing. I fix it. So I'm writing her a guide basically, as to here's what you do when this happens, and here's what you do when this happens. Trying to take care of the logistical things as best as I can, and I think that's keeping my mind occupied so I don't, you know, spiral out or emotionally or something like that. So I. I mean, I think it's going to be easier for me than it's going to be for her. And I think that's challenging to. To know that.
- [50:19]
A
Does she understand the kind of service that you ran?
- [50:23]
B
Absolutely.
- [50:25]
A
And she was supportive of it?
- [50:27]
B
Yes. Yeah, she has been supportive. She was with me before I discovered Bitcoin. So when I discovered it, she had no choice. But to discover it as well. And she, she's been supportive. She understands it better than most people. She understood what we were doing with Samurai Wallet. She supported that too, and she supported me throughout this entire prosecution.
- [50:51]
A
Are you scared?
- [50:53]
B
No, I'm not scared. I think the. I've talked to a lot of people who have been through this process, have been through a prosecution by the Department of Justice and have been to prison. So I think I'm prepared for what to expect. And preparation takes away from the fear.
- [51:14]
A
Yeah, I get that. I've done several stories where I've visited everything from maximum security prison and everything in between. So I just, like I said, I can't imagine what you're going through, but I know that there's a huge group of supporters that you have who are trying to get this to the attention of people like President Trump. If someone's watching this and has heard your story and they look at this and say, you know what? He probably facilitated some terrible things, possibly some of the worst criminal activity, and the sentence is justified, what do you say to them?
- [51:56]
B
I would say it's impossible for me to have facilitated those things. What I did was create software. And we don't hold software developers accountable for the actions that their users take. Right. It was. Who was it? Warren Davidson, Congressman out of Ohio. He said it best. He was talking about this case. He said that would be like holding Microsoft accountable because drug dealers use Excel and it's just not what we do. And that's why it's never happened before. This is a novel application by the Department of Justice. We just don't do that. So saying that we, that I facilitated anything because I created software, to me, it doesn't compute and it doesn't go together. So I can feel, you know, secure and sleeping well at night because I did not facilitate any of that. Now, if I ran a service like a traditional mixer, where they sent me their money and then I did something on the back end and then sent it back to them, I would agree. I did facilitate that because that couldn't have happened without my active involvement in touching their money and moving it to them. But me putting code together and then some bad people use it. No, I don't, I don't buy that. I don't think I facilitated that at all.
- [53:19]
A
So are there any tools that exist for Bitcoiners right now in order to make their. Their activity private?
- [53:29]
B
I believe there is. The code that me and Bill wrote for Samurai Wallet and Whirlpool was free and open source code. So that code is out there. You can't get rid of it. And shortly after our arrest and take down, some brave souls launched a fork of our code and Samurai Wallet still exists and Whirlpool still exists and people are using it. And now what all the government has done is just drive it more underground into the Tor dark web. And, and, and you know, these people taking opsec incredibly seriously, not having a Twitter handle, not having, you know, social media, just having a Tor Onion address, a dark web address, Right. So all they've done is drive it underground and make it more resilient for the next time. So this stuff is not going away. The code is out there. You know, that's like the Pandora's box. It's open now, there's no putting it back in.
- [54:30]
A
Well, you have a fascinating story. I really appreciate you taking the time. I know so many people will probably be more keen, curious to see how they can learn more about the case, also support you. Where do you want to send people? Or any final thoughts?
- [54:45]
B
Yeah, thank you. If anyone's interested in learning more about the case or interested in signing the petition asking the President to pardon me and Bill, you can do that by going to billandkeone.org that's B I L L a n D K E O N N e dot org. There's a link right at the top there to sign the petition. Please do. It definitely helps. I was in a Twitter space two nights ago and Ross Ulbricht joined that Twitter space, the first one that he's ever joined. And it was a really touching moment. We had like a five minute conversation, one on one together, where he showed his support. But one of the things that he said was how important the Change.org potential petition was to him getting his pardon, that it really does make a difference. So please sign the petition, share it, get your friends and family to sign it. If you've heard me and think, oh, maybe there is something to this, if you've heard me and said, no, I'm not convinced, you definitely deserve to go to prison, that's okay too. I am going to prison, so don't sign it.
- [55:51]
A
Well, you know, my listeners, they are part of this powerful bitcoin community and they have made made change happen. And Ross Ulbricht was freed because of the pressure that was put on on the campaign and on the lobbying efforts. And President Trump kept his promise. So thank you so much again for sharing your story. I know it's going to impact a lot of people and I'll be sure to to follow along. Because you never know. I mean, time does fly by, and maybe President Trump will be listening to this. You never know.
- [56:25]
B
Maybe. Thank you very much, Natalie.
- [56:27]
A
Thank you. Thank you so much for checking out this episode of Coin Stories. Make sure you're subscribed to the show so you don't miss any new episodes. And if you can, turn on those notifications and leave us a positive review, they really help the show grow organically with new listeners. We have a free weekly newsletter. You can sign up@thenewsblock.substack.com this show is for educational and entertainment purposes only. Nothing should constitute as official investment advice, and you should always do your own research. I'm always open to feedback and guest suggestions, so please feel free to reach out@infoalkingbitcoin.com I'll see you next time.