Karnataka Bitcoin scam: After hacker’s arrest, crypto exchange founder paid Rs 7 lakh to police to recover 60.6 BTC stolen in 2017, says SIT

The probe into the Bitcoin scam by the SIT has led to the arrest of Babu and private cyber expert K S Santhosh Kumar. Three other four former Central Crime Branch (CCB) officers — Sridhar Poojar, Lakshmikanthaiah, and Chandradhar S R — have also been named in a January 24, 2024, FIR lodged by the SIT over alleged illegal confinement and destruction of evidence when the hacker was arrested.

Co-founders of Unocoin Unocoin Technologies Private Ltd — Sathvik V and Harish B V — who played key roles in police efforts to recover stolen Bitcoin from the possession of Sriki in 2020 were granted anticipatory bail on February 14 after the SIT issued notices to them and sought information on the efforts to seize the stolen Bitcoin.

The Bitcoin scam during the tenure of the BJP in Karnataka involves allegations of police grabbing a large cache of Bitcoin that was found in the crypto wallets of Sriki after his arrest in November 2020. The Special Investigation Team of the Karnataka Criminal Investigation Department (CID) was constituted by the Congress government on June 30, 2023, a month after it came to power in Karnataka.

On July 17, 2017, Harish B V the co-founder of Unocoin Technologies – one of the first cryptocurrency exchanges in India, filed a police complaint in Tumkur, where the exchange is located, stating that unknown persons stole 60.6 Bitcoin after the exchange was hacked on June 23, 2017.

Harish alleged in his complaint the total value of the Bitcoin stolen was Rs 1.14 crore — at the rate of Rs 1.67 lakh per Bitcoin (the prevailing rate at the time). He also alleged that the stolen Bitcoins were moved to two separate online locations.

After Sriki’s arrest in 2020, the police alleged that the Bitcoin hacking at Unocoin in 2017 was carried out by the hacker.

“The accused number 1 (cyber expert Santhosh Kumar) and accused number 2 (Babu) illegally collected an amount of Rs 7 lakh from Harish with the assurance of recovering the Bitcoin he (Harish) had lost, it has been gathered from the questioning of the accused,” the SIT informed a local court in a remand plea two weeks ago.

The services of the founders of Unocoin were used extensively in the investigations by the Crime Branch to recover Bitcoin found in the possession of the hacker according to court filings by the Crime Branch and the SIT.

A police wallet was created with Unocoin and was used on January 8, 2021, for the transfer of 31 Bitcoin that was being seized after being found in the possession of the hacker. However, when the wallet was rechecked on January 22, 2021, it was found to be empty.

Unocoin’s Sathvik told the police the transaction for transferring 31 Bitcoin to the police wallet on January 8, 2021, did not go through “as the Private Key for the said wallet was not available”. Harish acted as an expert during the seizure of a crypto wallet belonging to Robin Khandelwal, an associate and accountant of Sriki.

SIT findings

In recent weeks, the SIT has stated in court arguments that Bitcoins in the custody of Sriki were illegally taken by the police while the hacker was in police custody between November 2020 and January 2021.

The SIT has alleged that when Sriki was in custody cyber expert Santhosh Kumar, who was roped into the investigation by the police for technical assistance, “obtained three nano ledgers or hardware crypto wallets from Surat” and gave it to the police.

A large quantity of Bitcoin was transferred to these hardware wallets on January 16, 2021, from the Amazon Web Services cloud crypto wallets of the hacker, the SIT has stated.

The Crime Branch arrested Sriki and his accountant Khandelwal in November 2020 on charges of buying drugs online using Bitcoin. The case involving the purchase of drugs on the darknet eventually led to the cracking of several cyber crimes in Karnataka, including a Rs 11.5 crore heist from the Karnataka e-governance cell in July-August 2019.

Sriki has said in police statements, on record in chargesheets filed by the CCB, that he was forced to hand over all cryptocurrency in his possession to the police.

The Congress, which was in opposition in Karnataka between 2020-2023, alleged corruption in the way the cases involving the hacker were handled by the police under the BJP regime in the state.

At the time of the hacker’s arrest in 2020, the value of one Bitcoin was in the range of $25,000 (around Rs 20 lakh) and soared to as high as $60,000 (around Rs 50 lakh) by April 2021. The Bitcoin scam has been estimated to be in the range of Rs 80 to Rs 200 crore.

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