Early Bitcoin Investor Frank Richard Ahlgren III Pleads Guilty to Underreporting $3.7M in Bitcoin Gains

This marks the first U.S. criminal tax evasion case focused solely on cryptocurrency.

A Texas federal court judge has ordered Frank Richard Ahlgren III and his associates to surrender all crypto private and public keys, accounts, and access codes. Ahlgren, an early Bitcoin investor, was sentenced to two years in prison for tax fraud in December. As part of a court-issued restraining order, he was ordered to hand over his crypto and other wallet private keys and access codes.

Ahlgren misreported capital gains from over $3.7 million in Bitcoin sales between 2017 and 2019, owing the US government approximately $1.1 million in restitution. On Jan. 6, Austin Federal Court Judge Robert Pitman ordered Ahlgren, along with his family, friends, and advocates, to identify and surrender any devices used to store his cryptocurrency, as well as any public keys, private keys, seed phrases, or passphrases.

Pitman ordered all parties to identify all accounts related to Bitcoin, Bitcoin Cash, Litecoin, and Ether. He also prohibited the parties from transferring any of Ahlgren’s cryptocurrency without first having it approved by a court. This includes any action that could hide, reduce, or lower the value of cryptocurrency unless funds are used for “normal monthly living expenses.”

The court order will remain effective as long as Ahlgren fulfills the restitution obligation imposed by the court or until a further court order is issued.

In September 2024, Ahlgren admitted to filing a false tax return and received his sentence in December. Ahlgren acquired approximately 1,366 Bitcoin using Coinbase in 2015, when Bitcoin was valued at $465. Two years later, he sold around half of it at $5,800 per Bitcoin, totaling $3.7 million. However, in his 2017 tax return, he “substantially inflated” the cost basis of Bitcoin, making the capital gain seem smaller than it was.

Between 2018 and 2019, the investor sold Bitcoin for more than $650,000 without reporting the sales on his tax returns. Prosecutors stated that he used different wallets, in-person transactions, and mixers to hide details of transfers.

The total tax losses from all his actions exceeded $1 million. The court also ordered him to serve one year of supervised release following his 24-month prison sentence.

This was the first criminal tax evasion prosecution that was exclusively focused on cryptocurrencies, said Lucy Tan, acting special agent in charge of IRS-Criminal Investigation’s Houston Field Office.