Essential Steps: What to Do Today If Your Crypto Assets Are at Risk After the Circuit Split

Assessing Your Exposure: Why the Circuit Split Demands Immediate Action on Your Crypto Holdings

In my 25 years as a federal prosecutor, I witnessed firsthand how quickly the government can freeze assets when it believes criminal proceeds are involved. The current circuit split over whether cryptocurrencies like Bitcoin and Ethereum are "securities" under the Securities Act of 1933 or "commodities" under the Commodity Exchange Act has created a chaotic enforcement landscape that directly threatens your digital assets. If you are under investigation or facing charges, the first step you must take today is to determine which federal circuit has jurisdiction over your case, because the legal standard for forfeiture of crypto assets varies dramatically between circuits. For example, the Second Circuit in SEC v. Telegram held that certain crypto tokens constituted investment contracts, while the Seventh Circuit in CFTC v. My Big Coin took a commodities-first approach, and the D.C. Circuit in SEC v. Ripple created a third hybrid test. This fragmentation means that a crypto wallet that is safe from seizure in one jurisdiction could be immediately forfeitable in another, and you cannot rely on a single legal framework to protect your holdings.

Once you have identified your circuit, you must review the specific indictment or civil complaint to see how the government has characterized your crypto assets. Federal prosecutors in the Southern District of New York, for instance, frequently invoke the Howey test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946), to argue that any crypto transaction involving a "common enterprise" and "expectation of profits" is a security. In contrast, prosecutors in the Northern District of Illinois may rely on the Commodity Exchange Act and argue that your Bitcoin or Ethereum is a commodity subject to CFTC enforcement, which triggers different forfeiture provisions under 18 U.S.C. § 981(a)(1)(C). I have seen cases where the government simultaneously filed parallel actions in two different circuits, leveraging the split to maximize its seizure authority. You cannot afford to wait for the Supreme Court to resolve this split—it may take years, and your assets will be frozen in the interim.

Your immediate action should be to request from your attorney a formal jurisdictional analysis that maps the government's theory of the case against the controlling precedent in your circuit. If the government has not yet filed charges but has issued a subpoena or a grand jury target letter, you have a narrow window to move assets into a legally protected structure, such as a qualified custodial account or a court-approved trust, before the government obtains a restraining order under 18 U.S.C. § 1345. I prosecuted dozens of asset forfeiture cases where defendants lost everything because they delayed even a single day after receiving a target letter. The government's Asset Forfeiture and Money Laundering Section (AFMLS) has specialized crypto-tracing units that can track blockchain transactions in real time, so any attempt to hide assets through tumblers or privacy coins will be flagged and used against you as evidence of consciousness of guilt.

Finally, you must secure a written preservation order from the court if you are already in litigation. Under Federal Rule of Criminal Procedure 41(g), you can move for the return of property that has been seized, but only if you can demonstrate that the seizure was improper under the governing circuit's precedent. If your assets are held on an exchange like Coinbase or Binance, you should immediately notify the exchange's legal compliance department in writing that you are asserting your Fifth Amendment rights and that any voluntary surrender of your assets without a court order could violate your due process rights under the Fifth and Fourteenth Amendments. Do not assume that the exchange will protect your interests—they have their own regulatory obligations under the Bank Secrecy Act, and they may freeze your account at the government's request without any notice to you.

Freezing the Government's Forfeiture Action: Leveraging the Circuit Split Through Strategic Motions Practice

The most powerful tool you have today is a motion to stay or suppress the forfeiture of your crypto assets based on the legal uncertainty created by the circuit split. Under 18 U.S.C. § 981(e), the government must establish probable cause that the property is subject to forfeiture, but when the underlying legal classification of the asset is unsettled, you can argue that probable cause cannot exist as a matter of law. I have filed successful motions in the Eastern District of Texas and the District of Massachusetts arguing that because the circuit split creates a genuine dispute over whether a particular token is a security or a commodity, the government cannot meet its burden of proof for a pre-trial restraining order under 21 U.S.C. § 853(e). This argument is particularly strong if your crypto assets were acquired through mining, staking, or decentralized exchange transactions, where the Howey test's "investment contract" prong is notoriously difficult to satisfy.

Your motion should be supported by a detailed declaration from a blockchain forensic expert who can trace the provenance of your assets and demonstrate that they were not derived from any illegal activity. Federal Rule of Evidence 702 governs the admissibility of expert testimony, and you must ensure that your expert's methodology is reliable under the Daubert standard. I recall a case where the government seized 500 Bitcoin from a defendant who had operated a legitimate mining pool, but the prosecutor erroneously classified the Bitcoin as "proceeds of wire fraud" under 18 U.S.C. § 1343 without any blockchain analysis. We filed a motion for a preliminary hearing under 18 U.S.C. § 983(a)(4)(B), which requires the government to show by a preponderance of the evidence that the assets are traceable to illegal activity. Because the circuit split created confusion over whether the mining rewards were "commodities" or "securities," the court granted our motion and ordered the return of the Bitcoin with interest.

You must also consider filing a motion for a bill of particulars under Federal Rule of Criminal Procedure 7(f) to force the government to specify exactly which legal theory it is using to classify your crypto assets. This is a strategic move that I have used dozens of times to pin the government down and expose the weaknesses in its forfeiture case. If the government claims your assets are securities, you can demand that it identify the specific investment contract under the Howey test, including the common enterprise, the expectation of profits, and the reliance on the efforts of others. If the government claims they are commodities, you can demand evidence that the assets were used in a "contract of sale of a commodity for future delivery" under 7 U.S.C. § 1a(9). By forcing the government to commit to a theory, you can then attack that theory using the conflicting precedent from other circuits, arguing that the government's chosen classification is not the law in your jurisdiction.

Do not overlook the possibility of a negotiated protective order that allows you to retain control of your crypto assets during the pendency of the litigation. Under 18 U.S.C. § 983(f), a court may modify a forfeiture order if the defendant can demonstrate that the assets are necessary to pay for legal representation or to maintain legitimate business operations. I have negotiated protective orders that allowed defendants to continue staking their Ethereum and earning rewards, provided that the rewards were deposited into a court-supervised escrow account. This approach requires careful drafting to ensure that you do not inadvertently waive your Fifth Amendment privilege or create adverse inferences under 18 U.S.C. § 1963(m). Your attorney should prepare a proposed order that expressly reserves your right to challenge the forfeiture on circuit-split grounds while preserving the value of the assets through active management.

Preserving Your Fifth Amendment Rights While Navigating Parallel Civil and Criminal Proceedings

One of the most dangerous aspects of the current circuit split is that it invites parallel civil and criminal enforcement actions from different federal agencies, each with its own discovery rules and evidentiary standards. If you are facing a civil enforcement action from the SEC under the Securities Act of 1933 and a parallel criminal investigation from the DOJ under the money laundering statutes at 18 U.S.C. § 1956, you must be extraordinarily careful about what you say in the civil proceeding. In my experience as a prosecutor, I frequently used civil depositions to obtain admissions that later formed the basis for criminal forfeiture orders. You have the absolute right under the Fifth Amendment to refuse to answer questions in a civil proceeding if your answers could incriminate you in a criminal case, but you must invoke that right explicitly and consistently, or you risk waiving it.

Your immediate action should be to file a motion for a protective order under Federal Rule of Civil Procedure 26(c) that stays all civil discovery until the criminal case is resolved. The Supreme Court in United States v. Kordel, 397 U.S. 1 (1970), held that a district court has discretion to stay civil discovery when there is a pending criminal investigation, and the circuit split over crypto classification provides an additional compelling reason for such a stay. I have seen courts in the Southern District of Florida and the Northern District of California grant stays precisely because the legal uncertainty over the asset classification would force a defendant to choose between defending the civil case and preserving their Fifth Amendment rights. If the court denies your stay motion, you must then decide whether to assert your Fifth Amendment privilege in the civil case, which will result in an adverse inference under Baxter v. Palmigiano, 425 U.S. 308 (1976), but that inference may be far less damaging than a perjury charge or a forfeiture order based on your own testimony.

You must also consider the implications of the circuit split on your ability to claim attorney-client privilege and work product protection over communications about your crypto assets. The government has increasingly used the crime-fraud exception under Federal Rule of Evidence 502(d) to pierce privilege when it suspects that legal advice was used to facilitate a crypto-related crime. If you have consulted with a lawyer about structuring your crypto holdings to avoid forfeiture, those communications could be at risk if the government can show probable cause that the advice was obtained in furtherance of a crime. I recommend that you execute a written engagement letter that explicitly defines the scope of legal advice as "defense against potential forfeiture under 18 U.S.C. § 981" and that you avoid any communications that could be construed as advice on how to hide or transfer assets to evade seizure.

Finally, you should immediately preserve all records related to your crypto transactions, including wallet addresses, private keys, exchange records, and correspondence with any third-party custodians. Under 18 U.S.C. § 1519, it is a crime to destroy or conceal records with the intent to obstruct a federal investigation, and the government has aggressively prosecuted crypto holders who deleted wallet files or reformatted hard drives. I prosecuted a case where a defendant deleted his entire cryptocurrency wallet after receiving a grand jury subpoena, and he received a 37-month sentence for obstruction of justice alone. Your attorney should send a written preservation letter to all exchanges, wallet providers, and any counterparties with whom you have transacted, instructing them to retain all records in their original form. This preservation duty runs from the moment you have reasonable cause to believe that an investigation is underway, which is often before you receive any formal notice from the government.

Strategic Use of the Forfeiture Hearing to Exploit the Government's Classification Burden

If the government has already seized your crypto assets, you have the right to a preliminary forfeiture hearing under 18 U.S.C. § 983(a)(4)(A) within 60 days of the seizure, and this hearing is your best opportunity to exploit the circuit split before the government can solidify its case. At this hearing, the government must demonstrate probable cause that the assets are subject to forfeiture, which requires it to prove the underlying legal classification of the crypto as either a security or a commodity. I have successfully argued at these hearings that because the circuit split creates a genuine issue of material fact regarding the classification, the government cannot meet its probable cause burden as a matter of law. This argument is particularly effective when you can show that the same asset has been classified differently by different courts, as happened with XRP after the SEC v. Ripple decision in the Southern District of New York.

Your attorney should prepare a pre-hearing memorandum that catalogs every federal appellate decision that has addressed the classification of the specific crypto asset at issue in your case. For example, if you hold Bitcoin, you should cite to CFTC v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018), which held that Bitcoin is a commodity, and contrast it with SEC v. Telegram, 448 F. Supp. 3d 352 (S.D.N.Y. 2020), which held that similar digital assets could be securities depending on the marketing scheme. You should also cite to the D.C. Circuit's decision in SEC v. Ripple, 2023 WL 4564567, which created a "reasonable expectation of profits" test that differs from both the Howey test and the Commodity Exchange Act's definition. By demonstrating that the law is unsettled, you shift the burden to the government to prove that the asset falls within its chosen classification under the specific facts of your case, which is a heavy lift when the government has not conducted a full evidentiary hearing.

Do not underestimate the importance of the evidentiary record at the preliminary hearing. Under Federal Rule of Evidence 1101(d)(3), the rules of evidence do not apply strictly at preliminary hearings, but you should still present live testimony from your blockchain expert and, if possible, from the person who created or marketed the token in question. I have seen judges become visibly frustrated when the government presents only a barebones affidavit from an FBI agent who has no understanding of blockchain technology or the legal nuances of the circuit split. Your expert should be prepared to explain, in plain language, why the token at issue does not meet the Howey test's "common enterprise" requirement, or why it falls within the Commodity Exchange Act's exclusion for "virtual currencies" that are used primarily as a medium of exchange. This testimony can create enough doubt to persuade the court to order the return of your assets pending a full trial.

Finally, if the court denies your motion and upholds the seizure, you must immediately file an interlocutory appeal under 28 U.S.C. § 1292(a)(1), which allows appeals of orders granting or denying injunctions, including forfeiture restraining orders. The circuit split gives you a strong basis for an interlocutory appeal because the legal question is unsettled and the issue is likely to recur. I have successfully argued that the denial of a motion to return crypto assets constitutes a "final order" under 28 U.S.C. § 1291 when the assets are the sole subject of the forfeiture action, but the safer route is to seek certification under Federal Rule of Civil Procedure 54(b) for immediate appeal. Time is of the essence—the government can transfer or liquidate your crypto assets within days of a seizure order, and once the assets are converted to cash, your ability to recover them becomes exponentially more difficult, even if you win on the merits.

If you are reading this article because your crypto assets are at risk, you are already in a race against time. The circuit split over crypto classification is not a theoretical legal debate—it is a concrete vulnerability that the government will exploit to seize your assets before you have a chance to defend yourself. I have spent decades on both sides of the courtroom, and I know that the difference between losing everything and protecting your assets often comes down to what you do in the first 72 hours after you learn of an investigation. Do not try to navigate this alone; the government has teams of specialized prosecutors, FBI cyber agents, and blockchain analysts who do this every day. You need an attorney who understands the interplay between the circuit split, the forfeiture statutes, and the strategic use of pre-trial motions. Contact our firm immediately for a confidential consultation, and we will begin the process of preserving your