Coinbase faces court fight over frozen crypto tied to $55 million theft

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Coinbase frozen crypto case

Highlights

A federal complaint filed in San Francisco seeks a court order compelling Coinbase to release frozen crypto assets linked to a $55 million theft.
Coinbase froze assets traced to an August 2024 phishing attack detected by Zero Shadow, requiring a judicial ownership determination before returning the funds.
Use of Inferno Drainer scam tools tripled in the first half of 2024, with malicious decentralized applications increasing from 800 to over 2,400 by midyear, highlighting mounting crypto security risks.

Federal complaint targets ownership of frozen assets

As first reported by Cointelegraph, the complaint filed Monday in federal court in San Francisco asks the court to declare the Puerto Rico-based plaintiff the rightful owner of the frozen cryptocurrency and order Coinbase to release it. The suit also names a John Doe defendant accused of carrying out the theft.

The filing alleges the attacker laundered proceeds through Tornado Cash before depositing part of the traceable funds into a Coinbase retail user account, where the assets remain frozen. According to the complaint, Coinbase has acknowledged it holds the traced funds and has indicated that a court order determining ownership is needed before the assets can be returned.

The case raises a broader issue for digital asset platforms, which often freeze suspected stolen funds after receiving alerts but do not release them without judicial direction. The court filing argues the cryptocurrency in the Coinbase account remains identifiable property traceable to the plaintiff's stolen assets.

Tracing efforts highlight wider crypto security risks

The theft dates to August 2024, when a phishing attack allegedly tricked the victim into clicking a malicious link to a fake DeFi Saver login and authorizing access to accounts and wallets. Investigators say the exploit used Inferno Drainer, a scam-as-a-service platform that enables digital asset theft without exploiting protocol-level code vulnerabilities.

After notifying law enforcement, the victim hired Zero Shadow and Five Stones Intelligence to trace the missing funds. The complaint says Zero Shadow notified Coinbase on Nov. 30, 2024 that stolen assets linked to the theft had reached a Coinbase address, and Coinbase replied on Dec. 2, 2024 that the address belonged to a retail user and that it had applied friction measures to prevent dissipation of the funds pending investigation.

The dispute also lands amid growing concern over industrialized crypto fraud tools. Blockchain security firm Blockaid says Inferno Drainer usage tripled in the first half of 2024, with malicious decentralized applications rising from about 800 at the start of the year to more than 2,400 by midyear.

In our earlier coverage of the lawsuit against Coinbase over frozen, traceable cryptocurrency, we explained how a plaintiff sought a court order to reclaim assets allegedly stolen in an August 2024 phishing attack. The complaint says part of the stolen DAI was traced to a Coinbase retail account and frozen, but the exchange would not release the funds without a judicial determination of ownership. We also noted how the case reflects broader pressure on the crypto sector as fraud losses continue to climb.

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