One Address at a Time: Court Blocks Broad Crypto Seizures Without Warrants
SEC LOSES ON CRYPTO SEIZURE — AGAIN
A federal judge just blocked the government from keeping twenty-four crypto wallets it grabbed without warrants, ruling that the IRS cannot treat digital assets like ordinary property when it comes to Fourth Amendment protections. The decision signals that even when the government has probable cause for one account, it cannot vacuum up an entire cluster of wallets without particularized evidence — a direct rebuke to the “sweep first, justify later” approach that has defined much of crypto enforcement.
The case began when IRS agents traced roughly $2 million in suspected tax-evasion proceeds to a single wallet and then used blockchain analytics to identify twenty-three additional addresses they believed were controlled by the same person. Rather than seek individual warrants, the government simply filed a civil-forfeiture complaint listing all twenty-four wallets as defendants. The anonymous owner moved to dismiss, arguing that lumping the wallets together violated the Fourth Amendment’s particularity requirement. Judge Dabney L. Friedrich agreed, holding that probable cause for one address does not automatically extend to others merely because analytics software says they are “likely” connected.
In plain terms, the court said the Constitution still applies to crypto. Agents must show individualized suspicion for each wallet they want to seize; they cannot rely on probabilistic clustering or treat every downstream address as fair game. Because the government failed to meet that standard for twenty-three of the wallets, those funds must be returned — at least for now. The single wallet with direct evidence of illicit proceeds remains subject to forfeiture proceedings.
The ruling tightens the leash on both the IRS and the SEC whenever they attempt to bootstrap broad seizures from narrow evidence. It raises the compliance bar for exchanges asked to freeze customer assets on the strength of subpoenas that name entire clusters rather than specific accounts. DeFi protocols that route user funds through mixers or aggregators may also face less pressure to treat every incoming transaction as tainted, provided the government cannot articulate why each address merits seizure.
For traders and yield farmers, the decision injects a modest dose of due-process comfort into a market that has grown used to wallet-draining enforcement actions announced via tweet. It does not legalize tax evasion or money laundering, but it does make it harder for agencies to treat the entire on-chain graph as a single guilty party.
Bottom line: probable cause is still required — one address at a time.
