Other Appeal (Tel Aviv) 7916-03-25 Michael Penn v. Fraud Division

1. I have before me an appeal against the decision of the trial court (the Honorable Judge Or Mamon, Vice President) to reject a request for the return of a seized item after the Israel Police had already transferred it to the investigative authorities in the United States. It was argued that there were many defects in the transfer of the seized person, and therefore he should be returned to the appellant, in kind or according to his value.  The prosecution, for its part, argued that it was not a seizure at all, but rather evidence that had been lawfully transferred.
2. For the purposes of the discussion, I will suffice to say that the requested seizure is Bitcoin coins that were seized after information about them was extracted from the appellant's computer, as part of the execution of a search warrant issued by the Magistrate's Court in 2019 (coincidentally, by this panel). The material extracted from the computer was transferred to the authorities in the United States, who were able to seize the digital currencies for forfeiture later in the proceedings in the United States.  To be precise, these are "recovery kernels" of Bitcoin wallets that were found in the appellant's computer and transferred as they are to the investigative authorities in the United States.  Using these recovery cores, the US authorities "took over" the coins, as will be detailed in detail below.

Introduction

3. The dispute between the parties goes back to the question of defining certain materials that were extracted from the appellant's computer (the recovery kernels of the Bitcoin wallet). The appeal deals with the question of whether the reconstruction cores are mere documents, i.e., mere evidence, or whether they are objects or even property that can be forfeited, and why an answer to this question is important for the hearing. 

The materials were transferred to the United States by virtue of the provisions of the Inter-State Legal Aid Law, 5758-1998 (hereinafter: the "Legal Aid Law" or the "Law").  According to this law, there are different tracks and special and different provisions depending on the quality of the material.  One law applies to the transfer of copies of evidence, a different law applies to the transfer of objects, and a separate law applies to the seizure of forfeiture property.

4. First of all, I will note that there is no previous case law that relates to the aforementioned legal question, and the discussion below takes place in a field that is not ploughed in case law.
5. According to the appellant, the recovery cores are "property located in Israel" and as such could not be transferred to the United States. Indeed, the definition of recovery nuclei as property prevents their transfer to the United States, since legal aid is not provided by law to transfer Israeli property abroad.  It was argued that the transfer of the recovery cores contrary to the appropriate route according to the relevant provisions of the law is an illegal transfer that requires the return of the property to the appellant.
6. I will further note that the prosecution's argument that this is a premeditated act and therefore should not be discussed within the scope of returning seizure (especially when the property is currently in the possession of a foreign state) is prima facie inconsistent with the ruling of the Honorable Supreme Court in various criminal applications 555/07 Yahya v. Israel Police (2007) (hereinafter: the Yahya case).  In the Yahya case, the intuitive approach that it is not possible to return a seizure that has passed into other hands was rejected.  It was held that when there is a claim that the police exceeded its powers when transferring a seized item to another, the court must consider the claim within the scope of the proceeding of returning a seized item and the alleged victim should not be forced "to initiate a complex and expensive civil proceeding in order to win his day in court to claim his right to the object."

The sequence of events in the case

7. The sequence of events in connection with this proceeding is complex, and in this regard it is sufficient for me to refer to the description of the honorable trial court in chapters 2 to 4 of the decision that is the subject of the appeal.

In summary, in 2019, a joint Israeli-American investigation was conducted against the appellant, which focused on the activity of a website related to the appellant, which allegedly published in exchange for commissions, links that allowed its users to access trading on the dark web.