Tokyo police arrested two men in connection to the Coincheck hack on March 11. The men are accused of purchasing stolen NEM (XEM) through a dark web market, in violation of a law designed to tackle organized crime.

As reported by Japan Times on March 11, Tokyo’s Metropolitan Police Department arrested a doctor from Hokkaido and a company executive from the Osaka Prefecture.

According to the police, the suspects knew the origin of the funds. They reportedly purchased the XEM at a sizeable discount in February and March 2018 from a dark web website.

The suspects were allegedly apprehended through inquiries to a cryptocurrency exchange that some of the NEM was sent to. How the police were able to pinpoint the destination of the funds is unspecified. Blockchain tracking tools were most likely employed as well. 

Chasing the NEM trail

The Coincheck hack is one of the largest in the history of cryptocurrency exchange thefts. Hackers stole over $534 million worth of XEM in January 2018, with the trail allegedly leading to Russia-based attackers. Tokyo police allocated approximately 100 investigators to the case. Authorities are continuing investigations on other alleged buyers of the stolen NEM.

The stolen tokens were reportedly exchanged for Bitcoin (BTC) or Litecoin (LTC) and dispersed over 13,000 wallets. It is unclear if the hackers were able to fully cash out their proceeds, as many exchanges have increased their security and monitoring efforts since then. 

Investigators appear to have shifted their focus now as they target those who purchased the tokens. The practice of buying stolen goods to resell them at a profit is called fencing and is considered a crime in most jurisdictions. 

Advocates of privacy coins often believe that “transparent” coins such as Bitcoin or NEM lack fungibility, which could result in users unwittingly becoming “fencers” of stolen coins.

Coincheck History

After a tumultuous 2018 where it saw revenue drop by 66% over a single quarter, the exchange eventually rebounded under its new owner Monex Group, who purchased Coincheck in April 2018. In early 2019 it was one of several Japanese exchanges to be granted a license from Japan’s Financial Services Agency.

In May 2018 the exchange dropped all coins with privacy features from its offering, while in November of the same year it resumed NEM trading.