A quiet but potentially explosive dispute is unfolding between Wave Digital Assets and the United States Marshals Service, and it touches a nerve that the federal government has been trying not to expose for years: the fact that it still does not know how to safely hold, monitor, and dispose of seized cryptocurrency. Wave, a Los Angeles–based, SEC-registered investment advisory firm, has now formally asked the Department of Justice’s Office of the Inspector General to open a full investigation, citing credible public allegations that more than $40 million in government-controlled crypto may have been unlawfully transferred out of official wallets. If even partially true, this is not just a technical failure, it is a custody failure, a governance failure, and a regulatory failure rolled into one, the kind that would trigger immediate enforcement action if it happened in the private sector.

What makes this story uncomfortable is how long the warning signs have been visible. The USMS has been attempting to build a compliant crypto custody and liquidation program since 2019, and each attempt has collapsed. Contracts awarded to BitGo and Anchorage were rescinded. A 2022 OIG audit documented structural weaknesses and unresolved deficiencies. Yet in 2023, the agency ran its third procurement process and again ended up awarding the mandate to a vendor lacking the kind of regulatory, fiduciary, and supervisory framework that would be considered non-negotiable anywhere else in finance. Wave, an SEC-registered investment adviser, claims it scored highest on technical evaluation, proposed lower cost, and built its bid around regulated fiduciary custody via BitGo Bank, now a federally chartered digital asset bank. Still, the award went elsewhere, to a contractor with existing relationships but without comparable oversight obligations. That detail alone explains why this is no longer just a contract dispute but a systemic risk issue.

At the center of Wave’s argument is something almost old-fashioned: checks and balances. Their proposal separated roles between adviser, custodian, and independent monitoring provider, creating auditable controls over wallet locations, asset inventories, and transaction activity. The USMS rejected this structure and treated crypto custody primarily as a technology problem, not a fiduciary one, which is exactly the mindset that the 2022 OIG audit warned against. The allegations now surfacing, that tens of millions in seized assets may have moved without authorization, read like a case study in what happens when custody is reduced to infrastructure and relationships instead of law, accountability, and segregation of duties. It is hard not to notice the irony here: the government mandates strict custody rules for private actors under the Investment Advisers Act, yet appears to have bypassed those same protections when holding assets on behalf of citizens.

The transparency fight is now escalating alongside the custody dispute. A FOIA appeal filed in January 2026 argues that the USMS is deflecting requests for transaction-level crypto records by bouncing them between DOJ components, a procedural maneuver that could effectively block disclosure altogether. This matters because without transaction logs, wallet histories, and disposition records, there is no way for the public to verify what happened to seized digital assets or when. Wave’s legal action has already halted liquidations under a presidential executive order, yet the company claims it was threatened with fines approaching $1 million per month for interfering with the contractor’s work unless liquidations resumed. That detail alone suggests how strained and politicized the process has become, and how far it has drifted from the original goal of secure asset stewardship.

Stepping back, this is less about Wave versus the USMS and more about whether the U.S. government is structurally capable of managing digital assets at all. Crypto is not just another seized commodity like cars or real estate; it is bearer-like, instant, global, and unforgiving of mistakes. If custody controls fail, assets vanish silently, and recovery is often impossible. The fact that this program has failed three times over seven years, despite audits, protests, and court actions, suggests that the problem is cultural and institutional, not procedural. The OIG investigation, if it happens, will not just be about missing funds, but about whether federal agencies are applying 20th-century asset logic to 21st-century instruments. And if $40 million really did slip through the cracks, it will be very hard to argue that the risk was unforeseeable.