Ilya Lichtenstein and His Wife, Rapper Heather Morgan Arrested in New York for Attempted Laundering of $3.6 billion in hacked bitcoin funds
As Radix Beacon reported just one week ago in “Breaking News,” law enforcement globally and crypto exchanges, Bitfinex, and wallet providers were closing on the hackers, the law was closing in. Here’s the update.
The DOJ on Tuesday announced it had seized more than $3.6 billion in bitcoin stolen in a 2016 hack of Bitfinex. Authorities have arrested a husband and wife in New York for allegedly trying to launder the bitcoin fortune.
Officials said tech entrepreneur Ilya Lichtenstein, 34, and his rapper wife, Heather Morgan, 31, were charged with conspiring to launder money. They are accused of trying to launder 119,754 bitcoin that were stolen after a hacker breached the cryptocurrency exchange Bitfinex and initiated more than 2,000 unauthorized transactions. Prosecutors said the bitcoin was sent to a digital wallet controlled by Lichtenstein.
At the time of the theft, that amount of bitcoin was worth about $71 million. But the cryptocurrency has appreciated so much in the years since that the total value is now around $4.5 billion. Federal officials said they were able to seize about 94,000 of the stolen bitcoin, with an estimated value of $3.6 billion.
The case marks the largest single seizure of funds in the Justice Department history, officials said, and is the most high-profile prosecution to emerge from the agency’s newly-announced effort to investigate crimes involving cryptocurrency.
“Cryptocurrency is not a safe haven for criminals,” Deputy Attorney General Lisa O. Monaco said in a written statement that accused Lichtenstein and Morgan of tryingto launder the stolen bitcoin “through a labyrinth of cryptocurrency transactions.”
“Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter the form it takes,” Monaco said.
Bitfinex had previously offered a reward potentially worth hundreds of millions of dollars for information leading to the return of the stolen funds. U.S. officials would not say if that reward offer played a role in the government’s case against Lichtenstein and Morgan. But the court papers suggest the government may not have needed help. According to the papers, much of the stolen bitcoin was placed for a time in accounts at AlphaBay, a platform shut down by authorities in 2017 as an illicit marketplace for drugs, firearms, and fake documents.
Prosecutors said they were able to trace bitcoin from the hack through AlphaBay accounts and beyond.
Court documents do not accuse Lichtenstein and Morgan of the hack itself; officials declined to say if the pair are suspected of stealing the money.
Lichtenstein, a tech entrepreneur who goes by the nickname “Dutch” and holds both U.S. and Russian citizenship, according to court papers, describes himself online as an “angel investor.” Morgan, according to her online profile, is a part-time rapper who also ran an email marketing company called Salesfolk.
At a federal court hearing in New York late Tuesday, prosecutors initially sought to keep the couple behind bars while awaiting trial, but a judge ultimately ruled they could be released if they met certain conditions, including bonds of $5 million for Lichtenstein and $3 million for Morgan. Both were also ordered to remain at their home in New York with ankle bracelet monitors. During court arguments about the terms of their release, prosecutors said the couple have access to $330 million worth of bitcoin that hasn’t been recovered and that federal agents found what they called a bag of “burner” phones under the couple’s bed, suggesting they could be a flight risk.
An affidavit filed by an IRS agent against the couple alleges that they spent only a small fraction of the stolen money, some of it on gold and some on non-fungible tokens, or NFTs, a unique digital representation that is sold or traded as a work of art or collectible. Other payments were made for a Walmart gift card, as well as payments to Uber, Hotels.com, and PlayStation, according to the charging papers.
U.S. officials said that because the funds were seized pursuant to a court order, a judge would ultimately decide how the recovered money would be distributed, but also that the government would seek to return funds to the rightful owners.
“We have been cooperating extensively with the DOJ since its investigation began and will continue to do so,” Bitfinex said in a written statement. The company pledged to “follow appropriate legal processes to establish our rights to a return of the stolen bitcoin.”
Bitcoin is the most popular form of cryptocurrency, which is a computer code generated by publicly available software that allows people to store and send value online. The open-source code originated with bitcoin over a decade ago and runs on an extensive network of private computers around the globe.
The value of a cryptocurrency is typically expressed in dollars and is set by public trading conducted by exchange houses; those values can fluctuate wildly. Bitcoin touched a high of about $69,000 in early November before plunging to about $35,000 last month. It has recovered somewhat and is now trading around $43,000, according to CoinMarketCap.
Law enforcement officials have been increasingly concerned that the complex, quickly changing and often confusing world of cryptocurrencies is a boon to criminals of all stripes who are eager to both steal and hide stolen money from authorities. In particular, ransomware attacks — in which hackers demand money in exchange for not wrecking a company’s computer files — have become one area where criminals are known to favor cryptocurrency.
The Justice Department last year launched a National Cryptocurrency Enforcement Team to expand investigations of money laundering and other financial crimes.
By Devlin Barrett
Devlin Barrett writes about the FBI and the Justice Department, and is the author of “October Surprise: How the FBI Tried to Save Itself and Crashed an Election.” He was part of a team that won a Pulitzer Prize in 2018 for National Reporting, for coverage of Russian interference in the U.S. election.
Shayna Jacobs in New York and Tory Newmeyer in Washington