The United States Tuesday (February 8) said that it has recovered cryptocurrency worth $3.6 billion in what it says is the largest ever financial seizure by the Department of Justice. The authorities also arrested New York-based tech investor couple Heather Morgan and Ilya “Dutch” Lichtenstein for alleged conspiracy to launder cryptocurrency. Both are US citizens; Lichtenstein has Russian citizenship as well.
The arrests pertain to a 2016 hacking case in which cryptocurrency currently valued at $4.5 billion was stolen from Bitfinex’s platform. Bitfinex is a virtual currency exchange operating out of the British Virgin Islands that facilitates buying, selling and storing of various types of cryptocurrencies. The hack, which took place in August 2016, saw Bitcoin worth millions being transferred out of the platform’s wallet to that of an external entity.
Incidentally, a 26-year-old Bengaluru-based hacker Srikrishna Ramesh alias Sriki was arrested in 2020 after he claimed that he was involved in a hacking incident at Bitfinex. The Indian Express had previously reported that Sriki might be a person of interest in the US Federal Bureau of Investigation’s probe of the case, and an official update on this is yet to be confirmed.
The backstory
The Bitfinex platform was hacked in August 2016, and 1,19,754 bitcoins were stolen over a course of over 2,000 transactions. The theft, then valued at $71 million, is now valued at $4.5 billion following the crypto boom. The stolen bitcoins were then sent to a digital wallet under Lichtenstein’s control, from which around 25,000 bitcoins were moved out in a series of intricate transactions and deposited into the couple’s bank accounts. The remaining 94,000-odd bitcoins, which are currently valued at over $3.6 billion, have been seized by the officials following a court order.
Authorities alleged that Lichtenstein, 34, and Morgan, 31, used several elaborate money-laundering procedures to convert crypto to cash. This included “using accounts set up with fictitious identities; moving the stolen funds in a series of small amounts, totalling thousands of transactions, as opposed to moving the funds all at once or in larger chunks; utilising computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; layering the stolen funds by depositing them into accounts at a variety of virtual currency exchanges and darknet markets and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow; converting the Bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency, in a practice known as “chain hopping”; and using US-based business accounts to legitimise activity,” the Department of Justice said in an arrest warrant issued on February 7, 2022.
The duo has allegedly used this money to transact altcoins and purchase NFTs, a $500 gift card to Walmart and other prepaid gift cards and gold.
The culprits
The arrests have attracted a lot of attention not just due to the nature and magnitude of the crime but also the profile of the accused. Morgan is a New York-based journalist who worked for years as a columnist at Forbes and the US-based Inc magazine. In an article about the arrest, Forbes said that Morgan started working as a contributor to the ForbesWomen section of the website in 2017, and continued in the role until she was removed following a routine review in September 2021.
In her LinkedIn profile, Morgan identified herself as “a serial entrepreneur, prolific writer, irreverent comedic rapper, and investor in business-to-business and Saas companies.” It added that she has a bachelor’s degree in economics and international relations and a master’s degree in economics of international development.
Following Morgan’s arrest, a music video of her rapping awkwardly under the stage name Razzlekhan has resurfaced on the internet. In the video titled ‘Versace Bedouin’, Morgan is seen walking through the streets of Wall Street, rapping as she describes herself as “a real risk-taker”, “badass money maker” and the “crocodile of Wall Street”.
Lichtenstein, meanwhile, identified himself as the founder of a blockchain startup. On his LinkedIn profile, he described himself as a “technology entrepreneur, coder and investor” with blockchain technology, automation, and big data as his interests.
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What next?
The couple has been charged on two counts – conspiracy to commit money laundering, and conspiracy to defraud the United States. Both charges carry a jail time of 20 years and 5 years respectively.
The duo was initially granted bail by a Manhattan court which was halted by a Washington judge late Tuesday. In a request to reinstate the bail, the defense lawyer argued that the couple has indicated their willingness to cooperate with the case by staying put even though they found out months ago that they are under investigation, according to a Bloomberg report. The lawyer submitted that Morgan has frozen her embryos in a New York hospital to add weight to the argument that the couple is not a flight risk.
What happens to the money?
Already, questions are being raised on who gets the $3.6 billion recovered by the US officials.
Bitfinex, in a statement Tuesday, said it will “work with the DOJ and follow appropriate legal processes to establish our rights to a return of the stolen bitcoin.” Bloomberg, quoting Department of Justice officials, said that the return of the digital assets will be facilitated by a court process.