Bitcoins Worth $3.6bln Linked to 2016 Bitfinex Hacking Seized by US DoJ
The US Justice Department said Tuesday that it has uncovered the world’s largest cryptocurrency heist, seizing $3.6 billion in bitcoin linked to the 2016 breach of digital currency exchange Bitfinex and arrested a husband-and-wife team on money laundering charges. Ilya “Dutch” Lichtenstein, 34, and his wife, Heather Morgan, 31, both New York residents detained Tuesday morning in Manhattan, officials said. They spent the unlawful funds on products ranging from gold and non-fungible tokens to a $500 Walmart gift card.
The pair maintained active public identities, with Morgan going under the moniker “Razzlekhan,” a reference to Genghis Khan “but with more pizzazz” on her website. It was the Justice Department’s largest financial seizure to date, Deputy Attorney General Lisa Monaco said in a statement, adding that it demonstrates bitcoin is “not a shelter for criminals.”
Lichtenstein and Morgan face allegations of money laundering and defrauding the United States. The lawsuit was filed in a Washington, D.C. federal court. At their first hearings in federal court in Manhattan on Tuesday afternoon, U.S. Magistrate Judge Debra Freeman set bail at $5 million for Lichtenstein and $3 million for Morgan and ordered their parents to put their houses as collateral for their appearances in court.
The couple is charged with conspiring to launder 119,754 bitcoin that were stolen when a hacker gained access to Bitfinex and made over 2,000 unlawful transactions. According to Justice Department officials, the transactions were initially valued at $71 million in bitcoin, but have now increased to more than $4.5 billion due to the currency’s growth in value.
A critical indication might have come from the 2017 arrest of an underground digital market that was allegedly used to launder some of the monies. According to US investigators, some of the funds were moved to AlphaBay, a dark web-based version of eBay where anything goes.
When the website was shut down, police presumably gained access to AlphaBay’s internal transaction records and linked them to a cryptocurrency account in Lichtenstein’s name, according to digital currency monitoring firm Elliptic. Bitfinex announced in a statement that it was collaborating with the Justice Department to “establish our rights to the restoration of stolen bitcoin.”
Lichtenstein and Morgan allegedly attempted to launder money via a network of currency swaps or by claiming the funds were contributions to Morgan’s business, the DOJ said. Along with her rap singing career, Morgan pursued interests in painting, fashion design, and writing, where she marketed herself as a kind of corporate coach. One of her latest essays was headlined “Tips to Protect Your Business from Cybercriminals” and included an interview with the owner of a bitcoin exchange on how to avoid fraud.
Morgan, who was dressed in a white hoodie for her court appearance, constantly returned her gaze to her parents, who were sat in the courtroom’s audience. Both she and Lichtenstein, who has dual citizenship in the United States and Russia, nodded as Freeman warned them of the dire implications of fleeing.
Both will be held under electronic surveillance and will be prohibited from participating in bitcoin transactions until trial, Freeman said. Later, she added, a court in Washington, where more hearings will be place, might impose new requirements.
Prosecutors argued that both should be held until trial due to their flight risk. However, Freeman said that she was persuaded by defense attorney Anirudh Bansal’s assertion that Lichtenstein and Morgan were aware they were under investigation since November yet stayed in the United States.
The criminal case filed on Tuesday comes more than four months after Monaco announced the establishment of a new National Cryptocurrency Enforcement Team comprised of anti-money laundering and cybersecurity professionals.
Cyber criminals that use ransomware to target businesses, towns, and people sometimes demand payment in bitcoin. In one high-profile case last year, former colleagues and allies of the ransomware gang REvil used encryption software called DarkSide to attempt a cyber assault on the Colonial Pipeline, resulting in a significant gas shortage on the US East Coast.
Later, the Justice Department recovered around $2.3 million in bitcoin ransom money given by Colonial to the hackers. Cases such as these illustrate that the Justice Department “can track money over the blockchain in the same manner that we have historically tracked it inside the conventional banking system,” according to Kenneth Polite, the department’s associate attorney general for the Criminal Division.