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US accuses couple of laundering $4.5 billion in Bitcoin tied to big 2016 hack

The pair is accused of conspiring to launder 119,754 bitcoin stolen after a hacker broke into Bitfinex and initiated more than 2,000 unauthorized transactions.

Updated Feb 9, 2022, 06:24 IST

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Washington: The US Justice Department said on Tuesday it has unraveled its biggest-ever cryptocurrency theft, seizing a record-shattering $3.6 billion in Bitcoin tied to the 2016 hack of digital currency exchange Bitfinex.

A husband-and-wife team of alleged money launderers was arrested in Manhattan on Tuesday morning, it added.

It was the Justice Department's biggest financial seizure, Deputy Attorney General Lisa Monaco said, adding in a statement that it shows cryptocurrency is "not a safe haven for criminals."

Ilya "Dutch" Lichtenstein, 34, and his wife Heather Morgan, 31, both New Yorkers, were scheduled to make their initial appearances in federal court Tuesday at the U.S. District Court for the Southern District of New York. They face charges of conspiring to commit money laundering as well as to defraud the United States. The case was filed in a federal court in Washington, D.C.

It was unclear who will be representing the couple in the criminal case https://www.justice.gov/opa/press-release/file/1470211/download. Calls and messages left for Lichtenstein and his wife have not been returned.

The pair is accused of conspiring to launder 119,754 bitcoin stolen after a hacker broke into Bitfinex and initiated more than 2,000 unauthorized transactions. Justice Department officials said the transactions at the time were valued at $71 million in Bitcoin, but with the rise in the currency's value, it is now valued at over $4.5 billion.

A key clue may have come from the 2017 bust of an underground digital market used to launder a portion of the funds. U.S. officials said some of the money was transferred to AlphaBay, an anything-goes version of eBay hosted on the dark web.

When the site was taken down, it likely allowed authorities to access AlphaBay's internal transaction logs and connect them to a cryptocurrency account in Lichtenstein's name, according to digital currency tracking company Elliptic.

Bitfinex said in a statement it was working with the Department of Justice to "establish our rights to a return of the stolen bitcoin."

Lichtenstein and his wife also tried to launder money via a network of currency exchanges or claimed that the money represented payments to Morgan's startup, the Department of Justice said. Prosecutors said on Tuesday the illegal proceeds were spent on things ranging from gold and non-fungible tokens to "absolutely mundane things such as purchasing a Walmart gift card for $500."

The couple had active public profiles, especially Morgan, as rap singer "Razzlekhan," a pseudonym she said on her website referred to Genghis Khan "but with more pizzazz."

Morgan also had sidelines in the painting, fashion design, and writing worlds, where she pitched herself as a kind of corporate coach. One of her recent pieces was titled, in part, "Tips to Protect Your Business from Cybercriminals" and featured an interview with a cryptocurrency exchange owner about how to prevent fraud.

Tuesday's criminal complaint came more than four months after Monaco announced the department was launching a new National Cryptocurrency Enforcement Team, which comprises a mix of anti-money laundering and cybersecurity experts.

Cyber criminals who attack companies, municipalities and individuals with ransomware often demand payment in cryptocurrency.

In one high-profile example last year, former partners and associates of the ransomware group REvil https://www.reuters.com/technology/exclusive-governments-turn-tables-ransomware-gang-revil-by-pushing-it-offline-2021-10-21 caused a widespread gas shortage on the U.S. East Coast when it used encryption software called DarkSide to launch a cyber attack on the Colonial Pipeline.

The Justice Department later recovered some $2.3 million in cryptocurrency ransom that Colonial paid to the hackers.

Cases like these demonstrate that the Justice Department "can follow money across the blockchain, just as we have always followed it within the traditional financial system," said Kenneth Polite, assistant attorney general of the department's Criminal Division. (Reuters)

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