US Feds Arrest Couple over 2016 Bitfinex Scam for Stealing 120,000 Bitcoins worth $3.6B

i-aml couple bitcoin

The money was found in accounts controlled by husband and wife, Ilya Lichtenstein and Heather Morgan, who have been charged with money laundering and fraud. Prosecutors say they recovered most of the bitcoin that had been stolen from wallets controlled by the couple.

The US Department of Justice announced Tuesday that it had executed its largest financial seizure in history, recovering $3.6 billion in bitcoin BTCUSD, -1.12% stolen in a 2016 hack of the currency exchange Bitfinex.

A husband and wife with a background as tech entrepreneurs in blockchain technology were arrested for their alleged role in the theft. Prosecutors said they had managed to trace the stolen money — nearly 120,000 bitcoins — through an intricate web of transactions done to hide its origins, to a number of crypto wallets controlled by Ilya Lichtenstein, 34, and his 31-year-old wife, Heather Morgan. The pair were arrested Tuesday morning at their lower Manhattan apartment on charges of conspiracy to commit money laundering and to defraud the U.S. government, authorities said. They have not been charged with perpetrating the hack itself.

A judge later ordered that the couple be released on bond — $5 million for Lichtenstein and $3 million for Morgan — but prosecutors appealed the ruling, arguing that they were a flight risk. Attorneys for Lichtenstein and Morgan didn’t immediately respond to messages seeking comment. Lichtenstein, who went by the name “Dutch,” is a dual U.S. and Russian citizen, prosecutors said. In her LinkedIn profile, Morgan described herself as a serial entrepreneur originally from California, and an “irreverent comedic rapper.” She is also a writer who had contributed articles to Inc. and Forbes.

Not all of the bitcoin stolen in the 2016 hack has been recovered, and the investigation is ongoing, prosecutors said. When the hack occurred, the bitcoin was worth approximately $71 million. Today, it would be worth $4.5 billion, they said.

“Today, federal law enforcement demonstrates once again that we can follow money through the blockchain, and that we will not allow cryptocurrency to be a safe haven for money laundering or a zone of lawlessness within our financial system,” said Assistant Attorney General Kenneth Polite of the Justice Department’s Criminal Division. “The arrests today show that we will take a firm stand against those who allegedly try to use virtual currencies for criminal purposes.”

According to investigators, when the 2016 hack occurred, the money was moved out from Bitfinex in 2,000 separate transactions to wallets on other platforms. Initially, much of the money was placed in accounts on the dark-web platform Alpha Bay, but then moved again into dozens of accounts all over the world.

Alpha Bay was shut down by authorities in 2017 for harboring illicit activity, but prosecutors said key evidence was recovered that allowed them to follow the trail of the stolen money from the Bitfinex hack. The trail ultimately led investigators to Lichtenstein and Morgan. A search warrant ultimately gave investigators access to a cloud-computing account belonging to the couple, where the keys to the various blockchain wallets they held were found.

The accounts were accessed and the money seized last week, prosecutors said. Prosecutors say the couple had been slowly laundering the money, having moved about 25,000 of the coins into regular cash currencies, gold and to purchase non-fungible tokens. Some of the money was used to purchase Walmart WMT, -0.22% gift cards, which were, in turn, used to buy ordinary items.

According to court documents, the couple used a variety of methods to obscure the origins of the money, including opening accounts in fake names, moving coins from wallet to wallet in small transactions and moving the money from one type of coin to another. Prosecutors said they would ultimately move to return the seized money back to those it was stolen from in 2016. In a statement, Bitfinex said it had been cooperating with authorities all along and will work with the Department of Justice to return the money.

“We want to express our appreciation for the dedication and hard work by the DOJ team that led to this great success. We will continue to support their efforts,” the company said.


February 8, 2022, published by MarketWatch.


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