In 2016, cryptocurrency exchange Bitfinex was robbed of about $70 million, with hackers making away with some 1,20,000 bitcoins. The treasure is worth a staggering $4.5 billion today!
Six years down, Ilya Lichenstein and Heather Morgan have been arrested in connection with swindling of money from the exchange. Calling themselves “serial entrepreneurs” focused on bitcoin technology and the B2B space, with a significant and active social media presence, they were arrested on Tuesday in Manhattan on grounds of conspiracy to commit money laundering and defrauding the US government.
“We’re pleased that DOJ has recovered a significant portion of the bitcoin stolen during the 2016 hack. We have been cooperating extensively with DOJ since its investigation of this incident began," a Bitfinex spokesperson said.
A spokesperson for sister company Tether said that “Bitfinex intends to provide further updates on its efforts to obtain a return of the stolen bitcoin as and when those updates are available”.
Hello, Ilya and Heather!
While most hackers and launderers chose to lie low, keeping their digital presence to a minimum, Heather Morgan, who is originally from California and also happens to be an aspiring rapper and a writer contributing to Forbes, preferred to display her life on the internet, giving glimpses of her active New York social life. She obtained her bachelor’s degree in economics from the University of California, Davis.
Her Linkedin profile describes her as an “irreverent comedic rapper”, performing under the title Razzlekhan, the “infamous crocodile of Wall Street”, in addition to being a “Serial Entrepreneur, SaaS Investors and Surrealist”.
Reportedly fluent in eight languages per her profile, including Arabic, Cantonese, and Korean, and skills such as 'Inside Sales' and 'Email marketing', a website dedicated to her alter-ego Razzlekhan also details how she “shamelessly explores new frontiers of art, much like her fearless entrepreneurial spirit and hacker mindset”.
Dabbling with journalism as well during her short, contributory stint with Inc and Forbes, Morgan wrote extensively on every issue under the sun, from soul food, influencer strategies, and more. Her Forbes bio reads, “Economist, serial entrepreneur, SaaS investor, & rapper. Love robots”.
One of her articles, titled “Experts Share Tips To Protect Your Business From Cybercriminals” talks about how “cybercriminals and fraudsters are taking advantage of this unexpected disruption, leading to a spike in scams and cybercrime”.
Her husband Lichtenstein, who goes by the name 'Dutch', is a dual US and Russian citizen. On his Facebook page, he talks about getting engaged to Morgan in 2019 after years of dating “the woman of my dreams”.
Other than that, Liechtenstein, who per his Linkedin profile is “interested in blockchain technology, automation, and big data”, graduated from the University of Wisconsin-Madison with a bachelor’s degree in psychology.
The modus operandi was simple, prosecutors said. This included opening accounts under false aliases, moving stolen funds in small sums but in a high volume of transactions to escape detection. To automate these transactions, computers were employed with the funds spread across numerous virtual currency exchanges. All of these illegal activities were obscured under the veil of US business accounts of their startups.
For instance, Morgan had approached the bank stating that many clients of her company SalesFolk, a firm specialising in copywriting cold-pitch emails for businesses were urging her to accept payments in Bitcoin. Her husband had also given her some bitcoin some time back, which she took out of “cold storage” since she required it to finance her business expansion. These bitcoins were purportedly stolen from Bitfinex.
A similar explanation was proffered by Lichenstein on his transfer of about $2.9 million in bitcoin into accounts of his companies namely Endpass and Demandpath. While Endpass was shown to be a “crypto-wallet company”, Demandpath engaged in “boutique micro-fund investing in the next generation of promising technologies”.
But money laundering too can prove to be a tough business, given that the couple was about to put away about 20 percent of the stolen money over the last six years. Around 90,000 bitcoins worth $3.6 billion were seized from various virtual wallets held by the couple.
“As the value of the money grew, this likely became a far more complex scheme than they believed they were getting into when it started. It was going to catch up to them at some point because the pot just kept growing. You can’t just hold a few billion dollars for five years unnoticed,” said attorney Rachel Fiset, of Zweiback, Fiset, and Coleman, a firm specializing in complex financial fraud cases.
While the couple has not been charged with conducting the hack itself, the FBI stated that the duo had allegedly laundered funds to spend the proceeds on gold, NFTs, and more. This was discovered when, after an extensive search ranging a few years, investigators found a cloud-computing account in their name, with details of hundreds of crypto accounts storing stolen money.
Court documents show that around 1,19,754 bitcoins, all stolen from the Bitfinex platform in 2016 were laundered. During the hack itself, over 2,000 unauthorised transactions sent these funds to a wallet under Lichensteins control. A “complicated money laundering process” ensued, while around 94,000 bitcoins remained in Lihcensteins wallet.
Per USDOJ, a maximum sentence of 20 years in federal prison, in addition to five more years for conspiring to defraud the government awaits the couple if the charges are proven. However, currently, a federal judge has halted the release of two individuals suspected of laundering proceeds from the 2016 Bitfinex hack.
Magistrate Judge Debra Freeman of the Southern District of New York has sentenced Lichtenstein to home detention with a wearable GPS and a $5 million bond and Morgan with the same and a $3 million bond.