NYC Couple Pled Guilty to Conspiring to Steal 120,000 Bitcoin in Bitfinex Hack
A New York City couple pled guilty on Thursday to conspiring to hack into a major cryptocurrency exchange and steal 120,000 Bitcoin.
Ilya “Dutch” Lichtenstein, 35, pled guilty to conspiracy to commit money laundering, and Heather “Razzlekhan” Morgan, 33, an entrepreuner and Lichtenstein’s wife, pled guilty to one count of money laundering conspiracy and one count of conspiracy to defraud the United States.
Lichtenstein hacked cryptocurrency exchange Bitfinex—one of the world’s largest virtual currency exchanges, founded in Hong Kong—in 2016. While inside Bitfinex’s systems, he was able to initiate more than 2,000 unauthorized transactions to transfer 119,754 Bitcoin (then valued at $71 million) into an outside wallet, according to the affidavit for Lichtenstein and Morgan’s arrest.
Some of the stolen Bitcoin was then moved out of the wallet in a series of smaller transactions across multiple accounts and platforms, which appeared designed to conceal their path, while most of the stolen funds remained in the original outside wallet. These smaller transactions are known as a “peel chain,” where a large amount of Bitcoin at one address is moved through a series of small transactions to a new address, a popular technique used by money launderers.
“Lichtenstein, at times with Morgan’s assistance, employed numerous sophisticated laundering techniques,” the U.S. Department of Justice explained in a press release. These techniques included creating fake identities to set up online accounts, using computer programs to automate transactions, depositing the funds into darknet markets and cryptocurrency exchanges, and even exchanging some of the stolen Bitcoin for gold coins shipped to Lichtenstein’s home address—which Morgan concealed by burying them.
In a hearing on Thursday covered by The Washington Post, U.S. prosecutors said the couple also traveled to Ukraine and Kazakhstan to meet with people who could convert their stolen Bitcoin into cash, ship it to addresses in Russia and Ukraine, and then deposit it into American accounts.
“During the course of the conspiracy, Lichtenstein and Morgan repeatedly provided false information to and deceived virtual currency exchanges [VCEs] and other financial institutions regarding the source of their funds and the nature of their transactions,” according to the affidavit. “One purpose of these deceptions was to frustrate the VCEs’ due diligence efforts and thereby prevent transmission of suspicious activity reports mandated under the Bank Secrecy Act to FinCen and the U.S. Department of Treasury in Washington, D.C.”
The U.S. Internal Revenue Service (IRS), the FBI, and U.S. Homeland Security Investigation were able to trace the stolen funds using the Bitcoin blockchain. They gained access to Lichtenstein’s wallet by decrypting a file saved on his cloud storage account, which authorities accessed after obtaining a search warrant.
“The file contained a list of 2,000 virtual currency addresses, along with corresponding private keys,” the affidavit explained. “Blockchain analysis confirmed that almost all of those addresses were directly linked to the hack.”
Authorities then obtained approval in 2022 to use Lichtenstein’s private keys to seize the remaining balance in the wallet, 94,636 Bitcoin then valued at $3.629 billion. Lichtenstein and Morgan were arrested on 7 February 2022 at the same time as the seizure—the largest in U.S. Department of Justice history.
A sentencing date for Lichtenstein and Morgan has not been set. Lichtenstein faces the possibility of 20 years in prison, while Morgan faces up to five years for each of her crimes.
