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Ilya “Dutch” Lichtenstein, 34, and Heather Rhiannon Morgan, a 31-year-old business blogger/rapper, weren’t charged in the 2016 theft from Bitfinex of what at the time was $71 million worth of cryptocurrency – now valued at $4.5 billion.
They are charged with conspiring to (a) commit money laundering and (b) defraud the United States, federal authorities said.
Lichtenstein and Morgan used a variety of “sophisticated laundering techniques” to collect and conceal bitcoin that was cashed out for gold, non-fungible tokens and “absolutely mundane things such as purchasing a Walmart gift card for $500,” among other uses, Justice officials said.
A complex investigation involving the FBI, IRS and Department of Homeland Security that led to the arrests also produced a record seizure of $3.6 billion in cryptocurrency, they noted.
"In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions,” Deputy Attorney General Lisa O. Monaco said in a statement.
"Today's arrests, and the [Justice] Department's largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals," Monaco said. “Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter the form it takes."
Bitfinex, for its part, said that it was working with federal authorities to “establish our rights to a return of the stolen bitcoin.”
Cryptocurrency and the virtual exchanges that trade it are rapidly expanding, noted U.S. Attorney for the District of Columbia Matthew M. Graves. He added, however, that “digital currency heists executed through complex money laundering schemes could undermine confidence in cryptocurrency.”
Morgan, who has contributed to Forbes magazine and Inc. and raps under the name “Razzlekhan,” got engaged to Lichtenstein in 2019. She’s described herself as “like Genghis Khan, but with more pizzazz.”
“No one knows for sure where this rapper’s from—could be the North African desert, the jungles of Vietnam, or another universe,” her website says. “All that matters is she’s here to stick up for misfits and underdogs everywhere. (We do know that she’s descended from a nomadic tribe, though!)”
The Northern California native has also claimed to have synesthesia, a neurological phenomenon in which people “see” sounds and “hear” colors.
She calls the YouTube video “Versace Bedouin” (below) her anthem, one that's "dedicated to all weirdos, entrepreneurs, hackers, misfits, and all the unique people who pursue what they want."
Less than 24 hours before her arrest, Morgan posted an Instagram video on Monday about a nail salon misadventure.
“Can I be real with you about something?” she says. “You know what, I really, really, really hate nail stuff. For the longest time, I only painted one nail, my Razzle nail,” continuing to gripe about her nails being “thin” due to a manicurist who “sanded [them] down.”
A complaint on file in the U.S. Southern District Court of New York cited an email by Morgan saying: “My boyfriend (now husband) gifted me cryptocurrency over several years (2014, 2015,), [sic] which have appreciated. I have been keeping them in cold storage.”
The couple – who literally live on Wall Street -- laundered 119,754 bitcoin in all that were stolen after the 2016 Bitfinex hack triggered more than 2,000 unauthorized transactions, federal prosecutors said.
The pair allegedly did this by:
- using bogus identities to set up online accounts;
- utilizing computer programs to automate a multitude of transactions in a short period of time;
- depositing the stolen funds into accounts at a variety of virtual currency exchanges and darknet markets;
- turning around and withdrawing the money to cover the trail of transactions by “breaking up the fund flow”’;
- converting bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency (AEC), in a practice known as “chain hopping”;
- using U.S.-based business accounts to legitimize their banking activity.
In one instance, the complaint says, Morgan and Lichtenstein – who reportedly is a citizen of both Russia and the United States and the co-founder of an online marketing firm -- siphoned more than $758,000 in wire transfer from an account that they controlled while convincing a financial services firm that it was from somewhere else.
There was one catch, federal authorities said.
“Criminals always leave tracks,” FBI Deputy Director Paul M. Abbate explained. “[T]oday’s case is a reminder that the FBI has the tools to follow the digital trail, wherever it may lead."
Here's an over-simplified explainer from a Justice Department release:
“Over the last five years, approximately 25,000 of [the] stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan.
“The remainder of the stolen funds, comprising more than 94,000 bitcoin, remained in the wallet used to receive and store the illegal proceeds from the hack.
“After the execution of court-authorized search warrants of online accounts controlled by Lichtenstein and Morgan, special agents obtained access to files within an online account controlled by Lichtenstein.
“Those files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex, and allowed special agents to lawfully seize and recover more than 94,000 bitcoin that had been stolen from Bitfinex.”
The investigation was led by IRS-CI Washington, D.C. Field Office’s Cyber Crimes Unit, the FBI’s Chicago Field Office and HSI-New York. The Ansbach Police Department in Germany assisted.
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