The US Department of Justice has arrested two people and confiscated more than $3.6bn worth of cryptocurrency that it said was stolen during the high-profile 2016 hack of the Bitfinex exchange, executing the government agency’s largest financial seizure.
New York-based Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were arrested on Tuesday and accused of conspiring to launder proceeds of 119,754 bitcoin valued at $4.5bn, prosecutors said in a statement. The cryptocurrency was allegedly taken when Hong Kong-based Bitfinex was breached.
The justice department’s operation came as authorities have poured resources into cryptocurrency enforcement after vowing to crack down on the criminal use of digital tokens.
“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” said Lisa Monaco, deputy attorney-general.
US prosecutors alleged that the Bitfinex hacker launched more than 2,000 unauthorised transactions that sent stolen bitcoin from the exchange to a digital wallet controlled by Lichtenstein. The assets’ value shot from approximately $71mn at the time of the breach to more than $4.5bn due to the rise in bitcoin’s value, authorities said.
Some of the stolen tokens were transferred to accounts controlled by the couple via a “complicated money laundering process” that included “chain-hopping” — jumping between different cryptocurrencies, often in rapid succession — and using tokens that have extra anonymity built into them. More than 94,000 bitcoin allegedly remained in the wallet.
Representatives for Lichtenstein and Morgan could not immediately be reached for comment. They were scheduled to make initial court appearances in Manhattan on Tuesday afternoon.
Morgan is also known as Razzlekhan, according to court documents. The website razzlekhan.com describes Razzlekhan as a “rapper [who is] also a software CEO, a writer, an economist, and a few contradictory other things”.
Responding to questions about her own digital assets, Morgan told a virtual currency exchange: “My boyfriend (now husband) gifted me cryptocurrency over several years (2014, 2015,), [sic] which have appreciated. I have been keeping them in cold storage,” according to court documents.
Bitfinex said it was “pleased” the justice department had recovered a “significant portion” of the bitcoin stolen during the hack and that it would continue to co-operate “extensively” with the agency.
Cryptocurrencies have become a payment method of choice for cyber criminals including thieves as well as ransomware attacks that encrypt victims’ data until a ransom is paid, typically in bitcoin.
However, every transaction is recorded on an immutable blockchain, giving investigators opportunities to monitor and trace payments, a burgeoning field known as blockchain analytics or forensics.
“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 Kenneth Polite, assistant attorney-general at the DoJ’s criminal division.
Lichtenstein and Morgan have been charged with conspiracy to commit money laundering, which carries a maximum punishment of 20 years in prison, and conspiracy to defraud the US, which has a maximum sentence of five years in prison.
