Like traditional money, cryptocurrencies can be stolen as well. On August 2, 2016, cryptocurrency exchange Bitfinex found that out the hard way as hackers exploited a security breach in its system and initiated over 2000 transactions. This resulted in the theft of billions (about $4.5 billion in value currently) in Bitcoin, making it the largest such financial scam in history.
Six years down the line, and we have a sequel. The US Justice Department has recovered about $3.6 billion in cryptocurrency from the 2016 hack – which is the department’s largest financial seizure to date – and arrested a couple in Manhattan on Tuesday. It seems that 25,000 of the total 119,754 stolen Bitcoin had been transferred through a complex laundering process, and some of the funds were deposited into the financial accounts of the launderers.
Nearly 94,000 Bitcoin (whose value amounts to about $3.6 billion) remained in another digital wallet, which has been now been apprehended by the authorities. The money launderers are Ilya “Dutch” Lichtenstein, 34, and his wife Heather Morgan, 31.
While Lichtenstein currently works as an investor for Demandpath, Morgan operates an active public profile as a “serial entrepreneur,” blogger, and rapper under the alias Razzlekhan. Ironically, one of her recent articles was on how to protect businesses from cybercriminals and featured an interview with a cryptocurrency exchange owner about how to prevent fraud.
Both appeared at the US District Court for the Southern District of New York, facing charges of conspiring to commit money laundering as well as to defraud the US. It is also alleged that Lichtenstein and Morgan used fictitious identities to set up online accounts to take advantage of computer programs that automate transactions.
However, both were granted bail by the judge – $3 million for Morgan and her parents were asked to put their home as security, and $5 million for Lichtenstein. Thus, the government’s request to the judge to not let them be released on bail was denied (both faced the possibility of spending a maximum of 20 years in prison).
Lichtenstein and Morgan are charged with conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.
According to digital currency tracking company Elliptic, the connection between the theft and the couple may have been exposed when US officials took down AlphaBay, an underground digital market. Perhaps authorities accessed the platform’s internal transaction logs and connected them to a cryptocurrency account in Lichtenstein’s name. For now, Bitfinex is working with the Department of Justice to establish its rights to a return of the stolen bitcoin.
According to FBI Deputy Director Paul M. Abbate, criminals always left tracks. “And today’s case is a reminder that the FBI has the tools to follow the digital trail, wherever it may lead.” A similar sentiment was shown by Deputy Attorney General Lisa, who said that crypto was not a safe haven for criminals. Kenneth Polite, the assistant attorney general of the department’s Criminal Division, said that cases like these demonstrate that the Justice Department “can follow money across the blockchain, just as we have always followed it within the traditional financial system.”