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09-02-2022|Crypto

The federal government has seized $3.6 billion in bitcoin stolen from the Bitfinex hack.

WASHINGTON— The Justice Department announced on Tuesday that it had confiscated over $3.6 billion in digital money stolen in a cryptocurrency exchange hack and had detained two people for allegedly attempting to launder the proceeds.

The cryptocurrency's value at the time it was confiscated last week was the greatest financial seizure ever made by the Justice Department, officials said.

Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were both arrested without incident in Manhattan on Tuesday morning, according to the police department. They've advertised themselves on social media as entrepreneurs with extensive digital skills and a passion for travel.

The defendants allegedly colluded to launder almost 120,000 bitcoin stolen from Bitfinex's platform in 2016 after a hacker infiltrated the exchange's servers and made over 2,000 unlawful transactions, according to court filings. According to federal prosecutors, the transactions involved the employment of computer programmes to quickly automate bitcoin movements and deposits in order to mask their origin, with some of the monies eventually ending up in financial accounts linked to the pair.

"Today's arrests, as well as the department's largest financial seizure ever, demonstrate that cryptocurrencies is not a safe haven for criminals," Deputy Attorney General Lisa Monaco said. "The defendants laundered stolen monies through a maze of cryptocurrency transactions in a fruitless attempt to maintain digital anonymity."

U.S. Magistrate Judge Debra Freeman set bond at $5 million for Mr. Lichtenstein and $3 million for Ms. Morgan during the couple's appearance in Manhattan court on Tuesday, requiring that their parents' homes be posted as security. They were also forbidden from having internet-connected devices and from making cryptocurrency transactions, according to the judge.

Mr. Lichtenstein's and Ms. Morgan's lawyer, Anirudh Bansal, told the judge that his clients had been aware of the government's inquiry since November and had made no attempt to depart the country. Mr. Bansal remained silent on the subject.

Mr. Lichtenstein and Ms. Morgan are accused of conspiring to launder money and defraud the United States of America. They were not charged with committing the Bitfinex hack. The inquiry by the Justice Department is still ongoing, according to officials.

Bitfinex, a Hong Kong-based digital-currency exchange, was hacked in 2016, causing bitcoin's price to plummet. Officials estimated that the stolen bitcoin was worth roughly $70 million at the time.

Bitcoin's price, like that of many other virtual currencies, may fluctuate drastically, and it has surged dramatically since 2016. According to officials, the $3.6 billion recovered by the Justice Department represents the worth of bitcoin at the time of seizure, which occurred last week. Officials estimate that the total worth of the stolen bitcoin tied to the breach is around $4.5 billion today, although only about 94,000 of the 119,754 stolen bitcoin were recovered.

Bitcoin is a prominent sort of cryptocurrency, which is a type of digital currency that exists as open-source computer code and is maintained by the activities of a massive global network of computers. The fact that blockchain—the immutable ledger that records bitcoin transactions—is public, according to officials, aided their investigation.

The arrests, according to Ari Redbord, a former senior Treasury Department official who now works for the blockchain analytics startup TRM Labs, demonstrate investigators' growing ability to track bitcoin flows, even years after they occurred.

Mr. Redbord explained, "As obfuscation tactics change, so do the instruments authorities have to track them." "Blockchain is eternal."

The case also aids law enforcement in understanding the techniques used by hackers, terrorists, and other criminals in digital-currency markets to transport illicit funds, he said.

Last October, the Justice Department established a National Cryptocurrency Enforcement Team to prosecute and recover unlawful cryptocurrency proceeds.

Authorities were able to recover nearly $2.3 million in bitcoin given by Colonial Pipeline Co. to a Russian ransomware group that attacked the key conduit, triggering a days-long outage on the pipeline that runs from the Gulf Coast to New Jersey, last year.

Mr. Lichtenstein and Ms. Morgan, who were arrested on Tuesday, allegedly used their laundered funds to buy a range of material items and assets, including gold, nonfungible tokens, and Walmart gift cards, according to officials.

Officials claim that just a small percentage of the stolen funds had been spent by the time they were apprehended.

Federal prosecutors urged that Ms. Morgan and Mr. Lichtenstein be held without bond at Tuesday's hearing, claiming that they constituted a flight risk.

Federal officials discovered a bag of burner phones, $40,000 in cash, and a device with an electronic file containing fictitious identities used to register bitcoin accounts during a search of the couple's Manhattan residence earlier this month, according to Assistant US Attorney Maggie Lynaugh. She claimed that another file discovered during the investigation contained instructions on how to get passports on the dark web.

The couple  is also believed to have access to $330 million in bitcoin that the federal authorities has yet to locate, Ms. Lynaugh said.

Ms. Morgan and Mr. Lichtenstein, who also goes by the handle Dutch, have portrayed themselves as veteran IT and crypto entrepreneurs, according to their social-media posts.   Demandpath, a venture capital fund, Endpass, a cryptocurrency wallet, and SalesFolk, a marketing organisation, are among their businesses.

The couple used all three entities to justify some of their cryptocurrency transactions, according to Christopher Janczewski, a special agent with the Internal Revenue Service's criminal investigative branch, said in a court filing.

Mr. Lichtenstein's biography on Medium, a publishing site, identifies him as a "tech entrepreneur, explorer, and occasional magician." On LinkedIn, he describes himself as a "developer and investor interested in blockchain technologies, automation, and big data," according to his profile.

Ms. Morgan is described as an international economist and serial entrepreneur specialising in software development on Forbes.com, where her essays are published under the ForbesWomen banner.

Her Forbes.com bio reads, "When she's not reverse-engineering underground marketplaces to come up with better strategies to combat fraud and cybercrime, she enjoys rapping and designing streetwear clothes." Her LinkedIn page directs to a personal website, where she describes herself as a "fearless entrepreneurial spirit and hacker mindset" rapper named Razzlekhan.

Ms. Morgan's companion claimed the pair didn't live a luxury lifestyle and weren't big spenders, despite their plans to buy a $2 million condo in New York. Their November wedding was small, according to a friend, and the couple said they frequently flew using air miles.

Bitfinex, the trading platform that was hacked in 2016, said it has been collaborating with the Justice Department since the start of the inquiry and will "follow relevant legal processes to demonstrate our rights to a return of the stolen bitcoin." The company promised to provide updates on the restitution of stolen bitcoin.

Some financial crime experts said the seizure, as well as others in recent years, shows that law enforcement can increasingly monitor bitcoin marketplaces. Top law enforcement officials, like the US Secret Service, who investigate cryptocurrency crimes, have stated the blockchain ledger provides a digital trail for their investigations, but have encouraged policymakers to enhance reporting laws on user identities.

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