Couple pleads guilty to laundering $4.5bn Bitcoin from hack

A husband and wife cyber-crime team recently pleaded guilty to attempting to launder $4.5 billion worth of Bitcoin that was stolen in a hack in 2016. Heather Morgan and Ilya Lichtenstein were arrested last year after authorities traced their riches back to the crypto heist. While evading capture, Morgan assumed the identity of a rapper and tech entrepreneur known as Razzlekhan. Lichtenstein confessed to being behind the hack as part of a plea deal. Both members of the couple pleaded guilty to money laundering, with Morgan also admitting to a count of conspiracy to defraud the United States.

Despite her attempts to hide her crimes, Morgan released numerous music videos and rap songs filled with expletives, filmed in various locations around New York under the pseudonym Razzlekhan. In her lyrics, she referred to herself as a “bad-ass money maker” and “the crocodile of Wall Street”. Additionally, Forbes published articles in which Morgan claimed to be a successful tech businesswoman, referring to herself as an “economist, serial entrepreneur, software investor, and rapper”. Meanwhile, she and her husband, a computer programmer, were trying to cash out the fortune they acquired from the Bitfinex hack.

The couple now faces potential prison sentences, with Lichtenstein potentially receiving a maximum of 20 years and Morgan facing up to 10 years. At the time of their arrest in February 2022, the 119,000 Bitcoins in their possession were valued at approximately $4.5 billion. This seizure represents the largest ever forfeiture of cryptocurrency by US law enforcement and the largest single financial seizure in the history of the US Department of Justice. When the hack initially occurred, the stolen Bitcoins were worth about $71 million.

Court documents reveal the detailed process the couple employed to convert millions of dollars of Bitfinex Bitcoins into traditional currency without attracting suspicion. Their arrest is a testament to the advanced tools used by law enforcement to analyze transactions on Bitcoin’s public blockchain ledger. The couple’s mistake of using Walmart gift cards paid for with the stolen funds allowed police to link the vouchers back to the proceeds of the Bitfinex hack, leading to further investigation.

Upon raiding the couple’s Manhattan apartment, police discovered hollowed-out books used to conceal mobile phones, dozens of burner handsets, several USB sticks, and $40,000 in cash. Authorities successfully decrypted a spreadsheet outlining the couple’s intricate money laundering methods, which allowed them to recover nearly the full amount. Communication records recovered also suggest that Morgan and Lichtenstein were planning to flee to Russia, Lichtenstein’s country of birth, to escape arrest in the US.

Following the hack, Bitfinex customers suffered losses of 36% of their assets held by the exchange. However, by 2019, the company had reimbursed the victims. With the recovery of the stolen Bitcoins, the Hong Kong-based firm and customers who exchanged their losses for shares are now set to receive a windfall.

This case serves as a reminder of the potential risks associated with cybercrime and the importance of robust security measures. It highlights the effectiveness of blockchain analysis in tracing and recovering stolen funds. Authorities were able to make connections and gather evidence through the couple’s use of unconventional payments, such as Walmart gift cards, and their attempts to create layers of anonymity through different exchanges and cryptocurrencies. These tactics failed to break the provenance of the stolen funds, ultimately leading to their capture and the recovery of the seized Bitcoin.