WASHINGTON—The Justice Division mentioned Tuesday it seized over $3.6 billion price of digital foreign money stolen throughout a hack of a cryptocurrency change and arrested two suspects for allegedly attempting to launder the proceeds.
The worth of the cryptocurrency on the time it was seized final week marks the biggest monetary seizure ever by the Justice Division, officers mentioned.
Ilya Lichtenstein,
34 years outdated, and his spouse,
Heather Morgan,
31, have been each arrested with out incident Tuesday morning in Manhattan, the division mentioned. They’ve promoted themselves on social media as entrepreneurs with deep information of tech and a love of journey.
In keeping with court docket paperwork, the suspects allegedly conspired to launder practically 120,000 bitcoin stolen from Bitfinex’s platform in 2016 after a hacker breached the change’s programs and initiated greater than 2,000 unauthorized transactions. The transactions included using laptop applications to quickly automate bitcoin actions and deposits to attempt to conceal their origin, with a number of the funds finally touchdown in monetary accounts tied to the couple, federal prosecutors mentioned.
“At present’s arrests, and the division’s largest monetary seizure ever, present that cryptocurrency is just not a secure haven for criminals,” mentioned Deputy Lawyer Basic
Lisa Monaco.
“In a futile effort to take care of digital anonymity, the defendants laundered stolen funds via a labyrinth of cryptocurrency transactions.”
On the couple’s look in Manhattan court docket Tuesday, U.S. Justice of the Peace Decide Debra Freeman set bond at $5 million for Mr. Lichtenstein and $3 million for Ms. Morgan, requiring that their dad and mom’ properties be posted as safety. The decide additionally ordered that they not have gadgets with web entry and prohibited them from conducting cryptocurrency transactions.
Anirudh Bansal, a lawyer for Mr. Lichtenstein and Ms. Morgan, instructed the decide that his shoppers had been conscious of the federal government’s investigation since November and hadn’t tried to flee the nation. Mr. Bansal declined to remark additional.
Mr. Lichtenstein and Ms. Morgan face expenses referring to conspiracy to commit cash laundering and conspiracy to defraud the U.S. They weren’t charged with finishing up the hack of Bitfinex. The Justice Division’s investigation is ongoing, officers mentioned.
Hong Kong-based digital-currency change Bitfinex mentioned it was hacked in 2016, inflicting the worth of bitcoin to sharply drop. On the time, the worth of the stolen bitcoin was valued at round $70 million, officers mentioned.
Bitcoin, like many digital currencies, can fluctuate wildly in value and has soared enormously since 2016. The $3.6 billion recovered by the Justice Division is the worth of the bitcoin on the time of seizure, which occurred final week, officers mentioned. General the present worth of the stolen bitcoin linked to the hack is valued at present at about $4.5 billion, officers mentioned, however solely about 94,000 of the roughly 119,754 stolen bitcoin have been recovered.
Bitcoin is a well-liked kind of so-called cryptocurrency, a sort of digital foreign money that exists as open-source laptop code and that’s maintained by the operations of an enormous world-wide community of computer systems. Officers mentioned the truth that blockchain—the inalterable ledger that information bitcoin transactions—is public was useful of their investigation.
The Justice Division final yr created a group to prosecute criminals that depend on cryptocurrency and recuperate illicit proceeds
Photograph:
Ariel Zambelich/The Wall Road Journal
Ari Redbord, a former senior Treasury Division official now on the blockchain analytics agency TRM Labs, mentioned the arrests present the creating capabilities of investigators to hint cryptocurrency flows, together with years after illicit transactions occurred.
“Because the obfuscation methods evolve, so do the instruments authorities have to trace them,” mentioned Mr. Redbord. “The blockchain is without end.”
The case additionally helps legislation enforcement perceive the methods hackers, terrorists and different criminals are utilizing in digital-currency markets to attempt to transfer illicit funds, he mentioned.
The Justice Division created a Nationwide Cryptocurrency Enforcement Staff final October to prosecute criminals that depend on cryptocurrency and recuperate illicit proceeds.
Final yr, authorities have been in a position to claw again about $2.3 million in bitcoin that was paid by Colonial Pipeline Co. to a Russian ransomware gang that hacked the foremost conduit, inflicting a shutdown that lasted for days on the pipeline that runs from the Gulf Coast to New Jersey.
The couple arrested Tuesday, Mr. Lichtenstein and Ms. Morgan, allegedly used their laundered proceeds to buy quite a lot of materials items and belongings, together with gold, nonfungible tokens and
Walmart
present playing cards, officers mentioned.
Solely a small portion of the stolen cash had been spent by the point of their arrest, based on officers.
Federal prosecutors unsuccessfully requested at Tuesday’s continuing that the Ms. Morgan and Mr. Lichtenstein be held with out bond, saying they have been a flight threat.
Throughout a search of the couple’s Manhattan dwelling this month, federal brokers discovered a bag of burner telephones, $40,000 in money and a tool with an digital file that had faux identities used to open bitcoin accounts, Assistant U.S. Lawyer Maggie Lynaugh mentioned. One other file discovered within the search, she mentioned, had data on how you can buy passports on the darkish net.
The couple can be believed to have entry to $330 million in bitcoin that the federal authorities hasn’t positioned, Ms. Lynaugh mentioned.
Ms. Morgan and Mr. Lichtenstein, who additionally goes by the nickname Dutch, have promoted themselves as veteran tech and crypto entrepreneurs, based on their social-media posts. Their enterprises embody co-founding Demandpath, a venture-capital fund; Endpass, a cryptocurrency pockets; and SalesFolk, a advertising and marketing agency.
All three corporations have been utilized by the couple to justify a few of their cryptocurrency transactions, Christopher Janczewski, particular agent for the Inside Income Service’s felony investigation division, mentioned in a court docket submitting.
On Medium, a publishing platform, Mr. Lichtenstein’s profile describes him as a “tech entrepreneur, explorer, and occasional magician.” His profile on LinkedIn, the skilled networking platform, says he’s a “coder and investor fascinated about blockchain know-how, automation, and massive knowledge.”
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Ms. Morgan’s profile on Forbes.com, the place her articles are posted beneath the positioning’s ForbesWomen banner, says she is a world economist and serial entrepreneur specializing in software program improvement.
“When she’s not reverse-engineering black markets to consider higher methods to fight fraud and cybercrime, she enjoys rapping and designing streetwear style,” her Forbes.com bio reads. Her LinkedIn web page hyperlinks to a private web site, during which she refers to herself as rapper Razzlekhan, with a “fearless entrepreneurial spirit and hacker mindset.”
A good friend of Ms. Morgan mentioned the couple, whereas planning to purchase a $2 million residence in New York, didn’t reside a lavish life-style and weren’t splashy spenders. The good friend mentioned their wedding ceremony in November was modest and the couple mentioned they typically used air miles to fly.
Bitfinex, the change platform that was hacked in 2016, mentioned it had been cooperating with the Justice Division since its investigation started and mentioned it could “observe acceptable authorized processes to ascertain our rights to a return of the stolen bitcoin.” Updates on the return of stolen bitcoin could be forthcoming, the corporate mentioned.
Some monetary crime specialists mentioned the seizure and others up to now a number of years present that cryptocurrency markets will be more and more monitored by legislation enforcement. High law-enforcement officers whose businesses examine cryptocurrency crimes, together with the U.S. Secret Service, have mentioned the blockchain ledger offers a digital path for his or her probes, however have urged coverage makers to strengthen reporting guidelines on the identities of customers.
Corrections & Amplifications
Ari Redbord is a former senior Treasury Division official now on the blockchain analytics agency TRM Labs. An earlier model of this text incorrectly spelled his final identify as Redboard. (Corrected on Feb. 8)
—James Fanelli contributed to this text.
Write to Dustin Volz at dustin.volz@wsj.com and Ian Talley at ian.talley@wsj.com
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