In this courtroom sketch, attorney Sam Enzer, center, sits between Heather Morgan, left, and her husband, Ilya “Dutch” Lichtenstein, in federal court on Feb. 8 in New York.
(Elizabeth Williams / Associated Press) BY JUSTIN RAYSTAFF WRITER
FEB. 17, 2022 5:30 AM PTGood morning, and welcome to the Essential California newsletter. It’s Thursday, Feb. 17. I’m Justin Ray.
This month, the Justice Department announced its “largest financial seizure ever” involving a bizarre cryptocurrency case. To understand what happened, you need to understand three parts: a crypto heist, a couple who was arrested, and why this all matters.
It all began six years ago with a breach. Hackers stole $71 million — valued today at more than $4.5 billion — from Bitfinex, a virtual currency exchange. The funds were pilfered though more than 2,000 unauthorized transactions, according to the Department of Justice.
At the time, the news was another blow to the world of crypto, which had seen breaches before. Another exchange, Mt. Gox, notoriously lost 850,000 bitcoins. When the company filed for bankruptcy in 2014, the bitcoin was worth more than $450 million.
Now, the thing to know about bitcoin is that although they are anonymous to a degree, they are actually very traceable. Every transaction ever made is publicly viewable by everyone. Don’t believe me? You can click here and see real-time transactions (you should pay close attention to the staggering amounts on the far right).
This information is important for understanding the arrests.
Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were arrested this month in Manhattan on suspicion of laundering cryptocurrency linked to the hacks.
To be clear, they are not being charged with participating in the hack themselves, and they have not been convicted. The information about the case has been obtained through the Justice Department. The people responsible for the original hack have not been identified.
Friends told Wall Street Journal that the couple previously lived in the San Francisco Bay Area. The paper also reported that Lichtenstein had gone through Y Combinator, a well-known Silicon Valley training program for entrepreneurs.
“Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform,” the Justice Department said.
The unauthorized transactions sent stolen bitcoin to a digital wallet under Lichtenstein’s control. For the last five years, “approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process,” according to the agency.
A New York couple were arrested last week in Manhattan on suspicion of laundering cryptocurrency linked to a 2016 hack of virtual currency exchange, according to the Justice Department. Above, bitcoin tokens.(Rick Bowmer / Associated Press)
Actually, it’s not that complicated. Millions of dollars’ worth of transactions were cashed out via bitcoin ATMs and used to purchase items like gold and nonfungible tokens, according to the Department of Justice. They also bought a $500 gift card to Walmart, and the goods they purchased with it were delivered to their Manhattan address.
The couple’s lawyer wrote in a filing that “the money-laundering accusations in the government’s complaint are predicated on a series of circumstantial inferences and assumptions drawn from a complex web of convoluted blockchain- and cryptocurrency-tracing assertions,” according to CNBC.
The connection to the crypto heist isn’t the only reason the case has captured attention. Morgan has posted rap songs on Spotify and TikTok under the name Razzlekhan. (On the track “Versace Bedouin,” she says, “f— yo Jane Austen romance, rather be taking a taxidermy class.”)
To me, there are two main takeaways from the whole saga. The first is, crypto crimes are easily spotted.
“It’s better than cash. It’s easier to track,” Paul Vigna, a reporter at the Wall Street Journal, said on the paper’s daily podcast “The Journal.” “You can try to cover your tracks, but you can’t erase your tracks. And if the government wants to throw enough resources to implement it, they can absolutely trace every single step that bitcoin takes.”
The second is, if you want to get into crypto, you should be very careful. It remains vulnerable to bad actors, including myopic ones accused of sending Walmart purchases made with stolen currency to their actual home addresses.