Justice Department Seizes $3.6 Billion in Bitcoin, Arrests Married Couple

Justice Department Seizes $3.6 Billion in Bitcoin, Arrests Married Couple

WASHINGTON — The Justice Department said Tuesday it seized more than $3.6 billion in stolen Bitcoin and arrested a married couple accused of laundering the cryptocurrency hackers stole six years ago.

The couple, Ilya Lichtenstein, 34, and Heather Morgan, 31, have been charged in a criminal complaint with conspiring to launder 119,754 bitcoins that were stolen in 2016 from Hong Kong-based Bitfinex, one of largest virtual currency exchanges in the world.

The value of the currency at the time of its seizure last week makes it the largest financial seizure ever by the department, officials said.

A Justice Ministry official declined to say whether Mr Lichtenstein and Ms Morgan were involved in the hack itself.

The 2016 breach was part of a series of currency exchange hacks that allowed large amounts of digital currency to be stolen. Even when the stolen funds were recovered, the thefts highlighted security vulnerabilities in the relatively new world of cryptocurrency. In some cases, the incidents have significantly affected cryptocurrency values.

After the hack of Bitfinex, one of the largest exchanges in the history of the cryptocurrency market, the value of Bitcoin initially plunged by around 20%.

Tuesday’s arrests “show that cryptocurrency is not a safe haven for criminals,” Lisa O. Monaco, assistant attorney general, said in a statement. “In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a maze of cryptocurrency transactions.”

Mr. Lichtenstein and Ms. Morgan appeared in federal court in Manhattan on Tuesday afternoon. A judge ordered their release on bail: $5 million in Mr. Lichtenstein’s case and $3 million in Ms. Morgan’s. A lawyer representing them did not immediately respond to a request for comment.

Mr. Lichtenstein, nicknamed Dutch, has American and Russian nationality and described himself as a technology entrepreneur, according to the complaint. Ms Morgan describes herself on her LinkedIn page as “a serial entrepreneur” and an “irreverent comedic rapper”. The complaint, which also accuses the couple of conspiracy to defraud the United States, suggests Ms Morgan is also called Razzlekhan.

According to court documentsthe hacker who hacked into Bitfinex’s systems initiated 2,000 transactions to send 119,754 stolen Bitcoins to a digital wallet under Mr. Lichtenstein’s control.

Over the past five years, around 25,000 of those Bitcoins have been transferred from Mr. Lichtenstein’s wallet using a complicated series of transactions designed to hide the fact that the currency was stolen from Bitfinex, the official said. Ministry of Justice.

But investigators traced Bitcoin’s movement to the blockchain, the permanent fixed electronic ledger that records each time a Bitcoin moves to a new digital wallet. And some of those funds were eventually deposited into financial accounts controlled by Mr. Lichtenstein and Ms. Morgan, who used some of the money to purchase items such as gold, non-fungible tokens and a card- Walmart gift, according to the complaint.

Law enforcement officials gained access to Mr. Lichtenstein’s wallet on January 31, after obtaining a search warrant allowing them to access encrypted files on Mr. Lichtenstein’s cloud storage account.

The next day, investigators seized the remaining 94,636 bitcoins in that wallet, which were worth more than $3.6 billion, according to court documents. The total of 119,754 Bitcoins that were stolen, worth around $71 million when Bitfinex was hacked in 2016, are now worth more than $4.5 billion, according to the Department of Justice.

The arrest shows that “we will not allow cryptocurrency to be a haven for money laundering or an area of ​​lawlessness within our financial system,” said Kenneth A. Polite Jr., Chief of the Justice Department’s Criminal Division, in a statement.

As more Americans buy and sell cryptocurrencies like Bitcoin, regulators have placed some major exchanges in the United States under official scrutiny.

But cryptocurrencies move through decentralized computer networks that are not under the control of any government or company, so most trading still happens on largely unregulated exchanges like Bitfinex, which give consumers little insight. information about their operations.

The lack of regulation has led to a host of problems in the world of virtual currency exchanges, threatening to damage consumer confidence in cryptocurrencies and slow their widespread adoption. The first Bitcoin exchange, Mt. Gox, collapsed in 2014 after hackers breached its security systems and siphoned off $500 million in customer money.

And law enforcement officials have brought criminal charges against individuals who own exchanges and are suspected of facilitating criminal activity.

Ed Shanahan contributed reporting from New York.