How Did Justice Dept Recover Bitcoin

The couple were accused of conspiring to launder Bitcoin that had been stolen in 2016 from Hong Kong-based Bitfinex, one of the world’s largest virtual currency exchanges.

The financial seizure was the Justice Department’s largest ever based on the value of the currency at the time, officials said.

Credit…

Stefani Reynolds for The New York Times


WASHINGTON — The Justice Department said on Tuesday that information technology had seized over $3.half-dozen billion worth of stolen Bitcoin and arrested a married couple accused of laundering the cryptocurrency that hackers had stolen six years ago.

The couple, Ilya Lichtenstein, 34, and Heather Morgan, 31, were accused in a criminal complaint of conspiring to launder 119,754 Bitcoin that had been stolen in 2016 from Hong Kong-based Bitfinex, 1 of the world’south largest virtual currency exchanges.

The value of the currency at the time of its seizure last week makes information technology the section’s largest financial seizure ever, officials said.

A Justice Department official declined to comment on whether Mr. Lichtenstein and Ms. Morgan had been involved in the hacking itself.

The breach in 2016 was amid a spate of hackings into currency exchanges that have allowed for the theft of large amounts of digital currency. Fifty-fifty when the stolen funds were recovered, the thefts underscored the security vulnerabilities in the relatively new globe of cryptocurrency. In some cases, the incidents drastically affected cryptocurrency values.

Afterwards the hacking of Bitfinex, one of the largest exchanges in the history of the cryptocurrency market, the value of Bitcoin initially plunged almost 20 percent.

The arrests on Tuesday “show that cryptocurrency is not a prophylactic oasis for criminals,” Lisa O. Monaco, the deputy attorney general, said in a statement. “In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions.”

Mr. Lichtenstein and Ms. Morgan appeared in a federal court in Manhattan on Tuesday afternoon. A judge ordered them released on bail: $v million in Mr. Lichtenstein’s case and $three 1000000 in Ms. Morgan’s. A lawyer representing them did non immediately respond to a asking for annotate.

Mr. Lichtenstein, who goes by the nickname Dutch, has both American and Russian citizenship and has described himself equally a tech entrepreneur, according to the complaint. Ms. Morgan describes herself on her LinkedIn page every bit “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 likewise goes by the allonym Razzlekhan.

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Anna Moneymaker for The New York Times


According to courtroom documents, the hacker who breached Bitfinex’due south systems initiated 2,000 transactions to transport 119,754 stolen Bitcoin to a digital wallet that was under Mr. Lichtenstein’due south control.

Over the last v years, about 25,000 of those Bitcoin were transferred out of Mr. Lichtenstein’s wallet using a complicated series of transactions meant to obscure that the currency had been stolen from Bitfinex, the Justice Section said.

But investigators traced the movement of the Bitcoin on the blockchain, the permanent stock-still 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 buy items such as gold, nonfungible tokens and a Walmart gift card, according to the complaint.

Police enforcement officials gained access to Mr. Lichtenstein’southward wallet on Jan. 31, later they obtained a search warrant that gave them entry to encrypted files in Mr. Lichtenstein’due south deject storage account.

The side by side day, investigators seized the 94,636 Bitcoin that remained in that wallet, which were worth more than $3.vi billion, according to courtroom papers. The total 119,754 Bitcoin that were stolen, worth virtually $71 million when Bitfinex was hacked in 2016, are at present worth more than $4.5 billion, according to the Justice Section.

The arrest shows that “we will not let cryptocurrency to be a safe haven for coin laundering or a zone of lawlessness within our financial system,” Kenneth A. Polite Jr., the caput of the Justice Department’due south criminal division, said in a statement.

With more Americans buying and selling cryptocurrencies like Bitcoin, regulators have brought some large exchanges in the United States under official oversight.

Just cryptocurrencies motility through decentralized computer networks that are not under the control of any single government or company, so about trading nonetheless occurs on largely unregulated exchanges like Bitfinex, which give consumers little information about their operations.

The lack of regulation has led to a host of problems in the world of virtual currency exchanges, threatening to impair consumer conviction in cryptocurrencies and to slow widespread adoption. The showtime Bitcoin exchange, Mt. Gox, collapsed in 2014 later on hackers breached its security systems and siphoned away $500 meg in customer money.

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

Ed Shanahan
contributed reporting from New York.

Source: https://www.nytimes.com/2022/02/08/us/politics/ilya-lichtenstein-heather-morgan-bitcoin-laundering.html

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