Earlier this week, the Justice Department said that it had confiscated more than $3.6 billion in stolen Bitcoin and that it had arrested a married couple who were suspected of laundering the cryptocurrency that had been stolen by hackers six years earlier.
Earlier this year, a criminal complaint named Ilya Lichtenstein, 34, and Heather Morgan, 31, as defendants in a scheme to launder 119,754 Bitcoin that had been stolen in 2016 from Hong Kong-based Bitfinex, one of the world’s biggest virtual currency exchanges, was filed against them.
According to department authorities, the amount of the money at the time of its discovery last Thursday made it the agency’s greatest financial seizure in history.
It was not possible to determine if Mr. Lichtenstein and Ms. Morgan were engaged in the actual hacking without speaking with a Justice Department official.
The breach in 2016 was one of a string of hacks into currency exchanges that have resulted in the loss of substantial quantities of digital money in recent years. However, even though the stolen assets were eventually recovered, the crimes served to highlight the security flaws that exist in the relatively young realm of cryptocurrencies. In certain instances, the occurrences had a significant impact on the value of cryptocurrencies.
When Bitfinex, one of the biggest cryptocurrency exchanges in history, was hacked, Bitcoin’s value immediately dropped by around 20 percent, according to the Bitcoin Foundation.
Deputy Attorney General Lisa O. Monaco stated in a statement that the arrests made on Tuesday “demonstrate that cryptocurrency is not a safe haven for criminals.” “In a fruitless attempt to retain their digital anonymity, the defendants laundered stolen cash via a maze of cryptocurrency transactions,” the court said.
In the late afternoon of Tuesday, Mr. Lichtenstein and Ms. Morgan appeared before a federal judge in Manhattan. A court ordered them to be freed on bail, with Mr. Lichtenstein’s bond set at $5 million and Ms. Morgan’s bond set at $3 million. A request for comment from a reporter was not immediately returned by an attorney representing them.
According to the lawsuit, Mr. Lichtenstein, who goes by the handle Dutch, has dual citizenship in the United States and Russia and has portrayed himself as a software entrepreneur in his online profiles. Ms. Morgan identifies herself as a “serial entrepreneur” and a “irreverent humorous rapper” on her professional LinkedIn profile page. As indicated in the complaint, which also accuses the pair of conspiring with a third party to defraud the United States, Ms. Morgan is also known by the pseudonym Razzlekhan.
The hacker who gained access to Bitfinex’s computers, according to court records, made 2,000 transactions to transfer 119,754 stolen Bitcoin to a digital wallet under Mr. Lichtenstein’s control.
It is estimated that around 25,000 Bitcoin have been moved out of Mr. Lichtenstein’s wallet over the previous five years, utilising a convoluted sequence of transactions intended to disguise the fact that the cash had been stolen from Bitfinex, according to the Justice Department.
Investigators, on the other hand, were able to track the Bitcoin’s journey on the blockchain, which is a permanent fixed electronic ledger that records each time a Bitcoin is transferred to a new digital wallet. And, according to the lawsuit, some of those monies were subsequently placed into bank accounts owned by Mr. Lichtenstein and Ms. Morgan, who used part of the money to purchase goods such as gold, nonfungible tokens, and a Walmart gift card.
A search warrant was acquired on January 31 that allowed law enforcement agents to get access to Mr. Lichtenstein’s wallet and the encrypted information stored in Mr. Lichtenstein’s cloud storage account, according to the New York Times.
Authorities took the 94,636 Bitcoin that remained in the wallet the next day, which were valued at more over $3.6 billion according to court documents. 94,636 Bitcoin were taken in all. According to the Justice Department, the total of 119,754 Bitcoin that were taken, valued at around $71 million when the Bitfinex exchange was hacked in 2016, are now worth more than $4.5 billion.
A statement by Kenneth A. Polite Jr., the chief of the Justice Department’s criminal division, said the arrest demonstrated that “we will not allow cryptocurrencies to be used as a refuge for money laundering or as a zone of anarchy inside our financial system.”
In response to an increase in the number of Americans purchasing and selling cryptocurrencies such as Bitcoin, officials in the United States have placed several big exchanges under government supervision.
However, because cryptocurrencies are transmitted through decentralised computer networks that are not under the control of a single government or corporation, the vast majority of cryptocurrency trading continues to take place on unregulated exchanges such as Bitfinex, which provide consumers with little information about their operations.
The absence of regulatory oversight has resulted in a slew of issues in the realm of virtual currency exchanges, raising the prospect of diminished consumer trust in cryptocurrencies and a slowdown in their growth. After hackers infiltrated the security mechanisms of the world’s first Bitcoin exchange, Mt. Gox, and stole $500 million in client funds, the firm went out of business in 2014.
In addition, law enforcement authorities have filed criminal charges against those who run exchanges and are accused of supporting illegal behaviour in the name of public safety.