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How did Ilya Lichtenstein accomplish the $10 billion cyber theft? – First message

How did Ilya Lichtenstein accomplish the  billion cyber theft? – First message

In August 2016, Ilya Lichtenstein, a 35-year-old entrepreneur with roots in the technology industry, infiltrated the network of Hong Kong-based cryptocurrency exchange Bitfinex.

Using sophisticated hacking tools, he initiated more than 2,000 unauthorized transactions, funneling around 120,000 bitcoins to a personal crypto wallet. “The defendant perpetrated what at the time was one of the largest robberies at a virtual exchange house,” prosecutors said.

At the time of the hack, the stolen Bitcoin was valued at $71 million. However, due to
Bitcoin’s Skyrocketing Market Price Over the years, that amount has ballooned to a staggering $10.5 billion today.

Lichtenstein’s wife, Heather Morgan, also known by her rap alias “Razzlekhan,” initially unaware of the hack, later became a crucial accomplice. The couple embarked on a years-long journey of laundering funds, a process prosecutors described as “the most complicated money laundering techniques” ever encountered by IRS agents.

How the couple laundered the money

Months after the hack, Lichtenstein and Morgan began an elaborate plan to disguise the origin of the stolen bitcoins. The pair moved funds through numerous accounts, using false identities and splitting transactions into smaller amounts to evade detection.

They used various crypto exchanges, darknet markets, and even purchased NFTs, gold, and Walmart gift cards to launder the money. Prosecutors noted: “For half a decade, the defendant used what IRS agents described as the most complicated money laundering techniques they had seen to date.”

Heather Morgan's rapper character, known as 'Razzlekhan', went viral on social media during the case. Archive image/Instagram-heatherreyhan
Heather Morgan’s rapper character, known as ‘Razzlekhan’, went viral on social media during the case. Archive image/Instagram-heatherreyhan

Authorities discovered that Lichtenstein had been secretly moving funds to offshore accounts and had even recruited couriers to transport cash, with notable transactions during family trips to Kazakhstan and Ukraine.

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A lawyer for Bitfinex, Barry Berke, explained that the theft represented approximately 36 percent of Bitfinex’s assets at the time, “devastating” the company’s finances and requiring immediate measures to absorb the loss and protect customers.

The heist went undetected until February 2022, when authorities arrested the couple at their New York City apartment. During the arrest, Deputy Attorney General Lisa Monaco announced that officials had managed to seize more than 94,000 bitcoins, valued at more than $3.6 billion at the time, a historic recovery in the history of the Department of Justice.

What charges did Lichtenstein and Morgan face?

Lichtenstein, who faces up to 20 years in prison, pleaded guilty in August 2023 to one count of conspiracy to commit money laundering and ultimately received a five-year prison sentence. In addition to the prison sentence, he was ordered to serve three years of supervised release.

Judge Colleen Kollar-Kotelly, who oversaw the case, highlighted the planned nature of the crime, saying: “It is important to send the message that these crimes cannot be committed with impunity, that they have consequences.”

Lichtenstein expressed remorse, saying, “I want to take full responsibility for my actions and make amends as much as I can,” and vowed to use his skills to combat cybercrime when he is released. He also implored the judge to be lenient with his wife, taking the blame for her involvement. “Heather is involved in this case only because of me,” he added.

Heather Morgan, who had been arrested along with Ilya Lichtenstein in February 2022 accused of laundering more than 100,000 bitcoins that were stolen after a hacker attacked Bitfinex in 2016, leaves the E Barrett Prettyman United States Courthouse, in Washington, USA, August 3. 2023. File image/Reuters
Heather Morgan, who had been arrested along with Ilya Lichtenstein in February 2022 accused of laundering more than 100,000 bitcoins that were stolen after a hacker attacked Bitfinex in 2016, leaves the E Barrett Prettyman United States Courthouse, in Washington, USA, August 3. 2023. File image/Reuters

Morgan, scheduled to be sentenced Nov. 18, was described by prosecutors as a “lower-level participant” who became involved three years after the attack. The government has recommended an 18-month sentence for her.

Morgan, a business owner and writer who performed music under the alias “Razzlekhan,” adopted her own hip-hop persona, publicly promoting her work and leading a seemingly normal life while helping out in laundering operations.

What happens to the recovered funds?

Thanks to Lichtenstein’s cooperation following his arrest, authorities were able to recover approximately 96 percent of the stolen funds, which will likely be returned to Bitfinex and other potential claimants.

Defense attorney Samson Enzer said “the vast majority of the stolen money was never spent” and that Lichtenstein’s assistance has significantly benefited other ongoing cybercrime investigations.

Lichtenstein’s contributions extended beyond this case; provided crucial information in related investigations, and even testified in a trial involving Bitcoin Fog, a mixing service used to obfuscate cryptocurrency transactions.

Tokens representing the cryptocurrencies bitcoin and ether are submerged in water in this illustration taken on May 17, 2022. File Image/Reuters
Tokens representing the cryptocurrencies bitcoin and ether are submerged in water in this illustration taken on May 17, 2022. File Image/Reuters

Reflecting on his choices, Lichtenstein’s attorney stated, “This is not a bad person, this is a good person who made some very serious mistakes.” However, prosecutors raised concerns about his future potential as a money launderer, warning that his experience with laundering techniques could help in future schemes.

The Bitfinex hack has been recognized as one of the biggest thefts in the cryptocurrency world. According to US District Judge Kollar-Kotelly, “This is so massive that it is not comparable to other crypto crimes based on its scale and complexity.”

Lichtenstein’s skill as a “highly skilled computer expert” contributed to the success of this years-long operation, although the consequences have now caught up with him and his accomplice.

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With contributions from agencies