September 24, 2023

‘Bitcoin Bonnie and Clyde’ plead guilty in Bitfinex hacking case

Shockwaves rippled through the cryptocurrency world in the summer of 2016 when 119,754 bitcoin, worth around $71 million at the time, disappeared from the digital coffers of the Hong Kong-based exchange Bitfinex through thousands of unauthorized transactions. Over the next half-decade, that crypto cache exploded in value, reaching the billions — yet the identity of the mastermind behind one of the largest heists in crypto history remained a mystery.

That is until Thursday, when tech entrepreneur Ilya “Dutch” Lichtenstein admitted in federal court to hacking Bitfinex seven years ago. He and his wife, Heather Morgan, a marketing expert who moonlights as a rapper, were arrested last year on money laundering charges. Dubbed “Bitcoin Bonnie and Clyde,” the couple was accused of trying to launder a fraction of the stolen bitcoin — 25,000 to be exact. The rest — worth approximately $3.6 billion — remained in a digital wallet that federal authorities eventually gained access to, leading to the largest single seizure of funds in Justice Department history.

Still, neither Lichtenstein nor Morgan had been implicated in the hack itself — until Lichtenstein delivered the bombshell revelation in the same Washington courthouse where former president Donald Trump would be indicted hours later.

On Thursday, Lichtenstein pleaded guilty to conspiracy to commit money laundering and now faces up to 20 years in prison. His wife entered a guilty plea to one count of money laundering conspiracy and one count of conspiracy to defraud the United States, each of which carries a maximum penalty of five years in prison.

Attorneys for Lichtenstein and Morgan didn’t immediately respond to requests for comment from The Washington Post. A sentencing date still hasn’t been scheduled.

Deputy Attorney General Lisa Monaco announced the “largest seizure of cryptocurrency ever” on Feb. 8, charging a New York couple with laundering the proceeds. (Video: Reuters)

When the Department of Justice announced the arrests in February 2022, the internet became enthralled by Lichtenstein and Morgan, not merely because of the case’s bizarre twists and complexities but also because of Morgan’s expansive and quirky social media footprint.

Lichtenstein was the more low-key figure in the husband-and-wife duo — a dual citizen of Russia and the United States who grew up in a Midwest suburb and whose high school friend described him as “introverted but really tech-savvy.” Morgan, however, showcased two somewhat distinct personas across her numerous social media profiles: one as an ambitious business executive and writer, and another as the self-proclaimed “Crocodile of Wall Street,” a surrealist rapper with “more pizazz” than Genghis Khan.

Meet the ‘Crocodile of Wall Street’ rapper accused of laundering billions of dollars in crypto

Following their arrests, the songs Morgan released under her artistic name “Razzlekhan,” which she described as “horror-comedy, with a splash of weird allure,” were dissected across Twitter. Her videos — including one of Morgan marveling at the size of her plate of pancakes and another of her strutting down the streets of Manhattan in a shiny gold jacket — were broadly shared. The reactions they elicited ranged from mocking to incredulity — and many were left flabbergasted at the prospect of such unorthodox characters pulling off a complex scheme investigators said required a “sophisticated laundering technique.”

Court documents describe how Lichtenstein on Aug. 2, 2016, employed a slew of advanced hacking tools and techniques to purloin 119,754 bitcoin, or more than half of Bitfinex’s inventory at the time, in under four hours. According to prosecutors, Lichtenstein transferred the coins to a cryptocurrency wallet under his control through more than 2,000 transactions and then covered his tracks by deleting the access credentials in Bitfinex’s network.

What happened next was the financial equivalent of stealing a pumpkin and having it suddenly turn into a magical horse carriage. At the time of the hack, bitcoin’s value hovered around $600 — but the price skyrocketed over the years, reaching a peak of more than $68,000 in 2021. As the money grew, the couple attempted to launder it by funneling the funds into dark-net marketplaces, converting the bitcoin into other forms of cryptocurrency, opening accounts under false names and moving the stolen funds in thousands of small-sum transactions to avoid detection, according to prosecutors.

A tiny amount of the funds was also spent on non-fungible tokens (NFTs), as well as a Walmart gift card and payments to Uber, and PlayStation, according to a criminal complaint.

During Thursday’s plea hearing, prosecutors said Lichtenstein had used the assets to buy gold coins, which Morgan helped bury in California, Reuters reported. The two also traveled to Ukraine and Kazakhstan to meet with middlemen to convert the bitcoin into cash, which was then shipped to addresses in Russia and Ukraine and subsequently picked up to be deposited into American accounts, prosecutors said.

The couple’s activities in Ukraine “at times appear pulled from the pages of a spy novel,” prosecutors wrote in a court filing last year — and they “appear to have been setting up a contingency plan for a life in Ukraine and/or Russia prior to the COVID-19 pandemic.”

Those alleged plans, however, came crashing down on Jan. 5, 2022, when federal agents searched the couple’s home in New York City. There, authorities encountered a slew of materials that raised alarms: $40,000 in cash and a “substantial amount” of foreign currency, a set of hollowed-out books and a list of vendors selling fake passports, according to court documents.

Investigators also found multiple cellphones — inside a bag labeled “Burner Phone.”

Lichtenstein and Morgan were arrested on Feb. 8, 2022. Three days later, Netflix commissioned a series about the couple’s scheme, which is set to be directed by the executive producer of “Tiger King.”

And while it’s unclear when the streaming giant’s take will debut, CNBC’s “American Greed” docuseries devoted an episode to Lichtenstein and Morgan in October. A Hulu series starring Lily Collins as Morgan is also in the works.