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US authorities arrested a couple in New York on February 8 suspected of attempting to launder BTC from the Bitfinex hack. The value of the BTC stolen in 2016 is now 4.5 billion US dollars, the authorities were able to confiscate BTC for the equivalent of 3.6 billion US dollars. The couple is now facing charges of money laundering. They face up to 20 years in prison, in addition to a maximum of five years for conspiracy to defraud the United States.
Bitfinex hack
In 2016, hackers were able to withdraw 119,754 BTC from the Bitfinex exchange through a vulnerability in the MultiSig solution. The loss at the time was $71 million. Numerous cheated investors were left behind who are still waiting for compensation to this day.
Since then, authorities and perpetrators have been playing cat and mouse. Time and again, traces were left on the blockchain that prosecutors put on the trail. Since the BTC from the hack was identified and branded, the perpetrators could not sell them on trading venues in the regular way. Instead: blackout tactics.
A maze of crypto transactions
“In a vain attempt to maintain digital anonymity, the defendants laundered stolen funds through a maze of cryptocurrency transactions,” Assistant Attorney General Lisa Monaco explained in one opinion of the Ministry of Justice. According to the report, 25,000 of the BTC stolen by Bitfinex were transferred in the last five years via a “complicated money laundering process”. The remaining 94,000 bitcoins were in the hacker’s wallet.
The suspects are said to have used “sophisticated money laundering techniques” to cover their tracks, it said. They are said to have set up a number of online accounts for fictional people and used “computer programs to automate transactions”. BTC is also said to have been laundered via Darknet marketplaces and with the help of mixing, a method for anonymizing crypto transactions.
Eventually, “special agents” gained access to online accounts of one of the alleged perpetrators. They were able to secure files with the private keys and use them to access the wallet where the funds stolen from Bitfinex were directly deposited. More than 94,000 bitcoins were confiscated in this way, the equivalent of 3.6 billion US dollars.
Wall Street Crocodile
According to the Justice Department, the suspects are Ilya “Dutch” Lichtenstein, 34, and his wife Heather Rhiannon Morgan, 31. As meticulous as the couple was in obliterating their footprints on the blockchain, the couple were liberal with their internet presence.
Between 2017 and 2021, Heather Morgan written for the business magazine Forbes. In her bio, Morgan says of the “international economist, serial entrepreneur and investor in B2B software companies” that she is “reverse-engineering black markets to find better ways to fight fraud and cybercrime.” This is ironic given the recent allegations surrounding the Bitfinex hack.
Morgan has also tried her hand as a rapper – with modest success. On Youtube is a Video to find, in which Morgan aka “Razzlekhan” stylized as “Crocodile of Wall Street”. One line of lyrics reads “This Song is for the Entrepreneurs and Hackers”.
Lichtenstein is not a blank slate either. The tech entrepreneur with Russian and US citizenship is the founder of the blockchain start-up Endpass and was previously the CEO of MixRank. According to LinkedIn, his expertise lies “in scaling B2B sales, automating business processes and scaling outbound marketing”.
Not a safe haven for money laundering
Various agencies were involved in the investigation, including the Washington Cyber Crimes Unit and the FBI. The police department in Ansbach in Germany is said to have supported the investigation.
With the arrest, the National Cryptocurrency Enforcement Team, a special unit of anti-money laundering and cybersecurity experts launched four months ago, finally landed the biggest coup, as Monaco’s Deputy Attorney General explains: “Today’s arrests and the biggest financial one yet Department seizures show cryptocurrency is not a safe haven for criminals.”
The reaction in the crypto market
The echo on the crypto market was inevitable. LEO, Bitfinex’s exchange token, is up 50 percent on the day. Investors are apparently speculating that Bitfinex will lose its announcement true, and using 80 percent of the refunded funds from the hack to buy back and burn LEO tokens.
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