Husband jailed, wife freed in alleged laundering of $3.6 billion in hacked bitcoin funds
Judge in DC federal court on Monday jailed New Yorker Ilya “Dutch” Lichtenstein, but set free his wife, Heather Morgan
Couple await trial on charges alleging they tried to launder $4.5 billion in bitcoin, stolen during a hack
Feds have recovered $3.6 billion of the stolen bitcoin after discovering digital keys during search of the couple’s home
Judge Beryl A. Howell called the government’s evidence against tech entrepreneur Lichtenstein, 34, and his wife, rapper Morgan, 31, “so weighty as to be overwhelming”
Judge during detention hearing, cited large quantity of cash, 50 electronic devices, bitcoin wallets, hollowed-out books for cryptokeys, and a bag marked “Burner Phone”
In denying bail for Lichtenstein, Judge Howell cited the electronic equivalent of a “smoking gun”
These include seized encrypted key codes in his cloud storage account that unlocked the largest single seizure of funds in DOJ history
Howell rejected Lichtenstein’s pledge of a $5 million bond and his parents’ home
His wife and co-conspirator Heather Morgan was freed after posting a $3million bond that includes her parents’ home
Confined to home incarceration with electronic monitoring, Morgan has strict limits on access to virtual currency accounts
A U.S. judge on Monday jailed a New York husband but set free his wife as they await trial on charges alleging they tried to launder $3.6 billion in stolen bitcoin. Evidences recovered during a search of the accused couple’s home after their Feb 8 arrest, proved to be decisive during a detention hearing Monday in the District of Columbia.
Chief U.S. District Judge Beryl A. Howell of Washington cited searches of the couple’s apartment and office that yielded $40,000 in cash, more than 50 electronic devices and bitcoin wallets, hollowed-out books and a bag marked “Burner Phone.”
Judge Howell of Washington said the government’s evidence against tech entrepreneur and dual U.S.-Russia citizen Ilya “Dutch” Lichtenstein, 34, and his rapper wife, Heather Morgan, 31, “so weighty as to be overwhelming.”
Making her decision, Judge Howell pointed to what she called the electronic equivalent of a “smoking gun” – the encrypted key codes in Lichtenstein’s cloud storage account that unlocked the largest single seizure of funds two weeks ago in Justice Department history. The judge rejected Lichtenstein’s pledge of a $5 million bond and his parents’ home. She ordered him held at the D.C. jail during his trial for charges related to money laundering and conspiracy.
For Morgan however, the judge accepted a $3 million bond package that included her parents’ home. She was released her to home incarceration with electronic bracelet monitoring and strict limits on her access to virtual currency accounts. The judge also noted that the evidence presented by the prosecution suggest that Morgan’s alleged lies and evasions to financial institutions came only at the back end of withdrawing laundered funds.
Howell credited prosecutors’ depiction of the couple as “extraordinarily sophisticated” cyber criminals and money launderers whose risk of flight “increased exponentially” upon their arrest, which could expose each to decades behind bars if convicted.
“Finances are available to the defendant that could easily be used to finance flight” and avoid accountability for their alleged conduct, Howell concluded. “They also have skill sets to access and evade detection,” including roughly $200,000 in one-ounce gold coins that the couple apparently had delivered to home addresses in California and New York.
At the time of the 2016 hack of Bitfinex, the stolen bitcoin was worth about $71 million. But its value has appreciated to more than $5 billion, far more than the $3.6 billion worth of bitcoin seized, and law enforcement estimates that at least $368 million in cryptocurrency linked to the hack remains unsecured. At the same time, prosecutors allege, Lichtenstein’s files indicate he researched and identified “vetted” dark net vendors of fake banking, passport and identification credentials. Authorities also accuse him of making transactions and taking a delivery of a package obtained from such a vendor in a Ukraine hotel in September 2019, setting up financial accounts in Russia, and possessing a portfolio of Russian and Ukrainian male and female “personas,” with biographical and identification records.
While U.S. prosecutors said neither Lichtenstein nor Morgan are “currently charged” in the 2016hack of the cryptocurrency exchange Bitfinex, Howell said proof that Lichtenstein controlled accounts that the stolen funds were sent to “does not get more direct” than his control of their access keys. The judge also cited a spreadsheet listing fictitious accounts and other information allegedly used in hundreds of laundering transactions.
“Both defendants conspired to transfer and launder proceeds of unlawful activity,” Howell said.
The judge added that when federal agents searched the couple’s Manhattan apartment in January, Morgan used the opportunity of retrieving their pet cat from underneath a bed to grab her cellphone from a nightstand and repeatedly hit the lock button, prompting law enforcement to wrest it away from her. Under the same bed, agents located a bin containing various bags holding multiple cellphones, SIM cards and assorted electronics, including a bag labeled “Burner Phone,” Howell said, citing prosecutors.
In seeking bond, the couple argued that they have extensive family in the United States and no criminal history, and that they have not attempted to flee since learning of the government investigation into
That includes a Jan. 5 FBI search and the Jan. 31 seizure of 94,000 of 119,754 bitcoin stolen after a 2016hack. In addition, Morgan’s lawyers said she underwent breast surgery that tested negative for cancer on Jan. 31 and is still recovering.
Pointing out the presence of the couple’s parents and a sibling in court, defense lawyers argued that their future was literally in New York because they had fertilized embryos in storage in hopes of starting their own family. Pelker argued in response, “It’s incredibly difficult to have and raise children if you’re in jail for 25 years, it’s really more incentive for them to flee.”
“The Government’s flight risk concerns are belied by the fact that Ms. Morgan and Mr. Lichtenstein both stayed put in their residence in Lower Manhattan in New York even after learning of the Government’s investigation targeting them in this case,” attorney Samson Enzer argued in court filings and a Monday afternoon bond hearing in Washington.
Countering, prosecutors told the court that the couple had both means and skill sets to travel, evade detection and create new lives abroad.
“Lichtenstein is a dual Russian national, both Defendants have traveled extensively and have foreign ties, and evidence uncovered in the investigation indicates preparation to obtain false passports,” Assistant U.S. Attorney Christopher B. Brown and Justice Department computer crime trial attorneys Jessica Peck and Catherine Pelker argued in court filings.
“The government doesn’t doubt the sincerity of their parents, but several hundred million dollars in cryptocurrency can buy a new house, it can by each of their parents a private island and buy them access to medical care,” Pelker added.
The couple’s lawyers noted the presence of their parents and a sibling in court and argued that their future was literally in New York because they had fertilized embryos in storage in hopes of starting their own family. Pelker argued in response, “It’s incredibly difficult to have and raise children if you’re in jail for 25 years, it’s really more incentive for them to flee.”
Prosecutors also showed a purported photos one of two hollowed-out books allegedly found in Lichtenstein’s office, whose pages appeared to be roughly cut out by hand leaving empty compartment, and argued the couple also purchased over 70 one-ounce gold coins, worth about $200,000, that were not found at the couple’s home or storage unit.
An affidavit filed by an IRS agent against the couple alleges they spent only a small fraction of the stolen money, some of it on gold and some on non-fungible tokens, or NFTs, unique digital representations that are sold or traded as works of art or collectibles. Other payments were made for a Walmart gift card as well as payments to Uber, Hotels.com and PlayStation, according to the charging papers.
Morgan has a rap persona of Razzlekhan, the self-proclaimed “Crocodile of Wall Street,” according to her attorneys, is a journalist and chief executive of a sales consulting business.
She claims to have worked in Hong Kong and Cairo, including stints with the World Bank. Growing up in a small town in northern California and graduating from the University of California at Davis.
Ilya Lichtenstein, a self-described “tech entrepreneur, explorer, and occasional magician”, is a transplant from Russia, who grew up in suburban Chicago after his family emigrated to the United States to avoid religious persecution.
Graduating from the University of Wisconsin at Madison he co-founded MixRank, a sales firm.