Feds arrest couple, seize $3.6B in bitcoin stolen from Bitfinex in 2016

The U.S. Department of Justice has arrested a New York couple and seized more than $3.6 billion in bitcoin linked to the 2016 hack of Bitfinex.

The couple, Ilya Lichtenstein and his wife Heather Morgan are alleged to have conspired to launder the proceeds of 119,754 bitcoin stolen from Bitfinex after a hacker breached Bitfinex’s network and initiated more than 2,000 unauthorized transactions. The stolen bitcoin was sent to a digital wallet in Lichtenstein’s control, with approximately 25,000 bitcoin transferred out of the wallet over the last five years via a money laundering process.

Some of the stolen funds were then deposited into financial accounts controlled by Lichtenstein and Morgan, with the remaining 94,000 bitcoin being stored in the original wallet.

Following the execution of a warrant, special agents were able to obtain access to files within an online account controlled by Lichtenstein. Those files contained private keys to access the digital wallet holding the stolen bitcoin, allowing them to seize and recover the bitcoin.

Notably, the couple has not been charged with hacking Bitfinex versus laundering the funds. The complaint alleges that Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts and utilizing computer programs to automate transactions. The latter is a laundering technique that allows for many transactions to take place in a short period.

The couple is then alleged to have deposited the stolen funds into accounts at various virtual currency exchanges and darknet markets and then withdrew the funds to obfuscate the trail of the transaction history by breaking up the fund flow. They are also alleged to have converted bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency and using U.S.-based business accounts to legitimize their banking activity.

“In a methodical and calculated scheme, the defendants allegedly laundered and disguised their vast fortune,” Chief Jim Lee of IRS-Criminal Investigation said in a statement. “IRS-CI Cyber Crimes Unit special agents have once again unraveled a sophisticated laundering technique, enabling them to trace, access and seize the stolen funds, which has amounted to the largest cryptocurrency seizure to date, valued at more than $3.6 billion.”

The value of the stolen bitcoin, being in the billions, is what the stolen bitcoin is worth at the time of seziure. At the time of the hack, the 119,756 was worth $65.6 million. Bitfinex, which is still alive and well today, first responded to the hack by taking 36% of the balance of customers’ bitcoin holdings to offset the loss. Bitfinex later offered the affected customers equity in the company in compensation for the loss imposed on them.

The couple has been charged with conspiracy to commit money laundering, with a maximum sentence of 20 years in prison and conspiracy to defraud the U.S., which has a five-year maximum sentence.

Image: zcopley/Flickr