Couple Accused of Laundering Bitfinex Funds Agree Plea Deal

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Ilya Lichtenstein and his wife Heather Morgan, also known as Razzlekhan or the “Crocodile of Wall Street,” face accusations of assisting in the laundering of over 120,000 stolen Bitcoin from Bitfinex in 2016.

The accused couple has reached a plea deal with US authorities, and prosecutors must submit a copy of the agreement by July 27, following orders from senior judge Colleen Kollar-Kotelly.

Based on the evidence presented in their case, it is anticipated that the couple will confess their guilt in court on August 3.

Accused Couple to Forfeit All Digital Assets Connected to Bitfinex

The stolen Bitcoin, valued at around $70 million during the crime, surged to over $4 billion when the money launderers were apprehended in February 2022.

In a joint effort by the FBI, IRS-CI, and HSI, American authorities have successfully retrieved around 94,000 of the approximately 119,754 stolen Bitcoins.

Additional investigations revealed an extra 12,267 Bitcoins in undisclosed transactions on August 9, 2022, followed by the discovery of 1,155 more Bitcoins on November 18, 2022, and an additional 2.5 Bitcoins on January 5.

American officials have now recovered more than 108,068 Bitcoins with the second, third, and fourth recoveries.

The forfeiture many and I mean many wallets
Source: https://t.co/WtJ3270dYU
“It was the object of the conspiracy for the defendants, MORGAN and Lichtenstein, to unlawfully enrich themselves by laundering the proceeds of the hack and scheme to defraud the victim virtual… pic.twitter.com/wz1Jai0np0

— File411 (@File411) July 21, 2023

Lichtenstein and Morgan, accused of conspiring to defraud the United States and money laundering, are expected to relinquish any related digital assets.

Reuters reports that authorities are pushing for the forfeiture of assets valued at approximately $3 billion from Morgan and Lichtenstein, including cash from bank accounts, stolen cryptocurrencies, and gold coins recovered in California.

The maximum punishments for these offenses are 20 years in jail and five years in prison, respectively.

US Enforcement Agencies Turn Up The Heat on Crypto Crime

During the detainment of Lichtenstein and Morgan, the U.S. Department of Justice seized a substantial amount of laundered Bitcoin, marking a significant financial gain.

However, only a small portion of the attack-related BTC has been returned to Bitfinex by authorities to aid in recovering victim assets.

This case highlights how the blockchain’s immutable ledger could aid anti-money laundering efforts and support rehabilitation initiatives.

US law enforcement is taking a proactive approach to combat crimes and illegal activities in the cryptocurrency sector. The Justice Department has announced the expansion of its team focused on investigating cryptocurrency-related offenses, doubling the number of prosecutors to handle the increasing caseload for crypto crimes.

Last year, the SEC enlarged its Crypto Assets and Cyber Unit to investigate suspicious crypto asset schemes and enhance investor protection in the cryptocurrency markets.

US enforcement agencies are intensifying their monitoring efforts as cryptocurrencies are increasingly used by the criminal underworld, according to multiple authorities.

Regulating cryptocurrencies in the United States falls under the purview of various regulatory bodies, as there are no federal laws specifically governing their usage. Congress is expected to pass legislation to formally establish cryptocurrencies and outline their regulatory framework, potentially sending it to the President for approval.

Buzz Around the Case Grows

The couple was arrested in Manhattan in 2016 for an alleged conspiracy, sparking widespread online discussion.

Lichtenstein and Morgan are accused of employing advanced money-laundering tactics, such as using fake names for online accounts, automated transactions through computer programs, and engaging in illicit transactions. The hackers initiated more than 2,000 unauthorized transactions to execute the theft, as stated in the court documents.

The stolen Bitcoin was sent to a digital wallet owned by Lichtenstein, and over five years, approximately 25,000 of the stolen Bitcoin were moved through a complex money-laundering process. Some of the stolen funds ended up in accounts controlled by Lichtenstein and Morgan.

Here's what just one of the forfeiture descriptions in the Information for Ilya Lichtenstein and Heather Morgan, who look set to plead guilty to 3 counts of conspiracy and money laundering.

My BTC conversion math sucks but it's 118,102.03258447.https://t.co/LVUmSvUDvz pic.twitter.com/GHn57cmZra

— emptywheel ceci n'est pas un checkmark (@emptywheel) July 21, 2023

At the time of their arrest, the defendants were found to possess over 94,000 bitcoins from the stolen money, which they allegedly laundered and concealed in a methodical and calculated scheme, as stated by Jim Lee, Chief of IRS-Criminal Investigation.

Special agents executed court-authorized search warrants to access files in a cloud storage account belonging to Lichtenstein. These files contained the private keys required to access the digital wallet that directly received the stolen BTC.

An extensive accounting spreadsheet with login details and account statuses from various virtual currency exchanges, including information about suspended or emptied accounts, was found in the same cloud storage.

“The cloud storage account contained a folder holding data files for numerous financial institutions with notes that appear to be reconnaissance of potential laundering avenues,” a court document details.

In addition to containing various people’s bios and identification documents, the account had a “personas” folder, and evidence linked it to multiple darknet vendor accounts selling passports and ID cards.

Morgan and Lichtenstein, a notorious couple accused of a high-profile heist, were active public figures online throughout the alleged incident. Morgan, also known as “Razzlekhan,” was a rapper, while Lichtenstein, a part-time magician and serial entrepreneur, managed a YouTube channel.

Their eccentric personal lives and suspected crimes have attracted attention, prompting Netflix to develop a show about them, though its release is still pending.

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