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How Feds Aimed To Unravel One Of The Most Notorious Cryptocurrency Heists Of All Time
Ilya Lichtenstein and his wife Heather Morgan have been charged with laundering billions of dollars in Bitcoin.
It’s been described as one of the most notorious cryptocurrency heists of all time.
On Aug. 2, 2016, someone hacked into the virtual currency exchange Binfinex and stole 119,754 Bitcoin, worth an estimated $71 million at the time.
“This was actually a really startling event,” “Unchained” podcast host Laura Shin told CNBC's “American Greed” of the brazen heist.
It would take authorities nearly six years to track down the alleged culprits accused of laundering the stolen money, now worth an estimated $4.5 billion, and reveal a surprising set of suspects, referred to by The New York Times as the “Bonnie and Clyde” of Bitcoin.
Federal authorities arrested Ilya Lichtenstein, 34, and his wife Heather Morgan, 31, in February for allegedly conspiring to launder cryptocurrency in what Deputy Attorney General Lisa O. Monaco described as the "largest financial seizure ever.”
Rather than keep a low-profile after the alleged theft, Morgan did the exact opposite, flooding social media with content and creating an over-the-top persona known as the rapper Razzlekhan.
In one video, Morgan—wearing a gold lamé jacket and traipsing through Wall Street—rapped about being the “crocodile of Wall Street.” In another, while wearing a tiger ski mask, she seemingly alludes to illicit activities, rapping “spearfish your password, all your funds transferred.”
The bizarre persona is a stark contrast from the “professional” vibe Morgan gave off years earlier after graduating with a degree in economics and international relations from the University of California at Davis.
Shortly after graduation, she collaborated on an academic paper with economics professor Travis Lybbert.
“She had a very quick mind,” Lybbert told “American Greed.” “She was very professional, you know, very put together, very aware of her image.”
She soon left the world of academia to pursue entrepreneurship and founded a company aimed at helping companies send cold emails.
Although Morgan seemed more than comfortable sharing her life on social media, she confessed in one YouTube video that she didn’t have a lot of friends as a child and was bullied for being “weird and different.”
“I remember thinking 'The ocean, yeah, it’s big, but I’m a shark,'” she said. “I belong in the ocean, not in a mud puddle or a pond.”
While in California, Morgan connected with Lichtenstein, an entrepreneur who founded the company MixRank.
The government has alleged that the pair was responsible for laundering the nearly 120,000 Bitcoin in 2016 and stashing it in a digital wallet—but it would take years to link them to the crime. No one to date has been formally accused of stealing the money, only laundering it.
“The strange thing about a crypto currency theft is you can see that these 120,000 bitcoins, worth a fortune, have moved into a specific address, but they don’t know who the thieves are,” Andy Greenberg, senior writer with Wired Magazine, explained to “American Greed.” "It’s like just beyond their reach.”
Some of the money was eventually moved into Alpha Bay, a now defunct black marketplace similar to an Amazon.com for illegal goods and activities.
Former prosecutor Grant Rabenn said Alpha Bay offered “mixing and tumbling services” that allowed users to send their dirty crypto currency to the marketplace to have Alpha Bay mix it up with other funds in their possession to try to eliminate the money trail.
Alpha Bay served as somewhat of a “black hole” of activity but in July of 2017 the federal government shut down the service and seized its server. With the seizure, federal agents were now able to see all the illicit transactions stored within the server and used the data to find the transactions allegedly linked to Morgan and Lichtenstein, according to court documents obtained by “American Greed.”
Some of the other Bitcoin was transferred into another form of digital currency known as Monero. The currency had a reputation for being virtually untraceable but some speculate that federal investigators might have found a way to trace the money.
By 2017, the couple had moved to New York City and was living in an expensive Wall Street apartment. Morgan began a journalism career writing for media outlets like Forbes, while Lichtenstein continued to launch various business ventures.
The couple got engaged in a lavish proposal in Times Square two years later.
That same year, the couple traveled to Ukraine where federal authorities have alleged that the couple may have secured fake identities.
“The government compares this trip to a spy novel,” New York Times reporter Ali Watkins said, calling their activities either “really brilliant, or really stupid or just crazy.”
Federal authorities began to close in on the couple in August of 2021 after they secured a search warrant for the couple’s email addresses. They served a second search warrant at the couple’s apartment in January of 2022, seizing $40,000 in cash and a burner phone.
They also allegedly discovered the private keys linked to a digital wallet with the Bitcoin stolen from 2016. Although it was initially encrypted, federal authorities said they were ultimately able to break the encryption to discover the evidence used to tie the couple to the alleged crime.
According to Shin, the couple allegedly spent about $2.9 million of the money, much of it on smaller expenses.
Authorities were able to seize approximately $3.6 billion in cryptocurrency. The government believes the couple still has control of an estimated 7,500 Bitcoin, worth an estimated $146 million.
While Morgan was released to house arrest on a $3 million bond, Lichtenstein is being held without bail while the case against the couple proceeds.
If convicted, the couple could face a possible sentence of up to 25 years.
For more stories like this, watch "American Greed" on CNBC, Tuesdays at 10 p.m. ET.