Man Named in $3.6B Bitfinex Bitcoin Laundering Scam Detained

A federal judge in the U.S. ordered the detention of one member of a couple from Manhattan that was arrested last week for conspiracy to launder billions of dollars in stolen bitcoin from the infamous 2016 Bitfinex hack. The husband was ordered to be detained because he is supposedly a master at using fake identities and was deemed a flight risk.

Chief Judge Beryl Howell granted the couple, Ilya Lichtenstein and Heather Morgan, bond. Their parents’ homes were posted as security. “Their financial resources could be easily used to facilitate flight…and could all be used to evade” liability, the judge said.

It appears that Lichtenstein and Morgan could have been preparing to flee, as Lichtenstein had Russian citizenship before COVID-19 hit.

A trail of bitcoin breadcrumbs in the cloud

Last week, the Justice Department seized over $3.6B in laundered bitcoin connected to the Manhattan couple. The couple had posed as seasoned crypto entrepreneurs, with Morgan adopting the persona of someone with a “fearless entrepreneurial spirit and hacker mindset.”

The funds allegedly laundered were worth $70M in 2016 when a hacker attacked Bitfinex and stole the funds via 2000 illegitimate transactions. Keys to these funds were found in the cloud storage of Lichtenstein. After this discovery, U.S. authorities took custody of the funds. However, they had not yet obtained evidence that the couple played any part in the hack.

Prosecutors said they had found counterfeit Russian identity documents on Lichtenstein’s cloud storage account for a male and female.

The couple had been arrested in their New York apartment. Prosecutors sought to detain the couple on the grounds that they had millions of dollars in bitcoin and had bank accounts in Ukraine and Russia.

Evidence circumstantial, says defense

The judge says that Morgan and Lichtenstein could face a sentence of up to 20 years in prison. She has criticized the couple’s lawyers’ endeavors to pass off the keys as circumstantial.

The couple’s lawyers indicated that the accusations of money laundering are “predicated on a series of circumstantial inferences and assumptions drawn from a complex web of convoluted blockchain and cryptocurrency tracing assertions.”

Samson Enzer, one of the couple’s lawyers, said that in his opinion, the government could prevent access to the cryptocurrency accounts still accessible to the couple. He also pointed out that the couple didn’t try to flee when their apartment was searched and used that to argue that the couple wouldn’t escape if they were released.