A $500 Walmart gift card was irrefutable evidence that led to the arrest of a Manhattan husband and wife who called themselves the Wall Street Crocodile in a $4.5 billion bitcoin heist.
Ilya “Dutch” Lichtenstein, 34, and Heather R. Morgan, 31, were arrested this month after they allegedly conspired to launder cryptocurrency stolen in the 2016 hack of Bitfinex, a virtual currency exchange platform. year, which is currently valued at $4.5 billion.
Federal investigators say they were able to hack into a six-year-old and link the couple to the missing cryptocurrency by tracing a $500 gift card after it was sent to a Russian-registered email. The transaction was conducted through an IP address associated with a New York-based cloud service provider that investigators were able to link to Liechtenstein, officials said.
Court documents say portions of the gift card were redeemed through the Walmart phone app and three purchases were made online using Morgan’s name, one of her emails, and the couple’s Wall Street apartment address for delivery.
It was one of more than a dozen other gift cards, including those for Uber, Hotels.com and PlayStation, that investigators were able to trace back to emails and cloud service providers owned by the couple, prosecutors said.
Heather Morgan and Ilya Lichtenstein were accused of creating a scheme to launder $4.5 billion in Bitcoin in 2016.
In this courtroom sketch, lawyer Sam Enzer (center) sits between Heather Morgan (left) and her husband Ilya “Dutch” Lichtenstein in federal court last week.
On Monday, a New York judge freed Morgan pending a federal trial but ordered Liechtenstein’s pre-trial detention over prosecutors’ fears he could seek immunity in Russia, of which he is also a citizen.
“Their financial resources could easily be used to facilitate the flight… and all of them could be used to evade liability in this case,” the judge said.
Morgan is a tech entrepreneur and journalist who has referred to herself as the Wall Street Crocodile in rap songs about investing in meme stocks, fighting the pandemic, and getting high in the graveyard.
The pair are accused of using several methods to launder Bitcoin, including using fake IDs to create accounts; coding computer programs to perform fast automated transactions; depositing stolen funds into multiple accounts on the same crypto exchange to cover their previous transactions; converting bitcoins to other forms of cryptocurrency; and setting up US business accounts to transfer your funds and make them legal.
They are not accused of actually stealing bitcoins during the hack. The hackers were never identified.
Over five years, someone allegedly laundered 119,754 bitcoins through 2,000 transactions on the Bitfinex website before transferring the cryptocurrency to Liechtenstein’s digital wallet.
A $500 gift card for Walmart was sent to an email registered in Russia that investigators were able to link to Liechtenstein.
It emerged in court last week that more than $3.6 billion worth of bitcoin associated with the 2016 hack was confiscated because it was believed to be in cryptocurrency wallets controlled by the couple.
The researchers analyzed the public ledger of transactions for all bitcoins using a process called cluster analysis to find patterns that could reveal groups that appear to have a common source or connection.
One cluster of bitcoin addresses, identified in court documents as 36B6mu, led them to a pair.
“The money laundering allegations in the government’s complaint are based on a series of circumstantial inferences and assumptions drawn from a complex web of tangled blockchain and cryptocurrency tracking claims,” the couple’s lawyers said in a court memorandum.
Bitfinex is a cryptocurrency exchange registered in the British Virgin Islands. In August 2016, hackers managed to breach his security firewall before stealing around 120,000 bitcoins from his customers.
The amount stolen was roughly $70 million at a time when the price of bitcoin was around $600. The cryptocurrency is currently valued at $44,295.60 per bitcoin.
Prosecutors said they seized more than $3.6 billion worth of bitcoin related to a 2016 hack that took place in cryptocurrency wallets controlled by the couple.
When the breach occurred, they said, 120,000 bitcoins were allegedly transferred to a crypto wallet that Liechtenstein still had access to last month.
Prosecutors also said that despite the return of “most of the stolen funds, there are at least 24 virtual current addresses associated with the hack.” [and believed to be in the defendants’ control] for which law enforcement does not have private keys.
“The rest of the addresses hold about 7,500 bitcoins, which are currently valued at more than $328 million,” prosecutors said.
At the time, Bitfinex announced to its customers that they would lose 36 percent of their funds to make up for losses from the incident. Special digital tokens were also created that could track customer losses.
Some of the tokens can be exchanged for shares in iFinex, the company that runs Bitfinex, and other tokens can be redeemed if the stolen bitcoins are returned in the future.
The US Department of Justice has announced that it will create a special lawsuit for hack victims to recover their losses.