FiDi Duo Accused of Largest-Ever Money Laundering Scheme Poised to Avoid Trial
According to court documents filed by federal prosecutors, Lower Manhattan residents Ilya Lichtenstein and Heather Morgan will appear in court on August 3, which indicates that they are likely to plead guilty to at least some of the charges filed against them in February 2022. Read more…
Mr. Lichtenstein and Ms. Morgan, who are married, were were arrested on February 7 of last year as FBI agents raided their home at 75 Wall Street. They were charged with possession, through various online accounts, of more than 100,000 Bitcoin, which had been stolen by hackers from a digital exchange, Bitfinex, in 2016. Although never accused of the actual theft (which remains unsolved), they were alleged to have received stolen property, and additionally charged with attempting to launder the proceeds.
The value of that quantity of bitcoin was approximately $71 million at the time of the theft, but due to a speculative explosion in the price of the virtual currency subsequently grew to more than $4 billion. While the perpetrators of the original hack are still unidentified, federal investigators followed the money trail, alleging that six years later the funds landed in “2,000 virtual currency addresses… almost all directly linked to the hack” and controlled by Mr. Lichtenstein and Ms. Morgan.
From those 2,000 addresses, prosecutors allege, Mr. Lichtenstein and Ms. Morgan, “employed numerous money laundering techniques, including: (1) using accounts set up with fictitious identities; (2) moving the stolen funds in a series of small amounts, totaling thousands of transactions, as opposed to moving the funds all at once or in larger chunks; (3) utilizing computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; (4) layering the stolen funds by depositing them into accounts at a variety of [virtual currency exchanges] and darknet markets and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow; (5) converting [Bitcoin] to other forms of virtual currency, including anonymity-enhanced virtual currency, in a practice known as ‘chain hopping;’ and (6) using U.S.-based business accounts to legitimize activity.”
In the wake of these financial acrobatics, prosecutors claim, “law enforcement traced the stolen funds through thousands of transactions to over a dozen accounts in the true name of Lichtenstein, Morgan, and/or their businesses. Law enforcement was also able to determine that numerous accounts set up with fictitious personas and involved in the laundering were, in fact, controlled by Lichtenstein and Morgan.”
Prosecutors also allege that Mr. Lichtenstein and Ms. Morgan converted the stolen bitcoin to other virtual currencies, including “anonymity-enhanced virtual currency,” a form of digital cash that appears specifically designed to conceal the ownership and movement of funds.
Armed with search warrants and court orders, investigators accessed those accounts, and seized the proceeds at the same time they took the couple into custody. At the February 2022 valuation of the stolen Bitcoin, which was around $3.6 billion, this marked the largest-ever seizure by the Department of Justice—not just of cryptocurrency, but of any asset class, including narcotics, real estate, and traditional currencies.
Ms. Morgan, who was an aspiring rap musician under the stage name “Razzlekhan”, described herself on one social media site as the co-founder and CEO of a venture that uses “artificial intelligence to automate identity verification while proactively detecting fraud.” She also claimed to be an expert in “reverse-engineering black markets to think of better ways to combat fraud and cybercrime.”
It appears that Ms. Morgan and Mr. Lichtenstein partnered to launch a tech company named Endpass sometime after the Bitfinex robbery. They described the firm in online postings as “a blockchain startup solving problems in decentralized identity and authentication.”
Mr. Lichtenstein and Ms. Morgan were charged with conspiracy to commit money laundering and “conspiracy to defraud the United States”—a broad category of offenses that includes cheating the government out of property or money, or using deceit to interfere with any of its lawful functions. The first count carries a maximum sentence of 20 years in prison, while the second is punishable by up to five years of incarceration.
Their sudden request for a court appearance next week, made in conjunction with federal prosecutors, is a strong indication that Mr. Lichtenstein and Ms. Morgan have negotiated a deal with the government, which likely entails pleading guilty to some portion of these charges in exchange for a prison sentence less than the maximum that would be possible if they were convicted of every count.
Lawyers representing Mr. Lichtenstein and Ms. Morgan did not respond to a request for comment.