The millennial couple accused on Tuesday of trying to launder $4.5 billion in stolen cryptocurrency is story straight out of a Hollywood script.
Heather Morgan, also known as the “Crocodile of Wall Street”, was a would-be rapper and online contributor about cryptocurrency news to the news site Forbes.
Her husband, Ilya “Dutch” Lichtenstein, described himself in a 2018 blog post as a “tech entrepreneur, explorer, and occasional magician.”
Living relatively unremarkable lives, they were suddenly thrust into the spotlight by their arrest in Manhattan and accused of taking part in one of the biggest crypto crimes ever. Federal law enforcement alleged they had played a key role in laundering a horde of nearly 120,000 Bitcoins from the 2016 hacking of crypto exchange Bitfinex.
Authorities did not say Morgan or Lichtenstein had hacked Bitfinex themselves.
What the Justice Department said stopped them was the underpinnings of cryptocurrency technology, known as blockchain, which leave a trail that law enforcement can follow. Cryptocurrency exchanges that they tried to use also served as a roadblock by asking for information about where the crypto came from.
Deputy Attorney General Lisa O. Monaco even went so far as to say in a press release that the seizures “show that cryptocurrency is not a safe haven for criminals.”
According to a special agent assigned to the Internal Revenue Service, Morgan and Lichtenstein ran into major trouble in trying to launder the stolen Bitcoin. The exchanges they used repeatedly froze their accounts after failing to get clear answers about where the cryptocurrency came from, forcing them, in some cases, to abandon the huge stash of wealth.
In one instance, Morgan said in an email to a virtual currency exchange identified by the pseudonym VCE 7 that Lichtenstein had given her the Bitcoin in 2014 and 2015.
According to the Justice Department, “This claim is belied by the blockchain,” which showed that Morgan had received most of the deposits from anonymous accounts with another crypto exchange, VCE 4.
In another example from 2017, the couple allegedly set up at least seven accounts at another crypto exchange under the names of third parties who were unrelated to them. When the exchange contacted the owners of the accounts for additional information to verify ownership and received no response, it froze them all.
In that case alone, the couple, according to authorities, lost the equivalent of $186,000 in cryptocurrency.
The verification process, part of “know your customer” rules, have become the norm for many crypto exchanges. In 2019, the then-director of the Financial Crimes Enforcement Network, Kenneth Blanco said that the U.S. government would strictly enforce a rule requiring companies such as digital asset exchanges and crypto wallet providers to share information about their customers, according to Reuters.
In the end, most of the stolen cryptocurrency was recovered. The government said it had seized 94,636 stolen Bitcoin worth $3.6 billion. Another roughly 25,000 Bitcoin, worth $1 billion, was unaccounted for.
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