A $500 Walmart gift card was the smoking gun that led to the arrest of a Manhattan husband and wife – who dubbed herself the Crocodile of Wall Street – 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 that was stolen during the 2016 hack of Bitfinex, a virtual currency exchange platform.
Federal investigators say they were able to crack the six-year-old case and tie the couple to the missing cryptocurrency by tracking the $500 gift card after it was sent to a Russian-registered email. The The transaction was conducted via an IP address linked to a cloud service provider in New York that investigators were able to tie to Lichtenstein, officials said.
Court documents said that portions of the gift card were redeemed through Walmart’s phone app and three purchases were conducted online using Morgan’s name, one of her emails, and the couple’s Wall Street apartment address for delivery.
That was one of more than a dozen other gift cards – including for Uber, Hotels.com and PlayStation – that investigators were able to trace back to emails and cloud service providers belonging to the couple, according to prosecutors.
Heather Morgan and Ilya Lichtenstein have been accused of creating a scheme to launder $4.5 billion in bitcoin in 2016
In this courtroom sketch, attorney Sam Enzer, center, sits between Heather Morgan, left, and her husband, Ilya ‘Dutch’ Lichtenstein, in federal court last week
On Monday, a New York City judge freed Morgan, pending trial by a federal court, but ordered the pretrial of Lichtenstein due to detention prosecutors’ fears that he could seek immunity in Russia, where he is also a citizen.
‘Their financial resources could be easily used to facilitate flight…and could all be used to evade’ liability in this case, the judge said.
Morgan is a tech entrepreneur and journalist who called herself the Crocodile of Wall Street in rap songs about investing in meme stocks, dealing with the pandemic and getting high in a cemetery.
The couple are accused of using several techniques to launder Bitcoin, including using fake identifies to create accounts; coding computer programs to execute fast, automated transactions; depositing stolen funds in several accounts across one crypto exchange to cover their previous transactions; converting Bitcoin to other forms of cryptocurrency; and creating US-based business accounts to wire their funds and make them seem legitimate.
They are not being accused for actually stealing the bitcoin in the hack. The hackers have never been identified.
Over five years, someone allegedly laundered 119,754 bitcoin through 2,000 transactions on Bitfinex’s website before transferring the crypto funds into Lichtenstein’s digital wallet.
A $500 gift card for Walmart was sent to a Russian-registered email that investigators were able to link to Lichtenstein
It revealed last week in court that more than $3.6 billion worth of bitcoin linked the 2016 hack has been seized having allegedly been in crypto wallets controlled by the couple
Investigators analyzed the public transaction ledger for all Bitcoin using a process called cluster analysis to find patterns that can reveal groups that seem to share a common source or connection.
One cluster of bitcoin addresses, identified in court filings as 36B6mu, was the one that led them to the couple.
‘The money laundering accusations in the Government’s complaint are predicated on a series of circumstantial inferences and assumptions drawn from a complex web of convoluted blockchain and cryptocurrency tracing assertions,’ the couple’s lawyers said in a court memo.
Bitfinex is a cryptocurrency exchange registered in the British Virgin Islands. In August 2016, hackers were able to breach its security firewall before stealing about 120,000 bitcoin from its customers.
The amount that was stolen was worth roughly $70 million at the time, when the price of bitcoin was around $600. The cryptocurrency is currently valued at $44,295.60 for one bitcoin
Prosecutors said they had seized more than $3.6 billion worth of bitcoin linked to the 2016 hack that was held in crypto wallets controlled by the couple.
When the breach occurred, 120,000 bitcoins were allegedly transferred into a crypto wallet that Lichtenstein still had access to the last month, they said.
Prosecutors also stated how despite having recovered ‘the majority of the stolen funds, there are at least 24 virtual current addresses linked to the hack [and believed to be in the defendants’ control] for which law enforcement does not possess the private keys.
‘The remaining addresses contain about 7,500 bitcoin, which is currently valued at over $328 million,’ prosecutors said.
At the time, Bitfinex announced to its customers that they would lose 36 percent of their funds to compensate for the losses from the incident. It also created special digital tokens that were able to keep track of customers’ losses.
Some of the tokens could be exchanged for shares of iFinex, the company that operates Bitfinex, while other tokens could be redeemed if the stolen bitcoins were recovered in the future.
The US Department of Justice announced that it would create a special judicial process for victims of the hack to reclaim their losses.