Feds arrest married couple, seize $3.6 billion in hacked bitcoin funds

[Zorro]

Source: Washington Post

The Justice Department announced Tuesday it had seized more than $3.6 billion in bitcoin allegedly stolen as part of a 2016 hack of Bitfinex, saying authorities have also arrested a husband and wife in New York for allegedly trying to launder the cryptocurrency fortune.

Officials said Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were charged with conspiring to launder money. They are accused of trying to launder 119,754 bitcoin that were stolen after a hacker breached the cryptocurrency exchange Bitfinex and initiated more than 2,000 unauthorized transactions. Prosecutors said the bitcoin was sent to a digital wallet controlled by Lichtenstein.

At the time of the theft, that amount of bitcoin was worth about $71 million. But the cryptocurrency has appreciated so much in the years since that the total value is now around $4.5 billion. Federal officials said they were able to seize about 94,000 of the stolen bitcoin, with an estimated value of $3.6 billion.

The case marks the largest single seizure of funds in the Justice Department history, officials said, and is the most high-profile prosecution to emerge from the agency’s newly-announced effort to investigate crimes involving cryptocurrency.

Read more: https://www.washingtonpost.com/national-security/2022/02/08/bitfinex-hack-bitcoin-arrests/

---

Cryptocurrency is just too cryptocryptic for me.

[secondwind]

1. A want no part of this. Nope.

[ancianita]

2. A pretty big f'n deal, this.

It doesn't legitimize cryptocurrency as a world currency, but it's good enforcement.

This is what the Justice Department does while people wonder if it's doing enough re Jan 6.

[PoliticAverse]

3. Despite what some think, crypto is not untracable. n/t

[PSPS]

24. Exactly. Few people seem to know that those "wallets" are all traceable.

[JohnnyRingo]

4. Could have gotten away with it too...

If it wasn't for you meddling Feds.

Wouldn't that piss someone off? They swipe an initial investment and put it in a market that booms. They watch their wealth pile up as the stock skyrockets, but it's just a matter of time before it all falls apart.

I'll bet they wished they just made a legitimate investment, and probably will for about ten to fifteen years.

[Beakybird]

5. To get away with it they would have had to move to Russia and bribe officials.

[ToxMarz]

11. Russian national Ilya Lichtenstein

would probably not have a problem with that. Probably was working with Russian govt hackers

https://www.cbsnews.com/news/ny-couple-launder-cryptocurrency-billions-feds-allege/

[SergeStorms]

19. Or Mar-ma-lardo.

Trump can be bought, and fairly cheaply. Getting cheaper all the time.

[bucolic_frolic]

6. The most secure, unhackable, cheapest, most reliable way to move money

GOT HACKED!! Put that through your crypto minds.

[oldsoftie]

10. Just seems to me that at SOME point someone will figure out the program.

I mean, it was made by a man, so why couldn't it also be decoded by one? Or a group of computers
I'm pretty sure it will all fall apart the week after I invest a substantial amount in it

[localroger]

33. The cryptography behind bitcoin is considered very solid

Some of the other cryptocurrencies a bit less so, as there are compromises. But one of the reasons bitcoin uses so much energy is that it is strongly protected by the most modern cryptographic strategies. If anyone ever did compromise bitcoin it would mean they had also already compromised every algorithm ever used to protect web commerce, a lot of banking, and some seriously important governmental functions. Yes, it was made by a man, but it was made with a strategy, using "one-way" functions that are easy to do in one way but very hard to undo the other way. Crypto may collapse for myriad reasons, but being hacked is unlikely to be one of those reasons for decades at the earliest.

[oldsoftie]

34. But how could it be more secure than our own military or banking programs?

And let me be the first to admit I know less about programming than Donald Trump knows about manners. Its just that we see "hacks" into all kinds of supposedly secure systems all the time, so it just seems to be a matter of time. Or maybe its much more likely that we see "wallets" hacked and crypto stolen

[localroger]

35. Cryptographic strength can become dated

What seemed like a very solid key in 1990 turns out to be not so solid today, especially if your would-be hacker is a government with a supercomputer. The original DES-56 is considered completely compromised. Most modern systems use 256 bit keys, which are still considered unbreakable but there is some concern as to for how long. Bitcoin uses 512-bit keys out of the gate, so it is likely to stay unbroken for much longer. Why didn't early systems use longer keys? They add to the time and processing power needed to code and decode the messages. The same faster machines that make breaking codes practical make more secure codes with longer keys practical too.

[localroger]

14. Actually, Bitcoin wasn't hacked; the exchange was hacked

Exchange users transfer their bitcoin to the exchange, which creates an account in fiat money funded by it. All of these big crypto hacks have involved the exchanges being hacked, either by not securing their own bitcoin wallet where the customers' bitcoin is saved or by hacking the account system which is completely separate from bitcoin itself.

[bucolic_frolic]

16. They like saying they stole the money from the bank but the vault was safe. /nt

[localroger]

18. Not really. You can use bitcoin without using an exchange.

I have had about a quarter of a bitcoin donated to me through the tip jar on my personal website (obviously, long before it got so stupidly expensive). I have cashed nearly all of it out by buying gift cards from eGifter, which uses a service that directly accepts bitcoin for payment. The people who get wiped out in hacks are day traders who keep their "bitcoin" fluid by keeping an exchange account that lets them move between BTC and $$$ to take advantage of momentary price shifts. It's not necessary to do this, and if you use Bitcoin directly through a client like Electrum, you are using a method that has never been hacked. If I had more Bitcoin and wanted to do something larger like buy a house, I'd use the exchange to convert the BTC to $$$ and then immediately transfer the balance to a real bank. As far as the other direction I'd never do anything as stupid as paying $$$ to buy bitcoin myself, but if for some reason I went mad and wanted to, I'd have the exchange transfer the BTC to a wallet under my control immediately to reduce my exposure to the hacking problem.

[JCMach1]

21. Precisely, also before required 2FA security on most exchanges

[justhanginon]

7. Crypto seems related to a Ponzi scheme to me.

[Goonch]

8. ;-{)🖖‍

[keithbvadu2]

9. Some folks have lost their bitcoins because they lost their password.

Some folks have lost their bitcoins because they lost their password.

There's legitimate money to be made if you can hack accounts for a percentage.

[localroger]

30. Such hacking has always involved something off the blockchain

Nobody has ever recovered a password directly from the blockchain. It is far beyond the capability of modern computers, and likely to be beyond even quantum computers (if they can be made to work at all) for some time beyond their initial practical development. Bitcoin is stolen by stealing the passwords from off-blockchain devices such as exchange computer systems or personal hard drives. Or, if you were really stupid and used a short one, guessing. If you have no password you have no access with no recovery mechanism, and if someone else gets your password they can use it to transfer all your bitcoin to a new wallet that's not under your control, and there's no recovery from that either.

Exchanges are a particular weakness because a lot of people who "own bitcoin" actually own an account at the exchange, which they use to do day trades, and the actual bitcoin is in a wallet controlled by the exchange. If that is compromised because the exchange has sloppy security, all their customers are SOL.

[toopers]

36. I remember reading about 1 person . . .

who had earned a significant profit in crypto but forgot his password. He had protected his hard drive or whatever (sorry for the lack of tech knowledge) so that it would automatically wipe clean after a certain number of failed access attempts in a row. When I read the story he stated that he was down to his last chance. I am not sure how that story ended.

[mahatmakanejeeves]

12. lol she has a TikTok

David Weigel Retweeted

lol she has a TikTok

Link to tweet

BREAKING: DOJ says Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, both of New York, were arrested today and charged with money laundering cryptocurrency stolen from Bitfinex in 2016. DOJ says it has recovered a whopping $3.6 billion worth of crypto.

Link to tweet

On her LinkedIn page, Heather Morgan, who was arrested today, calls herself a "serial entrepreneur" and also a "surrealist artist/rapper."

Link to tweet

https://www.linkedin.com/in/untraveling/

[TNNurse]

13. How do you "seize" imaginary currency???

[Tommymac]

22. Do you mean, like, dollars?

'Normal' currency today is all backed by public confidence in it. Really nothing else.

It too could be called 'imaginary' in a lot of respects.

Bitcoin & other e-currency are no different in most respects. If some parties accept it as a legitimate compensation for service performed it is valid to both those parties.

[Eugene]

31. The government calls crypto assets securities, even if their only value is some greater fool to sell

them onward. It stores value like a coupon or a collectable.

Search the computers, find the keys to the wallet(s) and transfer back the stolen digital goods on the blockchain.

[nitpicker]

15. From the DoJ PR

https://www.justice.gov/usao-dc/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency

(snip)
After the execution of court-authorized search warrants of online accounts controlled by Lichtenstein and Morgan, special agents obtained access to files within an online account controlled by Lichtenstein. Those files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex, and allowed special agents to lawfully seize and recover more than 94,000 bitcoin that had been stolen from Bitfinex.
(snip)

The criminal complaint alleges that Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts; utilizing computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; depositing the stolen funds 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; converting bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency (AEC), in a practice known as “chain hopping”; and using U.S.-based business accounts to legitimize their banking activity.
(snip)

[Tommymac]

23. Like many, they didn't get caught stealing, they got caught trying to become honest.

The fruit of thy labors be poisoned no matter what.

Stealing is really not that hard to do without getting noticed.

Yet thieves of this caliber rarely think about the fact that dirty laundry always stinks.

Hiding the stench before you can launder it is hard.

[localroger]

28. They were probably really undone by the explosive rise in value

It's tricky to launder bitcoin because by its nature the blockchain contains a record of every transaction. And of course the more it's worth, the more people will put effort into the detective work. And if they made that work they would also have had to figure out how to explain the part where they went from being regular schmoos to having billions of dollars. They were trying to operate way above their pay grade.

[IronLionZion]

17. I've never trusted crypto or gotten involved in it

but apparently lots of criminals are in it falsely believing that law enforcement can't seize it.

[localroger]

32. They can't, unless you are sloppy

In this case the perps left 96K of the 120K bitcoin they stole (by hacking an exchange to get the password) because the Feds were able to hack their password from a seized device and transfer all the coin. If I had made a score like this the first order of business would be to spread the BTC out across at least a hundred new wallets with randomized passwords and make sue there was no place all the passwords are saved together. I would print the passwords out on separate notes, incinerate the computer I did to use the dispersal, and hide the password notes all over the place, no two in one spot. That way even if they catch you in a transaction and manage to snag that password, they only get that small chunk of the loot. Of course the original dispersal accounts can all be linked to the transfer account from the stolen account by reading the blockchain, but that's when you get busy obfuscating the wallets you intend to use for real world activity. Do it right and there's no way for any one hacking or police action to get more than a small fraction of the whole thing.

That being said, most criminals don't get the "do it right" part.

[Justice matters.]

20. Cryptocurrencies: Millions of tons of Methane (CH4) released by melting permafrost...

in the Arctic circle that would take a lot longer to without cryptocurrencies.

https://climate.nasa.gov/news/2954/nasa-flights-detect-millions-of-arctic-methane-hotspots/

[rockfordfile]

25. A Russian National and bitcoin. Not shocked. Get rid of bitcoin

[Mawspam2]

26. Why is the DOJ involved?

Cryptos big appeal is that it is totally unregulated by government. It is supposed to be a law-free zone. If you are smart enough to hack and steal, good for you, right?

[localroger]

29. Because they didn't hack the cryptocurrency itself, they hacked an exchange

...which is a business operating within a national territory, and stealing from it is a crime under that nation's laws.

[IbogaProject]

27. Our national interest is recovering it from the criminal

So they don't cause problems later. I hope the DOJ starts levying costs and a recovery Commission.

[mahatmakanejeeves]

37. A Crucial Clue in the $4.5 Billion Bitcoin Heist: A $500 Walmart Gift Card

U.S.

A Crucial Clue in the $4.5 Billion Bitcoin Heist: A $500 Walmart Gift Card

Increasingly sophisticated tools and some gift cards helped lead investigators to charge a young couple with conspiring to launder billions

By James Fanelli, Ben Foldy and Dustin Volz
[e-mail]
[e-mail]
https://twitter.com/dnvolz
[e-mail]
Feb. 15, 2022 3:29 pm ET

Federal investigators spent years hunting for clues in the 2016 hacking of the Bitfinex cryptocurrency exchange, when thieves stole bitcoin now worth $4.5 billion. In the end, what helped lead them to two suspects was something much more quotidian: a $500 Walmart gift card.

That card and more than a dozen others like it, including for Uber , Hotels.com and PlayStation, were linked to emails and cloud service providers belonging to a young Manhattan couple, Ilya “Dutch” Lichtenstein and Heather R. Morgan, according to a criminal complaint. Authorities arrested the couple after seizing $3.6 billion worth of bitcoin allegedly in their control—the Justice Department’s largest financial seizure ever.

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