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The inside story of the internet’s most perplexing bitcoin money laundering case

The US Department of Justice (DOJ) recovered USD 3.6 billion in looted bitcoin from the 2016 theft of bitcoin exchange Bitfinex. On February 8, a couple was detained and charged with money laundering concerning the USD 4.5 billion theft. 

What?

Approximately 120,000 BTC were robbed from the exchange in 2016, accounting for a significant portion of the entire circulating quantity at the time. The tokens were valued at roughly $60 million at the time, but are now worth upwards of  $4.5 billion at current values.

The stolen cryptocurrency was transferred to their account via “unauthorised transactions,” with 119,756 BTC transferred out over the last five years. The destiny of the remaining  $900 million tokens is still unclear. The DOJ said that the pair plotting to launder the tokens did not clearly state that they were also the masterminds behind the attack.

Who?

Ilya Dutch Lichtenstein and Heather Morgan have been recognised by US officials as the masterminds behind the looting of 119,756 BTC. The inquiry is still ongoing, although the DOJ has not officially tied them towards the actual hacking of the Bitcoin exchange.

Profile of suspects

Morgan has a sizable following on social media. She wrote “Tips to Protect Your Business from Cybercriminals.” According to some sources, she also had an interview with a bitcoin exchange owner about “how to prevent fraud.” She called herself by the mongol conqueror Genghis Khan’s alias “Razzlekhan,” which she explained on her website related to her.

Since 2009 and 2014, respectively, Lichtenstein and Morgan have described themselves as SalesFolk employees on their LinkedIn profiles. Both Lichtensteins’s and Morgan’s LinkedIn profile include past positions at MixRank, Endpass, and 500 Startups. 

When?

Bitfinex, a Hong Kong-based cryptocurrency exchange, reported theft of at least $65 million in crypto assets in 2016. Hackers stole a total of 119,756 Bitcoins, according to Bitfinex, with the loss being split among the site’s users. It’s important to mention that the compromised cryptocurrency holdings were never withdrawn. This was achievable since the hackers’ addresses were blocked on all other bitcoin exchanges. They were unable to transfer the stolen Bitcoin into fiat cash as a result of this. This is only feasible because bitcoin is based on Blockchain technology, which makes transactions easier to trace.

How were the duo traced?

For the last four and a half years, Bitcoin has been resting in the hackers’ accounts. But, in August 2021, over $760 million in Bitcoin was mysteriously transferred to new cryptocurrency wallet accounts. Authorities were alerted by the large fund movement and were able to track down the hacker’s wallet address.

According to a statement, US officials tracked the stolen money on the BTC blockchain by tracking the shifting of profits from the theft to the first recipient wallet to accounts purportedly held by Lichtenstein and Morgan. As per information, to conduct out the thefts, the guy made thousands of wallets.

Officials decrypted a file “uploaded to Lichtenstein’s cloud storage account” that contained 2,000 cryptocurrency wallet addresses and private keys. The statement said that Blockchain analysis demonstrated that practically every single one of those wallets was directly tied to the hack.

Where did the duo spend the money?

The pair spent their Bitcoins on gold, NFTs, and a USD 500 Walmart gift voucher after transferring them to their crypto wallet. It entails breaking transactions down into “large numbers” of smaller transactions, using darknet markets, and converting them into private coins like Monero.  AlphaBay is one of the platforms allegedly utilised by the pair, according to the US DOJ. According to the complaint, part of the cash was transferred to an account linked to Morgan’s firm, SalesFolk.

What next?

In a statement, Bitfinex said it was working with the Justice Department to “establish its rights to a refund of the stolen bitcoin.” It further stated that they will work with the DOJ to collect the money and that the money would be reimbursed within 18 months of the date.

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