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Feds charge couple with trying to launder billions in stolen bitcoins

The recovered bitcoins were valued at over $3.6 billion at the time of seizure. At the time they were stolen, they were worth $71 million.
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The Justice Department said Tuesday it has seized more than $3.6 billion in cryptocurrency and arrested two people in connection with the 2016 hack of a virtual currency exchange.

It’s the Justice Department’s largest financial seizure ever, officials said.

“Today, federal law enforcement demonstrates once again that we can follow money through the blockchain, and that we will not allow cryptocurrency to be a safe haven for money laundering or a zone of lawlessness within our financial system,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division.

The blockchain is a shared online ledger of cryptocurrency transactions.

Arrested in Manhattan on Tuesday were Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31. They were scheduled to make initial appearances in federal court in Manhattan at 3 p.m.

According to court documents, Lichtenstein and Morgan are alleged to have conspired to launder the proceeds of 119,754 bitcoins that were stolen from a platform called Bitfinex after a hacker breached Bitfinex’s systems and initiated more than 2,000 unauthorized transactions.

The stolen bitcoins were sent to a digital wallet under Lichtenstein’s control, prosecutors said.

Prosecutors said around 25,000 of the stolen bitcoins were transferred out of Lichtenstein’s wallet through a series of laundering transactions that ended with some of the stolen funds' being deposited into financial accounts controlled by Lichtenstein and Morgan. 

The rest of the stolen funds, more than 94,000 bitcoins, remained in the wallet used to receive and store the illegal proceeds from the hack, the Justice Department said. On Tuesday, the price of one bitcoin was around $43,400. The recovered bitcoins were valued at over $3.6 billion at the time of seizure. At the time they were stolen, they were worth $71 million.

Investigators with warrants used searches of online accounts controlled by Lichtenstein and Morgan to obtain the private keys that allowed special agents to lawfully seize and recover more than 94,000 bitcoins that had been stolen from Bitfinex, prosecutors said.

“Cryptocurrency and the virtual currency exchanges trading in it comprise an expanding part of the U.S. financial system. But digital currency heists executed through complex money laundering schemes could undermine confidence in cryptocurrency,” said U.S. Attorney Matthew M. Graves of the District of Columbia. “The Department of Justice and our Office stand ready to confront these threats by using 21st century investigative techniques to recover the stolen funds and to hold the perpetrators accountable.” 

The criminal complaint alleges that Lichtenstein and Morgan used sophisticated laundering techniques to try to spread the bitcoins around outside the view of the government. But it didn’t work.

“Criminals always leave tracks, and today’s case is a reminder that the FBI has the tools to follow the digital trail, wherever it may lead,” Deputy FBI Director Paul M. Abbate said. “Thanks to the persistent and dedicated work of our FBI Investigative teams and law enforcement partners, we’re able to uncover the source of even the most sophisticated schemes and bring justice to those who try to exploit the security of our financial infrastructure.”

In a statement, Bitfinex said: “We are pleased that the U.S. Department of Justice has today announced that it has recovered a significant portion of the bitcoin stolen during the August 2016 security breach. We have been cooperating extensively with the DOJ since its investigation began and will continue to do so.

“Bitfinex will work with the DOJ and follow appropriate legal processes to establish our rights to a return of the stolen bitcoin. We want to express our appreciation for the dedication and hard work by the DOJ team that led to this great success.”