Everything You Need to Know About the NYC Couple Accused of Laundering Billions in Crypto

Everything You Need to Know About the NYC Couple Accused of Laundering Billions in Crypto
Photo: OLIVIER DOULIERY/AFP, Getty Images

By now, you’ve surely heard of them: the NYC techie power couple — one of whom is obsessed with crocodiles and enjoys a good, awkward rap — that allegedly attempted to pull off one of the biggest money-laundering schemes in history.

The 34-year-old Ilya Lichtenstein, a dual Russia-U.S. citizen, and his wife, Heather Morgan, 31, have become the weirdo Bonnie and Clyde of the crypto world after the pair were arrested early Tuesday morning and charged with money laundering in connection to a multi-billion dollar scheme.

But what kind of people attempt to launder $US4.5 ($6) billion in crypto? According to the feds: these people. To say that Lichtenstein, also known by his nickname “Dutch,” and Morgan, are not your typical cybercriminal masterminds would be something of an understatement. Hackers are nerds, sure. But these people… uh, just don’t strike you as digital Danny Oceans, for numerous reasons.

THE COUPLE

Screenshot: Lucas Ropek/YouTubeScreenshot: Lucas Ropek/YouTube

Self-admitted awkward weirdos, it’s unclear how and when the dynamic duo first met, though you can sort of see why the chemistry would work. She has the persona of an unhinged Napoleon Dynamite. He’s got that Zuckerberg energy. Together, they appear to have led a wealthy, hipster-chic lifestyle but, according to federal investigators, it hid a double-life in which the duo worked hard to cover up a gargantuan financial crime.

Reports have suggested the two have known each other for at least a decade, spending a significant period of time in Silicon Valley before becoming engaged sometime in 2019. They were married last November.

Professionally, they styled themselves as entrepreneurs. Lichtenstein co-founded a marketing startup, MixRank, in 2011, only a year after graduating from the University of Wisconsin-Madison. Forbes reports that one of the company’s initial backers was tech billionaire Mark Cuban, though Cuban is said to have sold his shares in the company sometime between 2012 and 2015. YouTube videos from 2015, a little more than a year before the money was stolen, show Lichtenstein giving talks about the benefits of his firm’s advertising services and waxing eloquent about how to be an entrepreneur. According to his LinkedIn, he later founded a crypto-based cybersecurity firm, EndPass, which he ran for several years. His profile says he currently works as an advisor to early-stage startups and also does early-stage angel investing for decentralized projects.

Morgan, meanwhile, is the founder and CEO of Salesfolk, a startup that specialises in “cold call” marketing emails, which she launched sometime around 2013. On its homepage, the company boasts affiliations with over 470 different companies, including the likes of ride-share giant Lyft and Jack Dorsey’s Block (formerly called Square). Lichtenstein appears to have also worked at Salesfolk, as an “advisor.”

At some point, they moved across the country and into a rented two-bedroom Manhattan condo, with a $US1 ($1.39) million price tag. TikTok videos show the couple hanging out there, celebrating Christmas together, talking to their cat, and engaging in an assortment of other typical young millennial-couple activities.

Not so typical are those rapping videos everybody’s talking about.

A still from one of Morgan's delirium-inducing rap videos.  (Screenshot: Lucas Ropek/YouTube)A still from one of Morgan’s delirium-inducing rap videos. (Screenshot: Lucas Ropek/YouTube)

Much has already been written about Morgan’s apparent passion for creating her own bizarre, awkward hip hop. Under the name “Razzlekhan,” the accused criminal spent the last few years producing singles with names like “Gilfalicious,” “Pho King Badd Bhech” and “Versace Bedouin,” while also rapping nonstop on her socials, where no topic is too cringe or boring to be integrated into a brain-numbing rhyme. She raps about the coronavirus. She freestyles about GameStop. She throws down about not being able to find her AirPods. Morgan calls this whole schtick “sexy horror comedy” rap, though others have come up with decidedly more colourful adjectives for it.

If we are to believe federal investigators, these two rich, awkward nerds, spent the last half-decade trying to cover up an enormous crime, the likes of which have led to billions of dollars in losses for investors all over the world.

THE EXCHANGE

That crime started in August of 2016, when Bitfinex, one of the world’s largest crypto exchanges, suffered a gigantic hack. Someone (it’s not entirely clear who) breached the Hong Kong company’s network, managing to worm into its systems. “Today we discovered a security breach that requires us to halt all trading on Bitfinex, as well as halt all digital token deposits to and withdrawals from Bitfinex,” the company frantically announced on its blog. Not long afterward, news emerged that some money had been stolen during the incident. Actually, a whole lot of money.

Screenshot: Lucas Ropek/BitfinexScreenshot: Lucas Ropek/Bitfinex

At the time of the hack, the theft of 119,754 BTC from the platform’s coffers was valued at some $US71 ($99) million. Today, due to Bitcoin’s market ascension, the ill-gotten gains are estimated to be worth over $US4.5 ($6) billion, as of February.

News of the hack sent shockwaves through the crypto community, temporarily tanking the price of Bitcoin.

So far, federal officials have been careful not to implicate the couple in the actual hacking of the exchange, so it’s not entirely clear who is to blame for the intrusion into Bitfinex’s networks. In a case like this, hacking contractors could potentially be procured — but the criminal complaint doesn’t clarify anything about the situation. We simply don’t know who is responsible, currently.

THE CRIME

What law enforcement officials say is known is that after the money was stolen, it was transferred to a crypto wallet later found to be controlled by Lichtenstein. The crimes for which the couple is now charged (money laundering and conspiracy to defraud the U.S.) stem from their attempts to launder the money out of that wallet and into their own accounts.

Whoever the hacker was, they stole the crypto in a series of 2,000 unauthorised transactions, sending the 119,754 BTC to an outside wallet, dubbed in court documents “wallet 1CGa4s.” Once the money had been transferred there, like many other money laundering schemes, Dutch and Razzle are accused of using a byzantine network of online accounts and transactions to funnel the stolen funds around the internet to throw authorities off the trail.

In court filings, federal investigators have revealed that they caught on to the couple’s ruse relatively early in the investigation. The criminal complaint reads:

This shuffling, which created a voluminous number of transactions, appeared to be designed to conceal the path of the stolen BTC, making it difficult for law enforcement to trace the funds. Despite these efforts, as explained further below, U.S. authorities traced the stolen BTC to multiple accounts controlled by ILYA “DUTCH” LICHTENSTEIN, a Russian-U.S. national residing in New York, and his wife HEATHER MORGAN.

As can be seen in the graph below, the two are accused of using a mob of online accounts to hide the traces of their thievery, as they moved money around through a wide range of virtual currency exchanges, hoping to obscure the trail of their activities.

Screenshot: Lucas RopekScreenshot: Lucas Ropek

Also critical to the couple’s criminal scheme was the use of darknet markets to attempt to break up the chain of activity tied to the stolen crypto. In particular, the couple used accounts on AlphaBay, the well-known dark web market that hosts everything from drug-sellers to malware distribution but, more relevantly, can function as a way to obfuscate the path of various financial transactions. The couple stored some of the stolen funds in AlphaBay accounts, before withdrawing them and relaying them to crypto exchange accounts all over the world, federal authorities allege.

Ultimately, despite all the complexity, the duo may have not been all that great at money laundering, actually. Bloomberg’s Matt Levin writes that the couple couldn’t have been very good at what they were doing since a majority of the stolen money never left the 1CGa4s wallet where it initially landed.

Similarly, law enforcement appears to have caught on to what the couple was doing in a relatively short period of time. Investigators with the FBI and the IRS Criminal Investigation Cyber Crime Unit used blockchain analysis tools to ultimately unweave the tapestry of deception allegedly spun by the two crooked lovers. In this week’s criminal complaint, officials state:

LICHTENSTEIN and MORGAN employed numerous money laundering techniques, including: (1) using accounts set up with fictitious identities; (2) moving the stolen funds in a series of small amounts, totaling thousands of transactions, as opposed to moving the funds all at once or in larger chunks; (3) utilising computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; (4) layering the stolen funds by depositing them into accounts at a variety of VCEs and darknet markets and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow;

And on it goes.

The seizure of the funds from Lichtenstein’s 1CGa4s wallet — some 94,000 BTC, equivalent to $US3.6 ($5) billion at the time of the indictment — apparently represents the single largest financial seizure in the history of the U.S. Justice Department. That fact alone makes the story notable. But the fact that it’s also tied to such colourful, goofy-arse operators ensures that somewhere out there flocks of movie producers are currently rubbing their hands together, plotting how to adapt this whole thing and make a killing.

“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” said Deputy Attorney General Lisa O. Monaco after the couple’s arrest on Tuesday. “In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions. Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”

Lichtenstein and Morgan recently had their first court appearance, at which the judge allowed an emergency order by the feds asking that the couple’s bail be denied. If they are convicted, the pair could spend decades in prison.