Largest-ever seizure: 'Crocodile of Wall Street' held in giant crypto bust

The couple conspired to launder 119,754 bitcoins in 2016 that's now worth $4.5 billion

The US seized about $3.6 billion in Bitcoin stolen during a 2016 hack of the Bitfinex currency exchange — the largest financial seizure ever —and arrested two people, the Justice Department said. 

Ilya Lichtenstein and his wife, Heather Morgan — who billed herself as “The Crocodile of Wall Street” and “Razzlekhan,” — were detained in the morning and by late afternoon appeared at federal court in Manhattan. The two — who appear to have had colourful social media accounts ahead of their arrests —allegedly conspired to launder 119,754 bitcoins stolen after a hacker breached Bitfinex’s systems. 

“Today’s arrests, and the Department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” Deputy Attorney General Lisa Monaco said in a statement. “In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions.”

Bitfinex is the exchange affiliated with the world’s biggest stablecoin, Tether. At the time of the hack, the digital currency haul was estimated at about $71 million, the Justice Department said. The department said the total value of stolen Bitcoin is now worth about $4.5 billion. 

The cryptocurrency known as Unus Sed Leo, which was issued in part to recapitalise the Bitfinex exchange following the 2016 hack, surged more than 50 per cent after the DOJ announcement. 

Dressed in casual clothes, Lichtenstein and Morgan didn’t speak at their court appearance Tuesday afternoon. Their lawyers — they have retained separate counsel — did all the talking. The government asked the judge not to allow them to be released on bail. Each of them is facing the possibility of a 20-year prison sentence, so they have the motivation to run, a prosecutor told the judge.

The trial will eventually be held in Washington, where the charged were filed. 

The defendants in Tuesday’s case weren’t accused of doing the actual hacking. A 20-page statement of facts details the complex movement of Bitcoin after the hack, but it offers no clues as to who actually stole the digital currency. Justice Department officials declined to comment when asked about who carried out the hack. 

According to DOJ, the couple used sophisticated techniques, including “using fictitious identities to set up online accounts; utilising 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.” 

Lichtenstein, 34, and Morgan, 31, also funnelled the money through AlphaBay Marketplace, which was shut down in 2017, to hide their transactions. Some of the money was cashed out through Bitcoin ATMs. Some was used to buy NFTs and gold. They even used the money to buy a Walmart gift card.

‘Crocodile of Wall Street’

Lichtenstein, who went by the nickname “Dutch,” described himself as an angel investor in technology companies, as well as an adviser to multiple startups, according to a public LinkedIn profile. A Twitter account with his name also posted frequently, weighing in on topics such as cryptocurrency trends, the technology sector and the evolution of NFTs. 

Morgan, who prosecutors say used the alias “razzlekhan,” promoted herself as a part-time rapper, entrepreneur and media personality on what appears to be her personal website. In one post, the defendant described herself as “the infamous crocodile of Wall Street” and “like Genghis Khan, but with more pizzazz.”  

A separate Instagram account that appears to be associated with the defendant included videos of Morgan, as Razzlekhan, rapping and appearing at a wedding ceremony in which she was carried on a throne by roughly eight people. 

The details of the case date to August 2016, when Bitfinex reported a security breach and halted all trading, withdrawals and deposits. The firm later disclosed in a blog post some of its users had their Bitcoin stolen.