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How This New York Couple Allegedly Stole $8 Billion In Bitcoin

How This New York Couple Allegedly Stole  Billion In Bitcoin

How This New York Couple Allegedly Stole $8 Billion In Bitcoin

The couple have been detained on prices of conspiring to launder Bitcoins.

The hackers had been contained in the Bitfinex servers for weeks earlier than trying the heist. They’d watched customers on the cryptocurrency alternate purchase and promote Bitcoins. They’d studied the instructions that managed the safety system. It was as in the event that they have been hiding in an air duct above a financial institution’s vault, watching as tellers meticulously moved money out and in, in search of vulnerabilities.

They weren’t after Bitcoins, precisely. Bitcoins solely exist as entries in a database maintained by computer systems all over the world. What they wanted have been the non-public keys: cryptographic passwords that will enable them to unlock the cash and transfer them. As soon as they discovered the keys, they struck. At 10:26 a.m. on Aug. 2, 2016, the hackers raised the alternate’s day by day withdrawal restrict from 2,500 Bitcoins to 1 million, greater than sufficient to empty out the entire vault. Then, utilizing the non-public keys, they began broadcasting directions to switch Bitfinex’s Bitcoins to addresses they managed on the blockchain. Over the subsequent Three hours and 51 minutes, the hackers stole 119,754 cash—greater than half the holdings of what was then one of many world’s largest cryptocurrency exchanges.

When Bitfinex executives realized what had occurred, they employed a safety group to go looking the servers’ reminiscence for clues. The hack was bold and complex, and a few customers suspected an inside job. Or maybe the culprits have been a part of North Korea’s elite hacking corps, which, six months earlier, had stolen $81 million from Bangladesh’s central financial institution. However the researchers had little to go on. Earlier than logging off, the hackers had successfully wiped their digital fingerprints.

The one info Bitfinex had was the 34-character addresses on the blockchain the place the hackers despatched the cash. In an try and get assist from the general public, the corporate put these addresses on the web for all to see. For years, many of the funds stayed in these digital wallets, kind of untouched, whilst Bitcoin went from being a nerdy curiosity to fueling a worldwide mania that pushed its worth up greater than 100-fold. By 2021 the stolen Bitcoins have been price greater than $eight billion, making the theft the richest in historical past. The cash was sitting proper there, however there was no apparent method to determine who’d taken it. And with out the hackers’ non-public keys, there was no method for police to get it again.

However in Grand Rapids, Mich., an Inside Income Service agent working from his basement had discovered a clue. The wallets appeared to be linked to a New York Metropolis couple of their early 30s: Ilya Lichtenstein and Heather Morgan.

Judging from social media, these two did not precisely seem like legal geniuses. Lichtenstein, who goes by Dutch, had curly hair and an impish grin, like a baby-faced Elijah Wooden. He appeared very keen on the couple’s Bengal cat, Clarissa. Morgan’s factor was music—extravagantly dangerous music that she wrote, carried out, and launched in movies on YouTube and TikTok. In a single, she danced and pretended a toy reptile was her penis. In one other, she gyrated down the streets of the Monetary District sporting a gold monitor jacket, a fanny pack, and a flat-brimmed hat studying “0FCKS.” She known as herself the “motherf—ing crocodile of Wall Road.” In a single music, she even bragged about her hacking expertise: “Spearphish your password / All of your funds transferred.” Her rap title was Razzlekhan.

Morgan, then 31, was the founding father of a small copywriting enterprise known as SalesFolk. She was dwelling with Lichtenstein in a $6,500-a-month high-rise residence on Wall Road. On her TikTok posts, the residence was full of knickknacks, together with a crocodile cranium, a camel figurine, and an unexplained merchandise described solely as “Ukrainian sewer rocks.” A zebra pelt held on the wall close to a zebra-striped elliptical coach. Two long-horned antelope skulls have been mounted there, too, together with a framed X-ray of Morgan’s lungs from when she contracted MERS in Egypt.

She portrayed herself as an all the time hustling, rule-breaking tech disrupter, like Uber’s Travis Kalanick or Airbnb’s Brian Chesky. She wrote a daily column for Forbes; her creator bio learn: “When she’s not reverse-engineering black markets to think about higher methods to fight fraud and cybercrime, she enjoys rapping and designing streetwear trend.” Or, as she put it in her music Versace Bedouin: “I am many issues. / A rapper, an economist, a journalist, / a author, a CEO, / and a grimy, soiled, soiled, soiled ho.”

As a performer, Razzlekhan is each hypersexual and aggressively unappealing. She alternates jokes about diarrhea and intercourse with boasts about her edgy enterprise practices. Her signature transfer, when you can name it that, is to throw up her hand along with her fingers cut up right into a “V,” stick out her tongue, and say, “Razzle Dazzle!” Then she makes a loud phlegmy cough.

Her songs, from Pho King Badd Bhech to Gilfalicious, are filled with painfully pressured rhymes, with a supply so stilted she makes Chet Hanks sound like Kendrick Lamar. Her lyrics are nonsensical. In Excessive within the Cemetery, she describes a hallucination through which she’s given a magic lamp and meets a genie who affords to meet her needs in alternate for “a handie.” Solely later does she be taught the genie’s true id: “This was no bizarre perv / It was Mark Zuckerberg.”

In her Forbes columns and self-help YouTube movies, Morgan defined that she created her rap persona as a method to embrace the weirdness that used to make her a goal of ridicule. She’d grown up outdoors Chico, Calif., the place she was “bullied mercilessly” about her lisp and braces. Whereas on the College of California at Davis, she studied overseas in South Korea and Turkey. After graduating, she discovered a house among the many backpacker set, first in Hong Kong, then Cairo. “When she meets somebody, it is like they’re eternally her buddy,” says Amina Amoniak, who stayed in contact with Morgan after assembly her a decade in the past by the web site Couchsurfing.

Morgan met Lichtenstein about seven years in the past in San Francisco, the place she’d moved to work at a startup. Traces of their early flirting can nonetheless be discovered on LinkedIn, the place Lichtenstein left Morgan a suggestion. “Heather crafts exactly focused messaging that sticks in clients’ brains like a finely sharpened meat hook,” he wrote.

Born in Russia, he’d grown up in Chicago, the place his dad and mom had moved to keep away from spiritual persecution. Whereas on the College of Wisconsin at Madison, he found a shady follow of the web referred to as “affiliate internet marketing,” the place folks purchase advert area in bulk on Fb or Google and craft advertisements for slimming capsules, mind boosters, and offshore playing websites. Lichtenstein claimed in discussion board posts that he made greater than $100,000 a 12 months from affiliate internet marketing whereas he was nonetheless a scholar.

Ryan Eagle, an affiliate marketer who says he did enterprise with Lichtenstein, says that even in an trade filled with obnoxious bros, Lichtenstein’s intelligence and conceitedness stood out. “He was one among these f—ing nerds that tries to get below your pores and skin,” Eagle says.

After commencement, Lichtenstein co-founded an promoting expertise firm, then left it in 2016 and have become an angel investor. In Morgan’s TikTok movies, he usually looks like a grudging participant. “You retain filming me, anticipating one thing to occur, what would you like me to do? You need me to shove one thing up my ass and do some dance?” he asks in a single video, after Morgan asks him about his behavior of tasting Clarissa’s cat chow. (“It wants salt, it wants pepper, however apart from that it is fairly good,” he says.) Lichtenstein did not reply to requests for remark.

I might hoped to ask Morgan for her facet of the story. I thought of calling, however in Versace Bedouin, she’d really useful in opposition to it: “Electronic mail me, f— your message on the beep, beep, beep.” Then I noticed she’d given complete shows about methods to get folks to reply to emails. Her first rule was to “e-stalk” your viewers to know them. Having subjected myself to hours of her songs and movies, I figured I had that one lined. Then it mentioned to consider what the competitors is doing. I might learn that Netflix Inc. had already commissioned a documentary about her from one of many makers of Tiger King. “Heather,” I wrote, “the documentary individuals are out to make you the subsequent Tiger King. Your enter may assist reshape the narrative.” She did not reply.

It appears unlikely that somebody who tried to rhyme “Razzlekhan’s the title” with “that scorching grandma you actually wanna bang” may in reality be a grasp thief. Then once more, that is the crypto world, the place an absence of expertise or competence hasn’t all the time been a barrier to fame and fortune and the place large-scale hacks are a daily prevalence.

Bitcoin exchanges mainly have one job—to maintain the money and crypto despatched by customers protected—and because the starting of the trade, they’ve failed at it. The primary large alternate, Mt. Gox, repurposed an internet site created as a spot to commerce digital Magic: The Gathering playing cards. It had safety and report conserving that was so poor, hackers would steal Bitcoins as quickly as customers deposited them. Mt. Gox filed for chapter in 2014, saying it had misplaced 7% of all Bitcoins in existence. The hacks of exchanges saved coming. Among the many greatest: Coincheck was taken for $530 million in 2018 and KuCoin for $280 million in 2020. Final 12 months, in line with crypto-security agency Chainalysis, a complete of $3.2 billion in cryptocurrency was stolen from exchanges and decentralized finance (or DeFi) apps, through which crypto merchants make offers instantly with each other. That is 100 occasions greater than the overall stolen in all financial institution robberies in a mean 12 months within the US, Federal Bureau of Investigation statistics present. A lot of the cash was taken by North Korea’s Lazarus hacker group, Chainalysis says.

On the time it was hacked, Bitfinex was seen as some of the respected exchanges, but it surely wasn’t precisely Fort Knox, both. It was initially based mostly on code copied by a younger Frenchman from an alternate known as Bitcoinica that had been broadly seen as insecure, and it was run by a plastic-surgeon-turned-low-end-electronics-importer, Giancarlo Devasini. Primarily based in Milan, Devasini invested in Bitfinex in 2012 and have become the de facto head of the alternate, although on paper he is the chief monetary officer. He is additionally the boss of Tether, the issuer of a so-called stablecoin that is presupposed to be backed 1-to-1 with {dollars} however has been fined by US regulators for mendacity about its $67 billion in property.

Bitfinex arrange a brand new safety system after it misplaced about $400,000 of cryptocurrencies in a 2015 hack. Different exchanges typically combined customers’ cash collectively and saved the non-public keys on computer systems that weren’t linked to the web, a follow referred to as “chilly storage.” The brand new system saved every person’s steadiness in a separate tackle on the blockchain, permitting clients to see for themselves the place their cash was. It used software program from San Francisco-based crypto-security firm BitGo. “This new degree of transparency and safety makes breaches similar to these of Mt. Gox inconceivable,” Mike Belshe, BitGo’s chief govt officer, mentioned in a press launch asserting the deal.

The BitGo software program was programmed to mechanically approve transfers below a sure restrict, so small withdrawals would not be delayed, but it surely required a Bitfinex govt to manually log out on giant ones. This was presupposed to imply that even when Bitfinex acquired hacked, solely a small variety of Bitcoins can be stolen at most. However the system configuration was flawed. The restrict might be modified with a pc command despatched by somebody with a Bitfinex govt’s digital credentials.

That is what the hackers did after first utilizing a “remote-access Trojan” to infiltrate the alternate, in line with courtroom paperwork. Such malware lets attackers achieve full management of a goal’s laptop, as in the event that they have been sitting on the keyboard. The hackers have been solely stopped when somebody at Bitfinex occurred to examine account balances and observed one thing was off.

Bitfinex executives have mentioned they thought-about submitting for chapter after the assault. As an alternative, to present themselves an opportunity to make up the losses and keep in enterprise, they merely lowered the balances of all clients by 36% and issued IOUs to cowl the losses. Inside eight months the alternate had earned sufficient to pay them again, both in money or in Bitfinex inventory.

Bitfinex reported the hack to authorities, however there have been no leads. The hackers erased the servers’ reminiscence on their method out, wiping any tips to their location. Ledger Labs, which investigated the breach on behalf of Bitfinex, was unable to find out how precisely the hackers acquired into the alternate’s servers. BitGo has maintained that its software program functioned correctly, although it modified its guidelines in order that withdrawal limits may solely be raised after a video name with a BitGo worker. BitGo and Bitfinex declined to remark, as did Ledger Labs’ lead investigator.

Michael Shaulov, a former coder for the Israeli Intelligence Corps and the co-founder of crypto-security agency Fireblocks Inc., says hacks like these typically do not require a excessive degree of technical experience. Usually, he says, the toughest half is crafting an e-mail that methods an insider into opening a malicious attachment. “The social-engineering vector is vital,” he says.

That appeared like a clue. Morgan had given a chat titled “How you can Social Engineer Your Approach Into Something” in 2019 at an occasion known as NYC Salon. In a promotional flyer for the speech, she posed in a decent, snakeskin-print metallic gown whereas holding a big pipe wrench. “I hate the time period ‘manipulating,’ ” she mentioned within the speak, after trying to heat up the bemused crowd by rapping a couple of strains from Versace Bedouin. Social engineering, she mentioned, entails “getting somebody to share info or take an motion that they in any other case wouldn’t.” And in what was both an unlucky coincidence or one other beautiful act of hubris, on the day earlier than the hack Morgan posted a photograph on Instagram of her and Lichtenstein sitting on a blue plush sofa, with the caption “I’ll all the time love moving into bother with this loopy man.”

On the day of the hack, a Bitfinex worker logged in to the principle Bitcoin discussion board on Reddit and posted all of the addresses the place the hackers had despatched stolen Bitcoins. It did not seem like a lot—it was only a listing of 1000’s of 34-character codes. Nevertheless it was like setting off a dye pack to mark the cash in a financial institution robber’s bag of loot.

All transactions on the Bitcoin blockchain are public, so anybody can search for an tackle and see all the opposite addresses it despatched cash to or obtained cash from. Few folks would settle for Bitcoins from the addresses Bitfinex had disclosed on Reddit. Even when that they had no qualms with stolen cash, they’d be involved about whether or not they may spend it themselves—or in the event that they’d grow to be suspects.

For 5 months the stolen Bitcoins did not transfer. It appeared the hackers had forgotten a vital a part of their plan: To really use the Bitcoins they’d stolen, they’d must discover a method to erase the connection to the hack. One place the place stolen Bitcoins have been welcome was AlphaBay. It was a market on the darkish net, a hidden a part of the web solely accessible by an nameless browser, the place customers posted categorised advertisements providing opioids, weapons, and stolen bank cards in alternate for crypto. On its web site, AlphaBay mentioned it wished to be “the most important eBay-style underworld market.” In case anybody missed the purpose, its FAQ had the query “Is AlphaBay Market authorized?” Reply: “After all not.”

In January 2017, about $22,000 price of the hacked Bitcoins have been moved to AlphaBay in a sequence of small transactions. All Bitcoins despatched to AlphaBay have been combined collectively, making them tougher to connect with wherever they’d come from on the blockchain. As soon as a person withdrew their funds to a brand new tackle, their Bitcoins might be traced again solely so far as AlphaBay. Though all the main exchanges have been unwilling to simply accept Bitcoins that had come from addresses related to the hack, some smaller exchanges have been keen to take cash that got here from a darkish net drug bazaar.

From AlphaBay, these hacked Bitcoins have been despatched to at least one crypto alternate, then one other. The second alternate account was opened by Lichtenstein, utilizing his actual title. He’d even despatched in a selfie to confirm his id. The one one who’d know the connection between Lichtenstein and the hacked funds can be the particular person working AlphaBay, who went solely by Alpha02.

Sadly for the thieves, AlphaBay was already the goal of a separate investigation. Police from a number of nations thought they’d found out that Alpha02 was a 25-year-old Canadian named Alexandre Cazes, who’d moved to Thailand and purchased three properties, a Lamborghini, and a Porsche together with his income. Amongst his errors: On some early messages he used an tackle,, that he’d additionally used below his actual title.

On July 5, 2017, the investigators put in movement what they known as Operation Bayonet. Royal Thai Police rammed a automobile into the entrance gate of a compound in Bangkok the place they and US authorities suspected Cazes was dwelling. The commotion lured him out, and, whereas police detained him, different brokers rushed inside. Cazes was arrested and died in jail every week later in an obvious suicide, in line with the Bangkok Submit. However he left behind numerous proof. Inside his compound, police discovered his laptop computer, open and logged in to AlphaBay.

Among the many US federal brokers who’d traveled to Bangkok for the AlphaBay bust was Chris Janczewski, then 33, a particular agent with the IRS. Unusual because it sounds, Janczewski had wished to work for the IRS ever since a particular agent had visited his accounting fraternity at Central Michigan College. The speaker had regaled Janczewski and his fellow aspiring accountants with tales of high-speed chases and kicking in doorways. However at his first job there have been no chases and no doorways to kick in—simply audits of a bunch of plumbers and automobile sellers in and round Charlotte. “As you possibly can think about, folks aren’t tremendous excited that you simply’re there,” says Janczewski.

In 2015 he was recruited to a brand new cybercrime unit in Washington. The group of a few dozen brokers first targeted on hacked knowledge used to commit tax fraud. Then they shifted to cryptocurrency instances. The brokers realized that whereas the blockchain was nameless and criminals usually shuffled their cash from pockets to pockets, the path of transactions virtually all the time led to an alternate, which might ask for identification earlier than permitting somebody to promote their Bitcoins for money. Even when the crooks used an middleman or a pretend ID, they would go away clues. All of the brokers needed to do was comply with the transactions lengthy sufficient. “Ultimately everyone screws up,” says Tigran Gambaryan, one other member of the IRS cybercrime unit, who now runs investigations for crypto alternate Binance.

Crypto tracing led Janczewski and his colleagues to drug sellers, money-laundering providers, and even a web site that had been promoting little one abuse movies. With every bust, they gathered knowledge that allowed them to hyperlink extra crimes to extra Bitcoin addresses and extra Bitcoin addresses to extra folks.

Janczewski declines to say when he and his colleagues made the connection between the stolen Bitcoins and Lichtenstein and Morgan or to debate different particulars of the hack investigation. However by 2020, authorized filings present, that they had began the painstaking strategy of turning leads into proof usable in courtroom. They despatched authorized requests to exchanges that touched the stolen funds and to web service suppliers the couple used. It took greater than a 12 months to collect sufficient proof to justify a search warrant.

On Jan. 5, 2022, Janczewski and different federal brokers entered the residence at 75 Wall St. Morgan’s dad and mom have been visiting and had introduced a batch of her favourite persimmon cookies, baked by her grandmother. Because the brokers began in search of telephones and computer systems, she and Lichtenstein mentioned they wished to go away the residence and take Clarissa with them, in line with courtroom filings. Then, Morgan clumsily tried to create a diversion.

She mentioned the cat was hiding below their mattress and crouched down subsequent to a nightstand. Whereas calling the cat, she grabbed a telephone off the nightstand and began frantically hitting the lock button. Janczewski pulled it from her arms.

Underneath the mattress, the brokers discovered a bin filled with electronics, together with a zip-top bag labeled “Burner Telephone” and a red-and-white-striped toiletries bag holding 9 extra telephones. They seized not less than 4 {hardware} wallets—thumb drives that maintain the cryptographic passwords to a person’s Bitcoins—and a pocketbook full of $40,000 in money. In Lichtenstein’s workplace, they discovered two books that had been hollowed out to create hidden cavities. The couple had a quick dialog in Russian, which Morgan had been finding out. Not one of the brokers understood it.

After an preliminary search of their digital units, the brokers hadn’t discovered the non-public keys to the stolen Bitcoins. They did not have sufficient proof to arrest the couple.

5 days after the search, Morgan launched a brand new music, Moon n Stars. Over a spooky-sounding drum-and-organ beat, Razzlekhan raps for 5 and a half minutes about her reference to Lichtenstein—their shared weirdness, his inexperienced eyes and “good backside,” and their inside jokes, similar to how he all the time retains snacks in his pockets or how they each cannot drive. She says she does not desire a common job and takes dangers to really feel alive, and at one level she even says, “Do not forget an exit plan.” She and Lichtenstein had married a couple of months earlier. Within the music she says she needs to be with him “till the goddamn finish.”

Her supply within the music is as awkward as ever, however figuring out she posted it whereas she will need to have already been considering an extended jail sentence, the lyrics tackle a poignant tone. “We’re too bizarre for common Joes / Everybody is aware of,” Razzlekhan raps within the final verse. “You are one of the best for me / That is how our story goes. / That is the Razzlekhan and Dutchie reveals. / Able to occasion down and let’s get bizarre!” Because the music ends, Razzlekhan says, in Russian with a thick American accent, “I really like you.”

The brokers had additionally gotten warrants to go looking Lichtenstein’s cloud-storage accounts. In one among them they discovered a listing of faux IDs, each female and male, and notes suggesting the couple had gone to Kyiv in 2019 to purchase debit playing cards below pseudonyms. It seemed to the brokers as if Lichtenstein and Morgan had been making ready to flee the nation. On Jan. 31 they cracked the encryption on one among Lichtenstein’s information and located one thing much more explosive: the non-public keys to just about 2,000 Bitcoin addresses tied to the Bitfinex hack. The federal government now had management of $3.6 billion.

Every week later the brokers returned to the couple’s residence and arrested them. Lichtenstein and Morgan have been charged with conspiracy to commit cash laundering. Prosecutors mentioned they’d lied to exchanges to maneuver the funds that had been stolen from Bitfinex. The query of who did the precise social engineering and hacking wasn’t addressed, and, because the knowledge have been deleted, it could by no means be.

The arrest was nationwide information. It was the most important seizure of stolen funds ever. “At present, the Division of Justice has dealt a serious blow to cybercriminals trying to exploit cryptocurrency,” Deputy Legal professional Basic Lisa Monaco mentioned at a press convention. The TikTok commentariat tore by Morgan’s music movies, and inside hours Razzlekhan was already a social media legend, having air-humped her fanny pack into the ranks of well-known grifters. “The Bitcoin crimes are nothing in comparison with calling this shit rap,” Trevor Noah mentioned on The Every day Present. True-crime producers noticed parallels to pretend heiress Anna Delvey or Theranos founder Elizabeth Holmes. Along with the Netflix documentary, which was ordered simply three days after the arrest, there is a podcast, a fictionalized sequence from the producer of the heist film Den of Thieves, and a competing documentary from Forbes, the writer of Morgan’s columns.

They each pleaded not responsible. Lichtenstein was held with out bail, and Morgan was launched on $Three million bond. She argued that she wasn’t a flight danger as a result of she was storing frozen embryos in New York and deliberate to have a toddler with Lichtenstein by way of in vitro fertilization. Morgan returned to her residence, however in Could she put a lot of her belongings up on the market on the constructing’s message board, together with three digital deadbolts and a pretend Banksy print. In response to copies of the posts offered by a neighbor, she’s transferring and must downsize. Prosecutors mentioned in a Could 30 courtroom submitting that they have been speaking with the couple’s legal professionals a few plea cut price. The following listening to is scheduled for August.

In March, Janczewski left the IRS to grow to be head of worldwide investigations for blockchain intelligence agency TRM Labs. The federal government remains to be holding the seized Bitcoins—the US Marshals Service retains crypto on encrypted thumb drives in a locked protected in an undisclosed federal constructing. With the cryptocurrency market crashing, their worth has fallen to about $2 billion. Bitfinex’s house owners say the alternate already paid most customers again and owes solely about $30 million extra. That will imply when the Bitcoins are returned, many of the cash will go to Bitfinex’s buyers, together with its executives. However some merchants who misplaced Bitcoins will little doubt argue that the cash must be returned to them.

A fifth of the lacking Bitcoins are nonetheless unaccounted for. Roughly $70 million price was despatched to Hydra Market, a Russian darkish web page, in line with crypto-analysis agency Elliptic Enterprises Ltd. Nobody is aware of the place the cash went from there, however on Hydra, distributors known as treasure males supply to alternate crypto for shrink-wrapped packets of rubles that they bury in secret places. It is potential there are underground bundles someplace in Russia, ready for Morgan and Lichtenstein to dig them up.

Again in New York, on a site visitors pole simply throughout from the doorway by which legal suspects are led into Manhattan federal courtroom, somebody has positioned a sticker with a cartoon that depicts a topless Razzlekhan driving a crocodile, her tongue protruding, her fingers cut up into her trademark “V.” It seems new.

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Written by Harry Rosen

Harry Rosen is an accomplished explorer, photographer, creative director, speaker, and author.

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