U.S. District Chief Judge Beryl A. Howell of Washington called the government’s evidence against tech entrepreneur and U.S.-Russian dual citizen Ilya “Dutch” Lichtenstein, 34, and his rapper wife, Heather Morgan, 31, of “so heavy that they are crushing”. In her ruling, the judge pointed to what she called the electronic equivalent of a ‘smoking gun’ – the encrypted key codes to Lichtenstein’s cloud storage account that unlocked the biggest seizure of funds there is. two weeks in the history of the Department of Justice.
Howell rejected Lichtenstein’s promise of $5 million bail and his parents’ house. She ordered that he be held in DC Jail while he defends himself against money laundering and conspiracy charges.
But for Morgan, the judge agreed to a $3 million bond that included his parents’ home. It sent her back to house arrest with electronic bracelet monitoring and strict limits on her access to virtual currency accounts. The judge said it was apparent from government evidence so far that Morgan’s alleged lies and evasions to financial institutions only came at the end of the withdrawal of laundered funds.
Howell credited prosecutors’ description of the pair as “extraordinarily sophisticated” cybercriminals and money launderers whose flight risk “increased exponentially” upon their arrest, which could put each at risk of decades behind bars if he is found guilty.
“Finances are available to the defendant which could easily be used to fund the flight” and avoid liability for their alleged conduct, Howell concluded. “They also have skills in accessing and evading detection,” including about $200,000 in one-ounce gold coins that the couple reportedly delivered to home addresses in California and New York.
At the time of 2016 Bitfinex hack, the stolen bitcoin was worth around $71 million. But its value has appreciated to more than $5 billion, far more than the $3.6 billion worth of bitcoins seized, and law enforcement estimates that at least $368 million in tied cryptocurrency to hacking are still not secure. At the same time, prosecutors allege Lichtenstein’s records indicate he sought out and identified “verified” darknet sellers of fake bank cards, passports and IDs. Authorities also accuse him of carrying out transactions and taking delivery of a package obtained from such a seller in a Ukrainian hotel in September 2019, of having opened financial accounts in Russia and of owning a portfolio of Russian and Ukrainian male and female personas, with biographical and identification notes.
While US prosecutors said neither Lichtenstein nor Morgan were “currently charged” in 2016 hacking the Bitfinex cryptocurrency exchange, Howell said evidence that Lichtenstein controlled the accounts to which the stolen funds were sent “is no more direct” than his control of their access keys. The judge also cited a spreadsheet listing fictitious accounts and other information allegedly used in hundreds of laundering operations.
“Both defendants conspired to transfer and launder the proceeds of unlawful activity,” Howell said.
The judge added that when federal agents searched the couple’s Manhattan apartment in January, Morgan took the opportunity to retrieve their pet cat from under a bed to grab her cellphone from a bedside table and press to repeatedly on the lock button, prompting law enforcement to rip it off. her. Under the same bed, officers found a trash can containing various bags containing multiple cell phones, SIM cards and various electronics, including a bag labeled “Burner Phone,” Howell said, citing prosecutors.
While searching for a connection, the couple argued that they had a large family in the United States and no criminal history, and that they have not attempted to flee since learning of the government investigation into them in November.
This includes an FBI raid on Jan. 5 and the seizure on Jan. 31 of 94,000 of the 119,754 bitcoins stolen after a 2016 attack. To hack. Additionally, Morgan’s attorneys said she underwent breast surgery which tested negative for cancer on January 31 and is still recovering.
“The government’s concerns about flight risk are belied by the fact that Ms. Morgan and Mr. Lichtenstein both remained at their Lower Manhattan New York residence even after learning of the government investigation targeting them in this case” , attorney Samson Enzer said in court papers and a Monday afternoon bond hearing in Washington.
Prosecutors countered that the couple had the means and skills to travel, evade detection and create new lives abroad.
“Lichtenstein is a dual Russian citizen, both defendants have traveled extensively and have foreign ties, and evidence uncovered in the investigation indicates that they are preparing to obtain forged passports,” the assistant U.S. attorney said. Christopher B. Brown and Justice Department prosecutors Jessica Peck and Catherine. Pelker pleaded in court filings.
“The government does not doubt the sincerity of their parents, but several hundred million dollars in cryptocurrency can buy a new house, it can by each of their parents a private island and buy them access to medical care” , added Pelker.
The couple’s lawyers noted the presence of their parents and a brother in court and argued that their future was literally in New York because they had fertilized embryos in storage in hopes of starting a family of their own. Pelker replied, “It’s incredibly hard to have and raise children if you’re in prison for 25 years, it’s really more of an incentive for them to run away.”
Prosecutors also showed an alleged photo of one of two hollowed-out books allegedly found in Lichtenstein’s office, the pages of which appeared to have been roughly cut by hand, leaving an empty compartment, and argued that the couple had also purchased over 70 one ounce gold coins, worth approximately $200,000. , which were not found at the couple’s home or in the warehouse.
An affidavit filed by an IRS agent against the couple alleges they only spent a small fraction of the stolen money, some in gold and some in non-fungible tokens, or NFTs, digital representations unique pieces that are sold or traded like works of art. or collectibles. Other payments were made for a Walmart gift card as well as payments to Uber, Hotels.com and PlayStation, according to billing documents.
Morgan’s lawyers describe her as a journalist and managing director of a sales consultancy firm who claimed to have worked in Hong Kong and Cairo, including with the World Bank. Growing up in a small town in northern California and graduating from the University of California, Davis, Morgan created a rap persona of Razzlekhan, the self-proclaimed “Crocodile of Wall Street.” She’s talked about investing in meme stocks, coping with the pandemic, and getting high in a graveyard.
Lichtenstein, a tech entrepreneur nicknamed “Dutchman,” was born in Russia, and his family emigrated to the United States to avoid religious persecution, settling in suburban Chicago. He studied at the University of Wisconsin at Madison and co-founded MixRank, a sales company initially funded by Y Combinator and investors including Mark Cuban, according to the Company Website. He described himself as a “tech entrepreneur, explorer and occasional magician” in a 2018 blog post.