From Bitfinex to Bitcoin Fog: the journey of Ilya Lichtenstein

Category: Americas Blockchain Crypto
Posted by Lea Hogg

Ilya Lichtenstein, once a high-profile defendant, has now become a government witness, testifying against a mixing service he used to hide laundered assets from the Bitfinex hack. Known for the multi-billion Bitfinex hack of bitcoins worth $3.6 billion when he pleaded guilty to money laundering last year, Lichtenstein’s journey from a criminal to a witness is a tale of intrigue and revelation.

In 2016, Lichtenstein orchestrated one of the largest Bitcoin heists in history, involving the looting of billions of dollars from the crypto exchange Bitfinex. He used a number of advanced hacking tools and techniques to gain access to Bitfinex’s network. Once inside their systems, Lichtenstein fraudulently authorized more than 2,000 transactions in which 119,754 bitcoin was transferred from Bitfinex to a cryptocurrency wallet in his control.

To cover his tracks, Lichtenstein (pictured above with his wife Morgan), went back into Bitfinex’s network and deleted access credentials and other log files that may have given him away to law enforcement. Following the hack, Lichtenstein enlisted the help of his wife, Heather “Razzlekhan” Morgan, in laundering the stolen funds.

Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts; utilizing computer programmes to automate transactions; depositing the stolen funds into accounts at a variety of darknet markets and cryptocurrency exchanges and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow.

One of the methods they used to launder the stolen funds was through a service called Bitcoin Fog. Bitcoin Fog, a darknet favourite, was one of the mixing services Lichtenstein said he’d used to conceal assets. However, it wasn’t his major method of laundering. He moved on from that particular mixer once he discovered other services “suited his purposes better”.

High-Stakes criminal turned government witness

The U.S. Department of Justice’s seizure of the billions in crypto in the Bitfinex case was unprecedented. In the Bitcoin Fog case, U.S. authorities had arrested and charged Roman Sterlingov, a dual Russian-Swedish national, with money laundering in his operation of the mixing service in 2021. He’s now on trial in that case.

Lichtenstein’s testimony against Bitcoin Fog and his revelation about his use of various mixers to “obfuscate” the funds from the Bitfinex hack have shed light on the dark underbelly of the crypto industry. His journey from a high-stakes criminal to a government witness serves as a stark reminder of the potential misuse of cryptocurrencies and the importance of regulation and oversight in this rapidly evolving field. Ilya Lichtenstein and his wife, Heather “Razzlekhan” Morgan, were both involved in the Bitfinex hack. They were charged with conspiracy to launder the stolen bitcoin. Lichtenstein was known for the multi-billion Bitfinex hack of bitcoins worth $3.6 billion when he pleaded guilty to money laundering. He used various mixers, including Bitcoin Fog, to “obfuscate” the funds from the Bitfinex hack.

However, it’s important to note that neither Lichtenstein nor Morgan were charged with actually committing the hack. The actual hackers remain unidentified. Ilya Lichtenstein and his wife, Heather Morgan, were arrested following a series of events that led to their identification.

How they got caught

Bitfinex Hack: In 2016, Lichtenstein orchestrated one of the largest Bitcoin heists in history, involving the looting of billions of dollars from the crypto exchange Bitfinex. The stolen funds were transferred into a cryptocurrency wallet in his control.
Laundering the stolen funds: To hide the origin of the stolen funds, Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts, utilizing computer programs to automate transactions, and depositing the stolen funds into accounts at various darknet markets and cryptocurrency exchanges.

Use of Bitcoin Fog

One of the methods they used to launder the stolen funds was through a service called Bitcoin Fog. However, the transparency of blockchain transactions meant that their activities could potentially be traced. For years, most of the stolen money sat in the wallet untouched. But once the currency slowly began to move out of the wallet and into the traditional banking system, investigators were able to start tracing the transactions to people in the real world.

Lichtenstein and Morgan were arrested in New York after police traced their riches back to the crypto heist. When law enforcement officials carried out an apartment raid that resulted in the couple’s arrest, agents discovered multiple phones and SIM cards, including a bag labelled “Burner Phone”. As part of a plea deal, Lichtenstein admitted he was behind the hack.

The case of Lichtenstein and Morgan demonstrates the advancements in blockchain tracking and security, and the increasing ability of law enforcement agencies to trace and seize illicitly obtained cryptocurrencies.

 

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