University of Wisconsin-Madison alum Ilya Lichtenstein and his wife Heather Morgan were arrested and charged with allegedly conspiring to launder cryptocurrency on Tuesday.
Federal law enforcement seized $3.6 billion of the $4.5 billion of cryptocurrency that was stolen in 2016 from a hack allegedly involving Bitfinex — which Deputy Attorney General Lisa O. Monaco described as “the department’s largest financial seizure ever.”
Lichtenstein and Morgan utilized around 2,000 unauthorized transactions that eventually led back to Lichtenstein, according to the Department of Justice.
Lichtenstein grew up in Glenview, Illinois and according to university spokesperson Meredith McGlone, he then graduated from UW-Madison in 2010 with a Bachelor of Arts degree in Psychology. During his time as a student, Lichtenstein worked for an internet marketing firm before creating his own tech startup, MixRank, which sought to reveal the ad campaign strategy of different companies’ competitors.
After receiving investments from the likes of Mark Cuban, Lichtenstein branched out to become known as, what Rolling Stone titled him, an “angel investor interested in blockchain technology, automation and big data.”
Blockchain technology is a public ledger for recording and tracking various transactions in a peer-to-peer network. Using this technology, participants can omit clearance from a higher-level central authority since it's already authorized and approved.
Lichtenstein later met and married Heather Morgan at EndPass — a decentralized identity platform to let people secure their personal data.
Morgan has a large social media footprint and is commonly known for her work as a rapper. She goes by the name Razzlekhan, with her website landing page stating that “Razzlekhan is like Genghis Khan, but with more pizazz.” On a variety of media platforms, Morgan engages with her following by posting content “combining dark and disturbing concepts with dirty jokes and gestures.”
Together, Lichtenstein and Morgan laundered 119,754 bitcoin from Bitfinex in 2016 that had an estimated value at $71 million in 2016 but has since appreciated to now be worth $4.5 billion. The DOJ noted that it has taken back more than 94,000 compromised Bitcoin that was ultimately valued at $3.6 billion since the original hack.
As of Tuesday, the value of a single Bitcoin was $43,400.
Since the value of the stolen Bitcoin has risen “over one hundred times in dollar terms as much as the stolen amount, this is, in a way, a testament to the popularity of the cryptocurrency,” UW-Madison Economics Senior Lecturer Gwen Eudey told The Daily Cardinal.
The DOJ will auction off the laundered Bitcoin as the department does not consider it to be currency but instead property, said NBC News Correspondent Ken Dilanian, noting that it benefits the government since Bitcoin often goes up in price.
“Many economists are skeptical about the long-run viability of Bitcoin as a true currency, used as a medium of exchange and unit account for all sorts of transactions,” Eudey explained.
Bitcoin is harder to launder than cash because of the blockchain, but the DOJ wrote that “approximately 25,000 of those stolen Bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan.”
The couple are both being charged with conspiracy to commit money laundering with a maximum sentence of 20 years in prison and conspiracy to defraud the United States, which carries a maximum sentence of 5 years in prison according to the DOJ.
Eudey believes that there will be future major seizures of stolen cryptocurrency, stating that, contrary to initial expectations of the technology, blockchains are ultimately hackable.
“The 2016 hack is, in current dollars, the biggest, but it is not the only one nor will it be the last,” Eudey emphasized.