Man who stole and laundered about $1 billion in bitcoin is sentenced to 5 years in prison

WASHINGTON — A computer expert who stole billions of dollars worth of Bitcoin at current prices — and then spent years laundering some of the hacked cryptocurrency with the help of his wife — was sentenced Thursday to five years in prison.

Ilya Lichtenstein masterminded one of the largest-ever thefts of a virtual currency exchange before he and his wife, Heather Rhiannon Morgan, carried out an elaborate scheme to liquidate the stolen funds, federal prosecutors said.

U.S. District Judge Colleen Kollar-Kotelly told Lichtenstein that his theft was “carefully planned” and not an impulsive act.

“It is important to send the message that you cannot commit these crimes with impunity, that there are consequences,” she said.

Lichtenstein, who is being given credit for the two years and nine months he has spent in prison since his arrest in February 2022, expressed regret for “wasting my talents on crime instead of making a positive contribution to society.” . He said he hopes he can use his expertise to fight cybercrime when he gets out of prison.

“I want to take full responsibility for my actions and make amends in any way I can,” he said.

The judge will sentence Morgan on Monday. Lichtenstein begged the judge to spare his wife from jail, blaming himself for her involvement.

In August 2016, Lichtenstein hacked into a virtual currency exchange, Hong Kong-based Bitfinex, and stole approximately 120,000 bitcoin. It was worth about $71 million at the time of the hack and would be valued at more than $7.6 billion at current market prices, according to prosecutors.

Several months later, Lichtenstein began moving the stolen bitcoin in a series of complex transactions designed to conceal its path across a series of accounts and platforms. He enlisted his wife’s help in disposing of the stolen money.

Lichtenstein, an entrepreneur and cryptocurrency investor, is a U.S. citizen who was born in Russia and grew up in a suburb of Chicago. Morgan, a business owner and writer, adopted the alter ego “Razzlekhan” for performing rap songs and recording videos for her music.

Lichtenstein and Morgan were living in New York City when they were arrested in February 2022. They were living in San Francisco around the time of the hack.

Prosecutors have recommended a five-year prison sentence for Lichtenstein, who pleaded guilty in August 2023 to one count of conspiracy to commit money laundering. They recommended an 18-month prison sentence for Morgan, who pleaded guilty to the same charge.

“Neither the hack nor the money laundering scheme was an impulsive decision. The defendant (Lichtenstein) attempted for months to gain access to Bitfinex’s infrastructure and obtain the access and permissions he needed to orchestrate his hack,” prosecutors wrote.

Lichtenstein told his wife about the hack more than three years later, but he initially asked her for help laundering the proceeds “without explaining what exactly he was doing,” prosecutors said.

Morgan “was certainly a willing participant and bears full responsibility for her actions, but she was a lower-level participant,” prosecutors wrote.

During family trips to Kazakhstan and Ukraine, Lichtenstein met couriers who delivered him money that he smuggled back to the US.

“For half a decade, the suspect engaged in what IRS agents described as the most complicated money laundering schemes they had seen to date,” prosecutors wrote.

Bitcoin is the largest and oldest cryptocurrency, which is digital money that is usually not supported by a government or banking institution. Transactions are recorded using technology called blockchain.

The couple successfully laundered approximately 21 percent of the stolen money from Bitfinex. The laundered money was worth at least $14 million at 2016 prices. Its value was said to have exceeded $1 billion at the time of their arrest in 2022.

Authorities have seized the remaining funds, which are collectively valued at more than $6 billion at current prices.

“He became one of the largest money launderers the government has encountered in the cryptocurrency world,” prosecutors wrote.

A lawyer for Bitfinex said the hack “devastated” the company’s finances and reputation with its customers, with the stolen funds accounting for around 36% of the company’s assets at the time of the theft.

“Bitfinex was required to take unprecedented and immediate action to ensure that any losses resulting from the hack would ultimately be borne solely by Bitfinex and its shareholders, and not by its customers,” attorney Barry Berke wrote in a letter to the judge.

A prosecutor said that after his arrest, Lichtenstein immediately began cooperating with federal authorities and assisting them with other cybercrime investigations.

According to lawyer Samson Enzer, more than 96% of the stolen money has been recovered, with the help of Lichtenstein. The “large part” of the stolen money was never spent, the lawyer said.

“This is not a bad person,” Enzer said. “This is a good person who made some very bad mistakes.”