ColdFusion - Married Couple Steals $4.5 Billion in Bitcoin Heist [Bitfinex]

Starting point is 00:00:00 Hi, welcome to another episode of Coldfusion, where I cover anything in science, technology, business or history. In 2016, a large amount of Bitcoin was stolen from an exchange. The event was considered as one of the biggest mysteries in crypto. But who stole the money? And where were they? Some answers would come in February of 2022, when a New York-based former Forbes contributor turned amateur rapper as seen here. And her husband were just arrested and charged with stealing, $4.6 billion in Bitcoin.

Starting point is 00:00:34 This morning, the Justice Department announcing the largest single seizure of funds in the department's history, recovering billions of dollars in missing Bitcoin. This story has everything, right? You have a big hack, you have a big theft, you have a very colorful couple at the center of all of this. This is a bizarre story. So sit back, relax and enjoy as we take a ride through the blockchain to chase down a married couple's attempt at a multi-billion dollar heist. You are watching Told Fusion TV. The story starts with the place that the Bitcoin was stolen from, Bitfinex. Since its founding in 2012, the Bitfinex exchange has had a shady history. From hacks to covering up losses, being unable to find banks and fines by the CFTC, were all par for the course. But the biggest disaster happened in 2016 when their Hong Kong

Starting point is 00:01:25 exchange was hacked. Almost 120,000 Bitcoin was stolen directly from the world. users' wallets. It was pandemonium. Withdrawals were halted and trading was stopped. Once the news of the hack spread, Bitcoin dropped by over 20%. To be clear, it wasn't the Bitcoin blockchain that was hacked, but just the Bitfinex exchange where people traded Bitcoin. As a reaction to the hack, Bitfinex customers had their balance reduced by 36%, and would receive tokens in proportion to their loss. The crypto community was on the case. Everyone was curious as to who the hackers were, but it would take a number of years to finally track them down. Details of exactly how the hack happened aren't 100% clear yet, even after all of these years,

Starting point is 00:02:13 but one of the lead theories is something like this. The hack was possible because BitFinex was using a third-party service called BitGo to secure its user's wallets. It was BitGo's servers that got hacked, and the hacker ordered the system to send all of the Bitcoin to an account of their choosing. For years after the hack, the crypto community had a hawk eye on the movements of the stolen coins, through the blockchain. Everybody could see where the coins were going, but nobody knew who the owners of the coins were. Before long, these coins became banned and blacklisted from other crypto exchanges all over the blockchain. This meant that the hackers couldn't convert the Bitcoin into fiat currency. They needed another way.

Starting point is 00:02:54 25,000 coins out of the 120,000, or about 21% of them, were shuffled around in a complex laundering process. The coins were split into tiny pieces and exchanged for other cryptocurrencies and spread around. Bizarrely, some of the purchases included gift cards for Uber, Walmart and PlayStation. Some of the laundered Bitcoin was even used to buy some gold in NFTs. It was all very curious. Some keen blockchain analysts think that other parts of the stolen Bitcoin were paid to a so-called cash-out service on the dark net.

Starting point is 00:03:25 This is where a user would pay someone on the dark net with Bitcoin. The user would receive an equivalent amount of cash minus a fee that was put in a vacuum sealed bag and left in a secret location. The user would then be given the exact GPS coordinates as to where to pick it up. As for the rest of the stolen Bitcoin, it just sat there for another 4.5 years due to all of the blacklisting. It was too risky to move. There were just too many eyes on it.

Starting point is 00:03:55 That was until August of 2021, when suddenly $760 million moved from the original hacker's wallet to a new crypto wallet. It looked like the perpetrators had finally gotten tired of sitting on the coins and they wanted to make a run for it. They used a complicated method of transactions that split the coins up into many pieces, but eventually all of the coin movements landed them back into the same wallet. It was a very interesting development. The movements of funds alerted the authorities and the chase was on. With special tools like elliptic, the complicated movement of coins was tracked.

Starting point is 00:04:31 After an investigation it was found that the crypto wallet belonged to 34-year-old old startup founder, Ilya Lichtenstein. Lichtenstein and his wife, Heather Morgan, age 31, allegedly conspired to launder the money according to the Department of Justice. Authorities managed to link the stolen coins to crypto exchange accounts owned under the couple's names. So who were these two? Now this is where things get really interesting, ironic and just downright bizarre.

Starting point is 00:05:01 Lichtenstein was a Russian, U.S. national. He grew up in Chicago and attended the University of Wisconsin. According to those who knew him, he was described as quiet and observant, but he had a guarded wall around him. While Lichtenstein was the co-founder of a blockchain startup, since the arrest, most of the focus has been on his wife, Heather Morgan. And if you don't know about me, I'm a serial software entrepreneur who started multiple successful companies. One is a multi-million dollar profitable one that I started by myself when I was 23. She's a former Forbes contributor who ironically wrote articles on how to protect your business against cyber criminals and talked with crypto exchange owners on how to prevent fraud.

Starting point is 00:05:44 She even did a cyber security talk with BitGo, which was the very same third-party platform that failed to protect the Bitfinex wallets during the hack. But that was only the start of the weirdness. Morgan, who calls herself the Crocodile of Wall Street, was actually making a name for herself on social media. She was an amateur rapper by the name Razel Khan, a name she came up with that was supposed to be a reference to Genghis Khan, but, quote, with more pizzazz. Her music videos, TikToks and rapping, can only be described as fit for North Korean torture. I'm sorry. Coming from the black seed,

Starting point is 00:06:36 Make your earthquakeer. Give no apology. Goofy as her social media posts were, it seemed like she had a skill for social engineering. She gave a seminar in 2019 about how to socially engineer yourself into anything. Tips included, while at an event, pretend to use your phone to call a fake friend.

Starting point is 00:06:55 While you're doing this, eaves drop in on important names to gain entry into exclusive parties. Other tips included, follow closely and listen and learn about your target. name-dropping was another hot tip. The seminar description says she used social engineering to navigate and infiltrate black markets and shadow economies in her previous career. Perhaps these skills were helpful to gain a foothold

Starting point is 00:07:18 into the inner workings of Bitfinex's security. During her 20s, Heather would travel the world and learned multiple languages including Japanese, Korean, Russian, Turkish, Arabic and Cantonese. In 2014, she incorporated salesfolk, a company, that aims to help other firms improve their efficiency when it comes to sales pictures. It was later found that salesfolk was involved in the money laundering scheme. Heather wrote 47 articles for Forbes as a quote, Forbes woman, and this was between December 2017 and September 2021. According to Vice, he interviewed people who knew Heather, they were all shocked at the news. They called Heather a nice person, and they also said that she was very

Starting point is 00:08:00 driven. Though on the other hand, the Department of Justice tells people not to be fooled. They state that Heather, quote, played an integral role in the money laundering and fraud scheme." They also say she had extensive knowledge and used a variety of cryptocurrency protocols to launder money. They state she was not an unwitting bystander. In 2019, the couple traveled to Ukraine to set up false identities and create fake passports. They established financial accounts in Russia and Ukraine and appear to have been setting up a contingency plan to leave the US and flee over East, if things got too hot.

Starting point is 00:08:36 Unfortunately for them, COVID put an end to those plans. Federal agents would remark that the Ukrainian activities look like something out of a spy novel. US law enforcement obtained a search warrant for Liechtenstein's digital wallet. They were able to seize $3.6 billion left in that wallet. They did this by managing to decrypt a file in his cloud storage account.

Starting point is 00:09:00 The encrypted file on the cloud had 2,000 crypto wallet addresses and their corresponding private keys, a pretty sloppy move. There's been no explanation of how exactly law enforcement decrypted the file, though, through blockchain analysis, authorities could link those wallets directly to the original Bitfinex hack all those years ago. Other incriminating documents were found, dark websites that sold fake IDs and passports.

Starting point is 00:09:24 The couple did use a VPN, but they used their real name, email, home address, and used the stolen Bitcoin to purchase it. The game was up, and in total, only about 4% of the Bitcoin was successfully laundered. The couple were arrested on Tuesday morning February 8th, 2022, in New York. According to the Department of Justice, the two have been charged with conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the US, which brings a maximum sentence of five years. A Manhattan judge has set Liechtenstein's bail at 5 million and Heather Morgan's at 3 million.

Starting point is 00:10:02 Some people have raised some doubts. Could this couple really pull off a $4.6 billion highest? Although the Department of Justice has not publicly linked them to the actual hacking of the cryptocurrency exchange, they were heavily implied to have done it. Since the stolen coins were recently directed to a wallet that they owned and the money was not split up between anyone else, it's believed that they at least had a large involvement. With that being said, this does still leave the door open to the possibility that others may have been involved. Some of the online doubters cite a 2019 arrest of two Israeli brothers in relation to the hack,

Starting point is 00:10:36 but no further information on legal proceedings have taken place since then. Others say that the married couple were just set up as patsies. It was a setup by the FBI or another government body, but we have no evidence for anything like that so far. So while there is some ambiguity here, looking at the charges brought by the Department of Justice, it seems that all the evidence points to the eccentric married couple. In the court proceedings, it was revealed

Starting point is 00:11:01 that they had a bag labelled, quote, burnap phones under their bed, and a computer folder left are labeled fake passport ideas. So there you go. That's the story of how an eccentric married couple started a digital manhunt through the blockchain in cyberspace that lasted six years.

Starting point is 00:11:20 The two suspects were not only bizarre, but also hiding in plain sight. So what do you guys think of this story? Let me know in the comment section below. If you want to discuss this episode in more detail or suggest a future video, head on over to the Cold Future Discord. If you want to listen to the podcast versions of these,

Starting point is 00:11:38 videos, they're now available on Spotify and other streaming platforms. My name is DeGogo and you've been watching Cold Fusion. Feel free to subscribe and have a look around on the channel. There's a bit of something for everyone. And I'll catch you again soon for the next episode. Cheers guys. Have a good one. New thinking.

ColdFusion - Married Couple Steals $4.5 Billion in Bitcoin Heist [Bitfinex]

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.