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Billions in stolen bitcoin seized as US charges 2 New Yorkers on Bitfinex hack

This financial confiscation is the U.S. government's largest one to date, as authorities around the world work to identify the people who hacked the cryptocurrency exchange platform Bitfinex in 2016.

(CN) — Nearly six years after approximately $66 million worth of bitcoin was stolen in a heist of one of the world's largest cryptocurrency exchanges, U.S. authorities charged a couple in New York on Tuesday with conspiring to launder the stolen coin.

The nearly 120,000 bitcoin stolen from Bitfinex are now worth about $4.5 billion as of press time, and prosecutors say they unlocked more than 94,000 bitcoin in a digital wallet using keys found in online accounts that belong to Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31.

At more than $3.6 billion, the bitcoin is the highest value of crypto ever before seized by the Department of Justice.

Lichtenstein and Morgan, who were arrested this morning in Manhattan, face federal charges of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison. Though the criminal complaint and statement of facts against them were filed in Washington, they are scheduled to make their initial appearances in Manhattan federal court at 3 p.m.

Tuesday's arrests mark the first break in the case in years after Israeli police arrested two brothers there in 2019. A year later, the Hong Kong-based Bitfinex offered a reward of $400 million to anyone who finds the responsible hackers, or to the hackers themselves if they return the missing bitcoin.

Prosecutors allege that Lichtenstein's digital wallet was the recipient of the 119,754 bitcoins stolen from Bitfinex over a series of 2,000 unauthorized transactions. Over the intervening years, much of that bitcoin were transferred out of Lichtenstein’s digital wallet and deposited into his financial accounts.

Taken from the government's statement of facts against Ilya Lichtenstein and Heather Morgan, this chart offers a simplified illustration of how stolen bitcoin moved to Lichtenstein and Morgan's accounts after the virtual currency exchange Bitfinex was hacked in 2016. (Image via Courthouse News)

The complaint says Lichtenstein and Morgan's scheme was compromised of numerous, complex laundering techniques under the shroud of U.S.-based business accounts to legitimize their banking activity and the online accounts that they set up using false identities. Lichtenstein and Morgan allegedly used computer programs to automate how they deposited and withdrew the stolen funds through virtual currency exchange accounts and darknet markets, as well as a process known as "chain hopping" to convert the bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency (AEC).

“In a methodical and calculated scheme, the defendants allegedly laundered and disguised their vast fortune,” Jim Lee, chief of criminal investigations at the IRS, said in a statement through the Department of Justice .

U.S. federal law enforcement have been part of an international effort to retrieve the missing funds. With a court-authorized search warrant, agents were able to access Lichtenstein and Morgan's online account files and seize 94,000 stolen bitcoin.

“Cryptocurrency and the virtual currency exchanges trading in it comprise an expanding part of the U.S. financial system, but digital currency heists executed through complex money laundering schemes could undermine confidence in cryptocurrency,” U.S. Attorney Matthew M. Graves for the District of Columbia said in the press release. “The Department of Justice and our office stand ready to confront these threats by using 21st century investigative techniques to recover the stolen funds and to hold the perpetrators accountable.”

Last week, Twitter-based crypto transaction tracker Whale Alert, discovered $3.5 billion of the stolen bitcoin were moved through 23 total transactions from a digital wallet associated with the theft to new addresses after remaining unmoved for three years.

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