US Jails Main Figure Behind the 2016 Bitfinex Crypto Exchange Intrusion for Five Years

Ilya Lichtenstein stole close to 120,000 Bitcoin from the exchange and laundered the proceeds with the help of his wife

A key figure behind the 2016 breach at crypto exchange Bitfinex has been sentenced to five years in prison by a US court for stealing close to 120,000 Bitcoin.

Ilya Lichtenstein, now 35 years old, breached Bitfinex and stole around $69 million worth of the cryptocurrency, per the exchange rate at the time, and siphoned it from the exchange into his own wallet over the course of more than 2,000 transactions.

He and his wife, Heather Morgan, who also goes by "Razzlekhan" when she performs rap songs and promotes her music, both pleaded guilty to later laundering the proceeds.

Lichtenstein carried out the attack on Bitfinex after reluctantly leaving marketing company MixRank in 2016, which he co-founded in 2011, court documents state. It was a "painful decision" he made following a "bitter disagreement" with his fellow co-founder.

In 2017, MixRank was on Inc 5000's list of fastest-growing companies in the US and had investment backing from the likes of Mark Cuban. The company still operates today.

Following his departure, the court heard that Lichtenstein spent a lot of time at his computer and it was during this period that he carried out the attack on Bitfinex.

Prosecutors said he took steps to delete his digital footsteps from the exchange's systems before engaging in a series of "sophisticated laundering techniques" in an attempt to hide his tracks on Bitcoin's blockchain.

The sentencing is a long time coming, with Lichtenstein having previously pleaded guilty [PDF] to one count of conspiracy to launder monetary instruments back in August 2023.

Lichtenstein's wife and co-defendant, tech entrepreneur Morgan, also admitted to one count of conspiracy to launder monetary instruments. She additionally pleaded guilty to one count of conspiracy to defraud the United States.

The pair were arrested in February 2022.

Per a sentencing memo [PDF] submitted by her lawyer, Morgan claims she only discovered Lichtenstein carried out the attack nearly four years later, at the beginning of 2020, at which point he asked for help in laundering the proceeds. 

According to the sentencing memo, she agreed and over the next two years followed the direct instructions of Lichtenstein, who told Morgan not to carry out any internet research related to their activity.

The laundering activity, which her lawyer claims was carried out at times with Morgan's assistance, involved:

Using fake IDs to create online accounts

Using software to automate transactions

Depositing stolen funds into dark web marketplaces and then withdrawing them

Converting the Bitcoin to other token types

Using crypto mixer services

Using genuine US business bank accounts to legitimize the pair's financial activity

Exchanging stolen crypto for gold coins

Morgan met Lichtenstein at venture capital tech accelerator 500 Startups in 2013, where she also met an older Brazilian startup founder to whom she soon became attached.

Much of the relationship's details were redacted in the court documents submitted by her counsel, but the memo claimed the pair soon married in a courthouse and moved to Brazil.

Morgan started her cold email campaign business SalesFolk in 2014, the same year in which she and Lichtenstein started dating. 

They married in 2019 following Lichtenstein's departure from MixRank and after Morgan began to perform as her surreal rapper alter-ego Razzlekhan.

Submitted last week, shortly after her lawyer's memo, Lichtenstein himself submitted a letter describing Morgan's character [PDF] to the court in highly flattering terms.

Morgan has been under house arrest for 33 months, with her lawyers requesting she be sentenced with time served. She is due to be sentenced on November 18.

As part of the pair's guilty pleas, they agreed to forfeit all assets and property related to the crime. The vast array of assets seized by the US government is set out in a separate court document [PDF] and includes various cryptocurrency tokens, fiat currencies held in bank accounts, and gold coins.

Had the same number of Bitcoin tokens been stolen at today's exchange rate, at the time of writing, they would be worth around $10.7 billion.

One interesting tidbit related to the US's seizure was that during the government's process of converting some of the seized cryptocurrency into dollars, an unnamed cybercriminal was apparently watching this going on and attempted to hijack the funds involved.

On October 24, regarding $20.7 million worth of "a relatively obscure virtual currency token" accepted by the US Marshals Service, an attacker "was able to access the funds and/or manipulate the transaction and thereby steal the tokens."

The attacker was unable to liquidate around $19.5 million worth