U.S. Lawyer's Workplace
Accused crypto scammer Ilya “Dutch” Lichtenstein was ordered held with out bond following a bail listening to on Monday throughout which prosecutors laid out what “may actually be referred to as the digital model of the smoking gun,” Chief Decide Beryl Howell of the Washington, D.C. federal district court docket stated Monday.
Lichtenstein, 34, and his spouse, 31-year-old tech entrepreneur and aspiring rapper Heather Rhiannon Morgan, are accused of trying to launder billions of dollars in Bitcoin stolen in a 2016 hack. The cryptocurrency, value about $71 million on the time, was value $4.5 billion by the point they had been arrested on Feb. 8. The feds have to this point seized $3.6 billion of that complete, which constitutes the most important monetary seizure in U.S. historical past.
The couple had managed to liquidate roughly $2.9 million of the purloined Bitcoin earlier than getting caught, in response to prosecutors, who stated the couple thought that they had “succeeded in outsmarting” the feds up till they had been taken into custody, Assistant U.S. Lawyer Catherine Pelker stated throughout right now’s three-hour-plus court docket session. Investigators have nonetheless not succeeded in cracking at the very least 24 accounts allegedly managed by Lichtenstein that include roughly $328 million in illicit crypto.
Lichtenstein and Morgan appeared in court docket sporting jail greens and face masks, with their dad and mom observing the proceedings from the gallery. Prosecutors warned that Lichtenstein, who was born in Russia and grew up outdoors of Chicago, is a twin citizen of the US and Russia, which doesn't have an extradition treaty with the U.S. Additional, the federal government stated Lichtenstein and Morgan had been within the planning levels of beginning a brand new life as fugitives, utilizing Ukraine or Russia as a “launching level” to go on the run elsewhere underneath false identities.
Arguing towards permitting Morgan—whom the couple’s shared protection lawyer, Samson Enzer, tried to painting as considerably much less culpable than Lichtenstein—to stay free pending trial, prosecutors discounted “this suggestion that Ms. Morgan is a few type of naive spouse who could have been unwittingly co-opted into her husband’s scheme right here.” (Enzer’s co-counsel, Anirudh Bansal, missed the listening to after getting caught on a prepare from Connecticut to D.C. Howell advisable heading down the evening earlier than for future hearings.)
“It bears noting that Ms. Morgan is very clever, with a graduate diploma in economics, and has ample cryptocurrency and technical know-how such that if she had been launched, even when her husband burned the keys, she would completely have the flexibility and the connections to entry the stolen crypto to buy identities off of the darkish web and disappear,” they argued.
Additional, prosecutors famous that Morgan, a West Coast native who headed up her personal “cold-email” advertising and marketing firm and has carried out as a hip-hop artist underneath the identify “Razzlekhan,” has “very robust ties to Hong Kong, having lived there beforehand, having companies arrange there. It might even be very tough for us to extradite. It’s not unimaginable. however tough.”
Nonetheless, Howell stated she believes Lichtenstein has “extra facility and abilities” than Morgan does with regards to buying false identities, establishing pseudonymous accounts, and “accessing and manipulating cryptocurrency.” On the similar time, the one-time Forbes contributor was totally conscious and knowingly participated within the cash laundering portion of the alleged scheme, Howell declared, ordering Morgan freed on $3 million bond, secured by her dad and mom’ dwelling in Northern California. She is going to now be positioned underneath home arrest, with strict location monitoring and a raft of stringent situations, stated Howell.
Howell famous the power of the allegations put forth by prosecutors this far, whereas on the similar time criticizing Enzer—who, earlier than getting into personal follow, helped lead the authorities’s prosecution final 12 months of fugitive software program magnate and fringe political determine John McAfee—for “apparent misdirection to attract consideration away from the heavy weight of the proof.”
Previous to being positioned in handcuffs by federal brokers final week, the attention-grabbing duo had been certain that they had gotten away with the scheme, in response to Pelker.
The 2 remained sure that “even when we had been in a position to hint some transactions to their accounts, that that they had laundered them properly sufficient that they might have believable deniability—that it simply occurred that some small subset of the [proceeds] from the hack went to their account,” she stated in court docket on Monday.
In strolling Howell via a timeline of the investigation, prosecutors stated Lichtenstein and Morgan obtained a discover from their web service supplier final November, informing them that the U.S. authorities had requested entry to their on-line data. The transfer by the feds was meant to be saved secret, however the couple had been tipped to the subpoena because of “an administrative oversight,” they defined.
On Jan. 5, 2022, federal brokers executed a search warrant of the Wall Avenue house Morgan and Lichtenstein shared. About three weeks later, authorities started seizing the $3.6 billion in Bitcoin the pair are accused of trying to launder, culminating of their Feb. 8 arrest.
Despite the fact that they ostensibly knew they had been dealing with critical hassle, Morgan and Lichtenstein didn’t skip city or attempt to liquidate any of the property to which prosecutors suppose they nonetheless have entry, stated Enzer in arguing for each defendants to be launched.
However prosecutors described what they referred to as a “pretty basic misunderstanding so far as what the defendants knew on the time of the search of their residences,” saying that Lichtenstein and Morgan nonetheless had no concept that investigators had gotten right into a cloud storage account with robust proof towards each of them, in addition to a folder managed by Lichtenstein that contained the personal keys to a digital pockets holding stolen Bitcoin.
Throughout the subsequent week, Morgan and Lichtenstein “continued to carry, up till they had been arrested, that that they had succeeded in outsmarting us,” they stated. “That even when we had been in a position to hint some transactions to their accounts, that that they had laundered them properly sufficient that they might have believable deniability—that it simply occurred that some small subset of the [proceeds] from the hack went to their account.”
Though pals and associates say Lichtenstein and Morgan didn't spend wildly and gave the impression to be well-off however not ludicrously rich, there have been occasional indicators that one thing was barely suspicious.
“It by no means appeared like she actually had a standard day job,” a cousin of Morgan’s advised The Day by day Beast shortly after her arrest. “At one level, about three years in the past… there was some point out of her being, like, a millionaire… I at all times puzzled how she had a lot cash, however rattling.”
Final week, after a New York Metropolis Justice of the Peace’s order for the discharge of each Lichtenstein and Morgan was briefly placed on maintain pending right now’s resolution by Howell, Lichtenstein and Morgan’s attorneys filed a quick claiming the 2 desperately need to change into dad and mom and beforehand harvested and froze a number of embryos now being saved at a hospital in New York Metropolis.
In a letter to Howell, Enzer stated Morgan “can solely conceive via in vitro fertilization as a result of she suffers from endometriosis. The couple would by no means flee from the nation on the danger of dropping entry to their means to have youngsters, which they had been discussing having this 12 months till their lives had been disrupted by their arrests on this case.”
Countering the protection’s claims, prosecutors argued in a submitting of their very own that Lichtenstein and Morgan had lengthy been gathering the mandatory instruments for a life on the run. In a bit of the submitting titled “Suspicious Ukraine Exercise,” prosecutors shared particulars of a month-long journey the 2 took to Jap Europe in 2019.
“The couple’s actions in Ukraine at occasions seem pulled from the pages of a spy novel,” it says, noting that brokers looking out the pair’s New York Metropolis house found, amongst different issues, two books with secret compartments made by hollowing out the pages.
After having access to Lichtenstein’s cloud storage account, investigators say they discovered “quite a few recordsdata…that contained notes about cash laundering and/or false identification documentation with Ukrainian connections. A folder they found was labeled “personas,” with subfolders containing Russian and Ukrainian identification paperwork in different folks’s names, the submitting says.
Together with the suspicious “personas” folder had been notes and details about acquiring debit playing cards on the darkish net, receiving packages anonymously in Ukraine, and avoiding safety cameras in Ukrainian put up workplaces.
“I imply, we’ve obtained to confess it's not regular for law-abiding residents to have entry to accounts of vetted darknet distributors promoting debit playing cards, false passports, and false personas,” Howell stated on Monday.
If convicted, the 2 withstand 20 years in jail.