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2016 Bitfinex hack

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The Bitfinex cryptocurrency exchange was hacked in August 2016.[1] 119,756 bitcoin, worth about US$72 million at the time, was stolen.[1]

In February 2022, the US government recovered and seized a portion of the stolen bitcoin, then worth US$3.6 billion,[2] by decrypting a file owned by Ilya Lichtenstein that contained addresses and private keys associated with the stolen funds.[3] Lichtenstein and his wife, Heather R. Morgan, were charged with conspiracy to launder the stolen bitcoin.[3] In August 2023, Lichtenstein admitted to committing the theft. Both Lichtenstein and Morgan pleaded guilty to money laundering.[4]

Hack

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In August 2016, the Bitfinex cryptocurrency exchange, based in Hong Kong, announced it had suffered a security breach.[5] Around 2,000 approved transactions were sent to a single wallet from users' segregated wallets.[6][7] Immediately thereafter, Bitcoin's trading price plunged by 20%, causing the value of the stolen Bitcoin to dip to US$58 million.[1] After learning of the breach, Bitfinex halted all Bitcoin withdrawals and trading[8] and said it was tracking down the perpetrators of the hack.[7] Exchange customers, even those whose accounts had not been broken into, had their account balance reduced by 36% and received BFX tokens in proportion to their losses.[9] The exchange's access to U.S. dollar payments and withdrawals was then curtailed. The hack happened even though Bitfinex was securing the funds with BitGo, which uses multiple-signature security.[10]

In July 2023, Bitfinex worked with the Department of Homeland Security to recover about $315,000 in cash and cryptocurrencies stolen in the 2016 breach. The funds will be redistributed to holders of Bitfinex's Recovery Right Tokens, digital coins issued to people who suffered financial losses due to the hack.[11]

Laundering

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In early 2017, small amounts of the stolen bitcoin began to be moved from the wallet it had been initially stored in to the Dark Web marketplace AlphaBay with the intention of laundering it. After AlphaBay was shuttered by international law enforcement led by the FBI, the money was rerouted to the Russian marketplace Hydra. The shutdown of AlphaBay may have given law enforcement access to the service's internal transaction logs and allowed it to identify the perpetrators.[6]

In February 2022, a New York couple, Ilya Lichtenstein (aged 34) and his wife Heather R. Morgan (aged 31),[6] were charged by US federal authorities with conspiring to launder the bitcoin, which was worth US$5.3 billion at the time.[2][12] Lichtenstein was an entrepreneur who had co-founded a sales company called MixRank. Morgan was an entrepreneur, columnist for Inc. and formerly a Forbes contributor (from 2017 to 2021). She also released rap videos on Youtube.[13][14] Neither of them was charged with actually committing the hack.[15] Law enforcement was able to acquire a search warrant for a cloud storage service used by Lichtenstein, obtaining a spreadsheet of wallet addresses linked to the hack, and their passwords. One of the wallets had around 94,000 Bitcoin. As the transactions were logged on the blockchain, law enforcement was able to track the money, and obtaining the passwords allowed it to seize it.[6][16][17] The couple was charged in the case with a document known as an information, which is a type of charging document that federal prosecutors typically use when defendants have agreed to plead guilty.[18]

Some of the funds were moved to more traditional financial accounts and spent on gold, NFTs, Uber rides and a PlayStation.[19] Although hundreds of millions of dollars were converted to fiat currency, 80% of the Bitcoins remained in the original wallet at the center of the hack.[6]

Shortly after the couple's arrest, Netflix ordered a documentary series that would cover the story of Lichtenstein's and Morgan's crimes.[needs update][20]

In August 2023, Lichtenstein pleaded guilty to conspiracy to commit money laundering, and Morgan to one count of money laundering conspiracy and one count of conspiracy to defraud the United States.[21] Lichtenstein additionally admitted to carrying out the hack.[4]

In November 2024, Lichtenstein was sentenced to 60 months in prison.[22] Morgan was sentenced to 18 months in prison for fraud and conspiracy charges.[23]

See also

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References

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  1. ^ a b c Tsang, Amie (August 3, 2016). "Bitcoin Plunges After Hacking of Exchange in Hong Kong". The New York Times. Hong Kong. Archived from the original on May 18, 2017.
  2. ^ a b Barrett, Devlin (February 8, 2022). "Feds arrest couple, seize $3.6 billion in hacked bitcoin funds". The Washington Post. Archived from the original on February 16, 2022. Retrieved February 9, 2022.
  3. ^ a b "Case: 1 :22-mj-00022 - Complaint with Arrest Warrant" (Press release). February 7, 2022. Archived from the original on February 9, 2022. Retrieved February 10, 2022.
  4. ^ a b Paúl, María Luisa (4 August 2023). "'Bitcoin Bonnie and Clyde' plead guilty in 'spy novel'-like laundering case". Washington Post. Retrieved 5 August 2023.
  5. ^ Nakamura, By Yuji (May 21, 2017). "Bitfinex comes back from $69 million bitcoin heist". Sfgate. Archived from the original on May 22, 2017.
  6. ^ a b c d e Chow, Andrew R (February 10, 2022). "Inside the Chess Match That Led the Feds to $3.6 Billion in Stolen Bitcoin". Time. Archived from the original on 2022-02-10. Retrieved February 12, 2022.
  7. ^ a b "Bitcoin Worth $72M Was Stolen in Bitfinex Exchange Hack in Hong Kong". Fortune. Archived from the original on November 20, 2016. Retrieved October 26, 2016.
  8. ^ Shekhtman, Lonnie (August 3, 2016). "Bitcoin security breaches raise questions about digital currency's future". Christian Science Monitor. Archived from the original on May 28, 2017.
  9. ^ Baldwin, Clare (August 6, 2016). "Bitfinex exchange customers to get 36 percent haircut, debt token". Reuters. Archived from the original on March 16, 2019. Retrieved June 20, 2018.
  10. ^ "Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong". Reuters. 2016-08-03. Archived from the original on 2020-11-11. Retrieved 2021-10-14.
  11. ^ "Crypto Exchange Bitfinex Says $315,000 From 2016 Hack Recovered". Bloomberg. July 6, 2023. Archived from the original on 2023-07-07. Retrieved 2024-05-21 – via www.bloomberg.com.
  12. ^ Lyngaas, Sean (February 8, 2022). "Feds arrest a New York couple and seize $3.6 billion in stolen cryptocurrency". CNN News. p. 1. Archived from the original on February 14, 2022. Retrieved February 9, 2022.
  13. ^ Hissong, Samantha (2022-02-08). "Accused Bitcoin Mega Crook Made Rap Videos. And Dear God, Are They Cringey". Rolling Stone. Archived from the original on 2022-03-05. Retrieved 2022-03-05.
  14. ^ Dugan, Kevin (2022-02-15). "The Many Lives of Crypto's Most Notorious Couple How the accused bitcoin launderers spent their time". New York Magazine. Archived from the original on 2024-05-13. Retrieved 2024-05-13.
  15. ^ "US Justice's largest ever financial seizure sees two arrests over $3.6bn stolen crypto". InternationalInvestment. 2022-02-09. Archived from the original on 2022-02-17. Retrieved 2022-02-17.
  16. ^ Cohen, Luc (July 21, 2023). "Crypto rapper 'Razzlekhan,' husband reach plea deal over Bitfinex hack laundering". Reuters. Archived from the original on July 26, 2023. Retrieved July 26, 2023 – via www.reuters.com.
  17. ^ "In Bitfinex Cryptocurrency Heist, 2 Charged Reach Plea Deal". The New York Times. 2023-07-21. Archived from the original on 2023-07-26. Retrieved 2023-07-26.
  18. ^ Forkin, Dan Mangan, Jim (July 21, 2023). "'Crypto Couple' appear set to plead guilty in bitcoin hack money laundering case". CNBC. Archived from the original on July 25, 2023. Retrieved July 26, 2023.{{cite web}}: CS1 maint: multiple names: authors list (link)
  19. ^ "The Ballad of Razzlekhan and Dutch, Bitcoin's Bonnie and Clyde". Vanity Fair. 2022-08-16. Archived from the original on 2022-08-18. Retrieved 2022-08-18.
  20. ^ Roth, Emma (February 12, 2022). "Netflix orders docuseries on crypto laundering couple". The Verge. Archived from the original on February 13, 2022. Retrieved February 13, 2022.
  21. ^ https://cointelegraph.com/news/bitfinex-hacker-heather-morgan-bitcoin-conference-2024
  22. ^ "Bitfinex Hacker Sentenced in Money Laundering Conspiracy Involving Billions in Stolen Cryptocurrency". justice.gov. November 15, 2024.
  23. ^ Davis, Wes (2024-11-18). "Razzlekhan, crypto's most embarrassing rapper, is going to prison". The Verge. Retrieved 2024-11-19.
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