A New York couple arrested in February 2022 for laundering what was then $4.5 billion in stolen Bitcoin have reached plea deals with federal prosecutors.
In two separate hearings scheduled for August 3, the husband, Ilya “Dutch” Lichtenstein, and his wife, Heather “Razzlekhan” Morgan, will plead guilty to three charges: two counts of money laundering and one of conspiracy to defraud the United States.
They will also forfeit to the United States the money associated with the nearly 119,754 bitcoins obtained from Bitfinex, the crypto exchange from which the money was stolen in August 2016. In addition to the bitcoin, the related coins to be forfeited include Bitcoin Cash, Bitcoin Satoshi Vision, Bitcoin Gold, Monero, Ether, Tether, additional ERC-20 coins, and gold coins, among others.
On February 8, 2022, when news of the government’s arrest of the couple became public, the couple’s wild social media presence sparked a mass digital rubbernecking. The internet became captivated in particular by the wife, Heather Morgan, an amateur rapper who went by the name Razzlekhan. She had dubbed herself “The Crocodile of Wall Street,” had a raunchy online persona, and had produced memorable music videos, such as the most highly produced, “Versace Bedouin.”
Additionally, their arrests entailed the largest federal seizure of stolen assets in history — more than 94,000 Bitcoin — which was, at the time, worth $3.6 billion, and is today worth $2.8 billion.
How Lichtenstein and Morgan Could Be Sentenced and When
Sentencing will take place 60-90 days after the hearing.
According to a source familiar with the matter, both defendants cooperated with authorities. The couple have given the government new wallet addresses holding more stolen funds and other information that has allowed the government to recover additional assets.
Such behavior could reduce time in custody, which otherwise would likely be substantial, as federal sentencing guidelines take into account the amount of money involved.
What Happens to the Seized Bitcoins?
Both Lichtenstein and Morgan will relinquish the stolen property, which they will admit was stolen from the Bitfinex exchange. Court proceedings over the return of the stolen property will follow the entry of the guilty pleas.
Shortly after the hack, Bitfinex, which is one of the few crypto exchanges from that time period to survive a large hack and persist till this day, came up with a plan to make customers whole. The company devised a debt scheme using “BFX tokens” that it issued into customers’ accounts and that, eight months after the hack, had made all customers whole on a dollar basis.
However, $30 million worth of so-called recovery rights tokens (RRT) are outstanding and can be used to recover an equivalent dollar value of the stolen coins.
Some users have already indicated that, beyond the RRTs, they believe they have a claim to the seized coins. If any try to act on that, there would likely be litigation in front of the same judge, who would then adjudicate who has the superior right to the money.
Why Morgan and Lichtenstein Set the Internet on Fire
The day of Lichtenstein’s and Morgan’s arrest, their many videos and posts simultaneously fascinated and repelled the public.
Tweets about the couple were vicious, such as one that posted a clip of her “Versace Bedouin” with the comment, “I believe she should have already been in prison for life for whatever this is.” Many posted videos of Morgan’s raps, such as a short clip from her song “Bad B*tch,” which begins, “I’m a motherf***ing bad bitch, Go on, make me a sammich.” Commentary about them included quips like, “you may not like it, but this is the richest rapper to ever live.”
People were also riveted by how the couple were caught. Prosecutors likely followed the trail of stolen bitcoins through AlphaBay, a dark net market known for having been seized by the U.S. government in July 2017, a feat that probably enabled investigators to shadow the stolen bitcoins as they were deposited in crypto exchange accounts that all led, in one way or another, either to Lichtenstein, Morgan, one of their businesses, or to unidentified customers who abandoned the money after the exchange requested additional identifying information.
The authorities were able to track the stolen funds down to the purchase of a $500 Walmart gift card, which was used to buy items under Morgan’s name, with her email address, and delivered to her and Lichtenstein’s apartment. They also pursued the laundered bitcoins to purchases of Uber rides, Hotels.com purchases, a Playstation, and 70 one-ounce gold coins.
When the Feds Hit the Jackpot
The clincher was when law enforcement obtained a copy of the contents of one of Lichtenstein’s cloud storage accounts. It contained a file that logged all the addresses and private keys for the wallet that had directly received the stolen bitcoin from Bitfinex. Using that, the authorities were able to obtain 94,636 of the pilfered BTC, worth more than $3.6 billion at the time.
The cloud storage account also had the login information and the status of the accounts through which the bitcoins had attempted to be laundered.
Additionally, the cloud storage held files that indicated an exploration of assuming other identities, such as a folder named “personas,” which held documents and biographical information for various individuals; a file titled “passport_ideas,” notated with different darknet vendors selling passports or other forms of identification.
Investigators chronicled a trip that Morgan and Lichtenstein made to Ukraine in August 2019, during which time Lichtenstein created and/or modified the “personas” folder, along with the fake ID information, as well as a document titled “vendors” that listed darknet sellers and their processes for delivery in Ukraine.
A Dramatic Tussle on Wall Street
On January 5, 2022, before investigators decrypted the contents of Lichtenstein’s cloud storage account, law enforcement searched the couple’s apartment in New York’s financial district. The couple asked to leave the apartment with their cat, Clarissa, while the search was being conducted. As Morgan crouched near the bed to get Clarissa, she grabbed her cell phone, which was on a nightstand, repeatedly hitting the lock button, seemingly to prevent law enforcement from accessing its contents.
Investigators also found under the bed a bag holding multiple cell phones, SIM cards and other electronics, as well as a bag specifically labeled “Burner Phone.”
In Lichtenstein’s office, they discovered two books that had been hollowed out to create compartments. And they seized $40,000 in cash, as well as a large amount of foreign currency.
Jail for One, Bail for the Other
In the 15 months since, Lichtenstein has stayed in jail in Washington, D.C., while Morgan was released on a $3 million bond, to her home in New York (although she moved out of their Wall Street apartment).
This past January, she obtained a new job, “in the role of growth marketing and business development specialist,” at an unknown company.
In February 2022, three days after the news broke about the arrest, Netflix ordered a documentary on the couple to be directed by Chris Smith of Tiger King fame. Not long after, Forbes, where Morgan had previously been a contributor, also announced one. Hulu also has a limited series with Lily Collins in the works. (Unchained is working on a narrative podcast about the case.)
Now that this stage of their legal plight is nearing its end and given the media interest in the case, it remains to be seen if they will be as forthcoming as they were prior to their arrest.