Separation of couple accused in $4.5 billion bitcoin scheme

This partially reverses the New York judge's decision last week which ordered them to be released on bond.

Russian national Ilya Lightenstein, whose social media accounts describe him as a "tech-entrepreneur", is accused of trying to launder almost 120,000 bitcoin that was stolen from Bitfinex in 2016.
Heather Morgan, his wife, was also charged. She will be released under strict custodial supervision.
The criminal complaint stated that bitcoin was worth $71 Million at the time of hacking. However, its price has risen significantly since then.

The couple were arrested at their New York home last week. $3.6 billion worth of financial assets was seized in what was, according to the Justice Department, the largest seizure the department has ever seen. The hacking incident of 2016 is not being accused.

A New York judge would have permitted the release of the two defendants before trial on $5 million and $3million bonds, but the Justice Department immediately requested Howell to reverse his ruling due to the possibility that the defendants might escape to avoid prosecution.

Prosecutors stated that the defendants have not only a strong incentive to flee, but also the means to do so. They pointed out that the couple had taken "meaningful steps” toward creating new identities and opening bank accounts in Russia and Ukraine.

Howell admitted from the bench that the evidence showed the defendants were not strangers to... evad[ing] detection". He described the evidence as "very solid."

She said that it was difficult to overstate how serious the alleged conduct was. The two appeared in D.C. District Court Monday wearing green prison uniforms and facemasks. Lichtenstein's brother and parents were also present at court.

Howell eventually decided Lichtenstein should go to prison, but his wife was allowed to leave with an ankle bracelet monitoring.

According to the Justice Department, the investigation revealed that the bitcoin stolen by hackers was funnelled to a digital wallet controlled by Lichtenstein. They then converted some of the stolen cryptocurrency to conventional currency, and used the cash proceeds to purchase 70 pieces of gold and a $500 Walmart gift certificate.

Justice Department officials claimed that the couple used sophisticated laundering techniques in order to steal bitcoin from their digital wallet and deposit it into different exchanges and bank accounts. Prosecutors claimed that they used fake identities to create online accounts and automate financial transactions. Then, they transferred the bitcoin to accounts on darknet markets and virtual platforms to distance themselves from the fraudulent transactions.

Federal prosecutors claimed that investigators tracked the hacker bitcoin to darknet sites. This was a "circuitous trip" of thousands upon thousands of transactions that eventually led to accounts linked to the New York couple.

The "smoking pistol" according to law enforcement was the discovery by Lichtenstein of passwords to the wallet that would allow them to take the cryptocurrency inside.

Defense attorneys for the couple claim that the complaint contains "many defects" and that they consider the evidence against Morgan to be "flimsy."

According to court documents, Morgan and Lichtenstein allegedly collaborated to to launder the proceeds of complex virtual currency platforms. After that Morgan would deposit the money in bank accounts and claim the income from shell companies.

Morgan was involved in the management of cryptocurrency in her business accounts as well as her personal accounts. According to the documents, her business accounts were used to legitimize and clean up funds.

Prosecutors described her as a willing accomplice in the scheme, pointing out her economics degree and knowledge of cryptocurrency. They also noted Morgan's claims of "spear-phishing" technology in her songs.

While Morgan might have been convinced by Howell that she participated, Morgan also pointed out evidence that Morgan may not know about the stolen bitcoins until the funds were transferred to her digital wallet.

On January 5, investigators searched the New York home of the couple and discovered a "bin containing various bags holding multiple cellphones, SIM cards, assorted electronics" underneath their bed. Investigators also found at least 50 electronic devices and multiple digital wallets that stored cryptocurrency. They also discovered approximately $40,000 in cash.

Prosecutors wrote that "Lichtenstein’s office contained two hollowed out books, whose pages seemed to have been roughly cut by hand." The compartments were empty.

It wasn't just what the couple was accused of doing that worried them, it was who they were and what they might be capable of.

Monday's Prosecutors expressed concern that if defendants could evade law enforcement to enter a country with ties to Russia or Ukraine, it could be used as a "launching pad" to create new identities.

Their legal team argued that they should be released according to the New York judge’s initial ruling. They cited in part their decision not flee or transfer funds between their January 5 apartment search, and their arrest last Wednesday.

Samson Enzer, defense attorney, stated that they were surprised by the arrest. He said that the government had not yet made a decision on the charges against the couple.

He argued that Morgan's clients did not flee from their trial because of their close family ties.

Enzer stated that his clients would "literally be leaving their future behind" if they fled, in an effort to transfer them to home detention. Enzer stated that he would request the court to dismiss all the severe charges against his clients.

Prosecutors countered that it was difficult to raise children if they were held in prison for more than 25 years. This makes it more likely that they will flee.

Howell stated that Morgan was not the only health issue she considered when deciding to release her -- defense lawyers claimed Morgan had just undergone a surgery.

Morgan and Lichtenstein face maximum 25 years in prison.

News Source : Bistoin SV