It was a $500 Walmart gift card that led federal investigators to a couple who allegedly conspired to launder cryptocurrency that was stolen in the 2016 hack of Bitfinex, a virtual currency exchange. The stolen Bitcoins are now worth $4.5 billion.
The gift card was sent to an email registered in Russia and investigators traced the transaction and found it was made through an IP address linked to a cloud service provider in New York. This allowed them to link the IP address to the main defendant, Ilya Lichtenstein.
Heather Morgan, 31, a Forbes-published writer and rapper, who goes by the name “Crocodile of Wall Street,” and her husband Ilya Lichtenstein, 34, a startup founder, were arrested for scamming money from the exchange.
In the Bitcoin ecosystem, all transactions are recorded in a public ledger for anyone to view. Analyzing the patterns of these transactions can reveal groups that appear to share a common connection or source.
The Wall Street Journal reported that court documents in the case show federal agents used sophisticated software tools to search for connections and patterns using a process called cluster analysis. One particular group of Bitcoin addresses, identified as 36B6mu, caught the attention of investigators.
On May 3, 2020, a fraction of Bitcoin was sent from the cluster to an exchange that sells prepaid gift cards. A $500 gift card for Walmart was sent in exchange for an email registered in Russia. However, according to agents, the transaction was made through an IP address linked to a cloud service provider in New York. Investigators then linked the address to Lichtenstein.
Morgan and Lichtenstein allegedly spent the proceeds of their laundering scheme on various purchases, including a $500 Walmart gift card, gold coins and NFTs, according to the criminal complaint.
A portion of the $500 gift card was redeemed through Walmart’s phone app. According to court documents, three purchases were made using Morgan’s name in one of his emails and the address of the couple’s New York apartment was provided for delivery. That giveaway and more than a dozen other cards, for services including Uber, Hotels.com and PlayStation, have been traced to the pair, The Wall Street Journal reported.
The couple are accused of laundering Bitcoin using several criminal techniques. These include using fake IDs, coding computer programs to perform faster automated transactions, and depositing stolen funds from a crypto exchange into multiple accounts to cover previous transactions. They are also accused of converting Bitcoin into other forms of cryptocurrency and setting up US-based business accounts to transfer funds.
They are not accused of actually stealing the Bitcoins because the hackers on the Bitfinex website were never identified. According to the Daily Mail UK, someone laundered 119,754 Bitcoin through 2,000 transactions on the Bitfinex website before transferring the crypto funds to Lichtenstein’s digital wallet.
Earlier on January 5, federal agents raided the couple’s apartment on Wall Street.
According to the WSJ report, law enforcement officers seized more than $40,000 in cash from the apartment. Investigators also seized more than 50 electronic devices and a plastic bag marked “burner phone,” prosecutors said in court documents.
Investigators were able to access Lichtenstein’s email and cloud account. On January 31, they managed to break the encryption of several files. In the files, they found a spreadsheet listing various accounts, including some that had been dropped when exchanges asked for identity verification.
Another folder named “personas” and “passport ideas” contained false identity documents. They also found a file containing all the addresses of the digital wallet where most of the Bitcoins stolen from Bitfinex were kept.
The Department of Justice said it captured $3.6 billion in cryptocurrency from the Bitfinex hack in its “largest ever financial seizure,” the New York Post reported.
(Edited by : Shoma Bhattacharjee)