He Laundered $4.5 Billion in Bitcoin. Now He’s a US Government Witness

Sabrina Willmer, Bloomberg News

<p>Ilya Lichtenstein’s testimony helped shed more light on the motives behind the 2016 Bitfinex hack and how he managed to launder millions of dollars. </p>

Ilya Lichtenstein’s testimony helped shed more light on the motives behind the 2016 Bitfinex hack and how he managed to launder millions of dollars.

, Bloomberg

(Bloomberg) -- A hacker who looted billions of dollars from crypto exchange Bitfinex revealed details of how he was able to pull off one of largest Bitcoin heists in history.

Ilya Lichtenstein, who appeared as a cooperating US government witness in a money laundering trial in Washington, told a jury Tuesday that he had access to Bitfinex’s systems for several months and also hacked into individual accounts at other crypto exchanges such as Coinbase and Kraken. Lichtenstein and his social-media rapper wife pleaded guilty last year to a money-laundering conspiracy tied to the hack.

Lichtenstein testified about how he used a service called Bitcoin Fog as many as 10 times to launder some of the stolen money. US prosecutors have accused Roman Sterlingov of operating the mixing service, which they claim received tens of millions of dollars from darknet markets known for trafficking in illegal drugs. Sterlingov’s attorney, Tor Ekeland, has argued that there is no evidence such as eyewitness accounts and server logs to link his client to running the mixer.

Read more: Razzlekhan, Dutch and the Biggest Crypto Heist Gone Wrong

Lichtenstein’s testimony helped shed more light on the motives behind the 2016 Bitfinex hack and how he managed to launder millions of dollars. He told jurors he decided to hack the exchange because of problems he was having with his tech startup in San Francisco.

“At the time, my business was struggling and I was feeling very burnt out from it,” Lichtenstein told the jurors.

At the time of the couple’s arrest, the US alleged they conspired to launder $4.5 billion in stolen Bitcoin, of which the government had seized $3.6 billion, making it the largest financial seizure ever. The government later seized another $475 million tied to the hack.

Once he gained access to Bitfinex, Lichtenstein said he came up with a way to save customer passwords so he could use them to access accounts at other exchanges. Lichtenstein testified that while he used various mixers, including Bitcoin Fog, to “obfuscate” the origins of the stolen money, he didn’t use those services for the majority of the laundering. In some cases, he deposited money into crypto exchanges by using accounts in the name of other individuals that he purchased on the darknet.

He said he eventually stopped using Bitcoin Fog because he found other mixers that “suited his purposes better.” One of them was Helix, which was was operated by Larry Harmon, who pleaded guilty in 2021.

Sterlingov’s attorney, Ekeland, pressed Lichtenstein on whether he knew or ever communicated with his client. “No,” responded Lichtenstein. Ekeland also asked whether Lichtenstein was on drugs when he hacked after he had earlier testified to purchasing mushrooms and LSD on darknet markets.

“I wanted to be sober while I was doing the hacks,” he said.

Lichtenstein admitted at his plea hearing last year that he executed the 2016 attack on the Bitfinex exchange. The government claimed that he later enlisted his wife, Heather Morgan, to help hide the source of the stolen funds. Morgan, who dubbed herself the “Crocodile of Wall Street,” had tried to make a name on social media by rapping about investment strategies.

The government claimed that the two used fake identities to set up online accounts and hide the trail of transactions by depositing and withdrawing the funds from crypto exchanges and darknet markets. Some of that stolen money went to buy nonfungible tokens, gold and Walmart gift cards, according to the government.

--With assistance from David Voreacos.