Hours after a New York magistrate judge ordered two individuals accused of laundering bitcoin from the 2016 Bitfinex hack released on bond following their arrest on Tuesday, a federal judge struck down the order, staying their release from custody.
New documents filed Thursday provide additional evidence against Ilya “Dutch” Lichtenstein and Heather Morgan and describe prosecutors’ concerns that the couple are “sophisticated defendants with the means to flee and ample incentive to do so.”
Lichtenstein and Morgan, a married couple living in New York, were arrested on Tuesday for allegedly laundering about 120,000 bitcoins – valued at $4.6 billion now – from the Bitfinex theft.
In late January, federal agents decrypted a file stored on one of Lichtenstein’s cloud accounts that contained the private key to a wallet containing 94,636 BTC (worth about $3.6 million), which was then seized by the Treasury Department. Outside of a series of small transfers in 2017 aimed at laundering a portion of the funds, the government says the “majority” of the stolen funds in Lichtenstein’s wallet were unmoved from August 2016 until the seizure in January.
According to the report, Lichtenstein kept a spreadsheet on his computer of fake personas and accounts the couple allegedly used to launder money through exchanges,
The defendants are believed to have about $330 million worth of bitcoin that hasn't been discovered yet, as well as “significant additional assets.”
Lichtenstein, a dual U.S.-Russian citizen, was found to have a document on his computer called “passport_ideas” that contained stolen biographical information purchased from a darknet marketplace, as well as links to darknet marketplace providers of false identity documents, prosecutors said. Prosecutors also noted during the arraignment that Morgan was learning Russian, which the couple’s lawyers dismissed as irrelevant.
However, the documents released Thursday say the couple “established financial accounts in Russia and Ukraine and appear to have been setting up a contingency plan for a life in Ukraine and/or Russia prior to the COVID-19 pandemic.”
According to the most recent documents, the government has also taken steps to combat the defense’s position at the Tuesday arraignment that Morgan was less involved in the scheme than her husband. Prosecutors allege that Morgan played an “integral role in the money laundering and fraud scheme.”
Prosecutors say Morgan frequently lied to banks and her own accountant when questioned about suspicious account activity, explaining away big transfers as a gift from Lichtenstein that she “had been keeping [in] cold storage,” or proceeds from her copywriting business, SalesFolk.
Morgan is accused of directly participating in the laundering by transferring money to SalesFolk-controlled accounts from a Hong Kong-based shell company that the government said the couple created to launder money.
Additional information about the searches of the couple’s Financial District apartment was also provided in Thursday’s documents.
Prosecutors say that at a Jan. 5 search of the couple’s phone, agents had to “wrest [Morgan’s] phone from her hands” after she attempted to lock it while pretending to get the couple’s cat, Clarissa, from under their bed.
Under the bed, agents found a “bin containing various bags holding multiple cellphones, SIM cards and assorted electronics,” including a plastic bag labeled “burner phones.”
In Lichtenstein’s office, agents found “two hollowed-out books, whose pages appeared to be roughly cut out by hand.” The cavities were empty.
Law enforcement also found over $40,000 in cash and a “substantial amount of foreign currency” (the origin was not noted in the documents).
One thing missing from the couple’s apartment were gold coins prosecutors say they previously purchased with bitcoin from a precious metals dealer. Though the government says the couple has at least “70 one-ounce gold coins,” not a single coin was found at the residence or a known storage unit.
Defense attorneys have filed a motion urging the court to reconsider its decision to keep the couple detained pending trial.
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