Lichtenstein was behind the theft of 120,000 bitcoin from Bitfinex in 2016.
Prosecutors described his attempts to launder the money as “the most complicated” techniques IRS agents had seen to date.
Ilya Lichtenstein was sentenced to five years in prison for his role in the theft of approximately 120,000 bitcoin BTCf from crypto exchange Bitfinex, the U.S. Department of Justice has announced on Thursday.
The 35-year old hacked network in 2016, using “advanced hacking tools and techniques”. Once inside the network, Lichtenstein fraudulently authorized more than 2,000 transactions transferring 119,754 bitcoin from Bitfinex to his own wallet. He then took steps to cover his tracks by deleting from Bitfinex’s network access credentials and other log files that could have revealed his conduct to law enforcement.
Following the hack, Lichtenstein and his wife, Heather Morgan laundered the stolen funds. Morgan, also known by her rapper moniker “Razzlekhan”, will be sentenced on Nov. 18. Prosecutors have recommended she serve 18 months.
According to court documents, the couple managed to laundered 25,111 bitcoin – 21% of the total pile Lichtenstein stole from Bitfinex – using a web of Eastern European bank accounts and bitcoin mixing services to hide the origin of the funds. Prosecutors described the methods as “the most complicated money laundering techniques [IRS agents] had seen to date.”
Among the methods they used were are utilizing computer programs to automate transactions; depositing the stolen funds into accounts at a variety of darknet markets and cryptocurrency exchanges and then withdrawing the funds; converting bitcoin to other forms of cryptocurrency in a practice known as “chain hopping”; depositing a portion of the criminal proceeds into cryptocurrency mixing services; using U.S.-based business accounts to legitimize Lichtenstein’s and Morgan’s banking activity; and exchanging a portion of the stolen funds into gold coins.
But despite their complexity, former founder and leader of cybercrime cartel Shadow Crew, Brett Johnson told CoinDesk last year that some of Lichtenstein’s laundering methods, such as using Coinbase accounts directly connected to him, “did not make sense” and suggested a lack of experience. “Ilya is a f***ing idiot. If you look at the way he was trying to launder money, he was doing absolutely everything wrong,” Johnson said at the time.
Lichtenstein and Morgan were initially only suspected of laundering the money until the former outed himself as the hacker. Neither was charged in relation to the actual hack of Bitfinex despite Lichtenstein claiming responsibility.
Instead, both pled guilty to one count of conspiracy to commit money laundering on Aug. 3, 2023, a charge that carries a maximum sentence of 20 years in prison. In addition to receiving the five year sentence requested by prosecutors, Lichtenstein will also serve three years of supervised release.