Federal Judge Releases 'Razzlekhan,' Orders Other Bitfinex Hack Laundering Suspect to Remain in Jail

WASHINGTON, D.C. — A national justice has ordered 1 fractional of the mates accused of laundering the proceeds of a 2016 Bitfinex hack to stay successful national custody until they look trial.

Prosecutors allege that Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, conspired unneurotic to launder 119,754 bitcoins – worthy implicit $5 cardinal successful today’s prices – that were stolen during the 2016 hack of Bitfinex. The mates faces 2 conspiracy charges each that could spot them look up to 25 years successful prison. A justice ruled Monday that Morgan could beryllium released connected bail nether strict conditions, but Lichtenstein volition stay successful custody pending trial.

Monday’s decision, made by Beryl Howell, main justice of the U.S. District Court for the District of Columbia, overturns an earlier bid made past week by a New York magistrate justice to let the mates to beryllium released connected bond. Howell had already previously stayed the bid connected an exigency ground aft the New York justice said they could beryllium released connected bail.

Howell sided with prosecutors’ presumption that the mates person some the motive and means to skip bail and fly the United States.

Earlier this month, national agents seized astir 94,000 bitcoins (worth implicit $3.6 billion) held successful a wallet whose backstage keys were recovered successful 1 of Lichtenstein’s unreality accounts. However, the authorities alleges the mates inactive has entree to bitcoin worthy implicit $300 million.

Prosecutors besides accidental searches of the couple’s documents revealed grounds of the couple’s alleged plans to set up a life successful Ukraine oregon Russia, including the constitution of fiscal accounts and telephone numbers during a 2019 travel to Ukraine and files connected Lichtenstein’s machine containing stolen Russian and Ukrainian identities, some antheral and female.

At Monday’s pre-indictment hearing, Howell unopen down allegations made by plaintiffs successful documents filed past week that the lawsuit against Lichtenstein and Morgan was “flimsy,” that the blockchain tracing exertion utilized to nexus them to the stolen funds was “confusing” and the grounds against them “circumstantial.”

“I wholly disagree with that characterization [of the evidence],” Howell told Samson Enzer, an lawyer for the defense.

Prosecutors told Howell, a crypto savvy judge, astir the wallet, referred to arsenic “S4,” containing $3.6 cardinal worthy of bitcoin seized past week. Because the backstage keys were recovered successful an encrypted record connected Lichtenstein’s unreality account, the authorities alleges that the wallet indispensable past person been successful Lichtenstein’s control.

Howell concurred, telling the tribunal she understood that crypto investors “jealously guard” their backstage keys.

“Defense counsel has argued that the authorities has not offered thing resembling nonstop evidence,” Howell told prosecutors. “Would you accidental uncovering the keys is beauteous wide nonstop evidence?”

When prosecutors answered successful the affirmative, Howell continued:

“Sort of similar the smoking gun?”

The prosecutors confirmed, again.

Howell besides asked prosecutors to grow connected the alleged wealth laundering conspiracy, arsenic good arsenic what grounds the authorities had that the mates was successful power of the remaining bitcoins not recovered successful the seizure of S4’s contents.

They attempted to explicate a analyzable web of transactions retired of wallet S4 and into assorted wallets, exchanges and ammunition companies but claimed that galore of them were “single transactions,” from the wallet controlled by Lichtenstein.

Prosecutors told Howell that astir 7,500 missing bitcoins had been traced to 24 addresses believed to beryllium controlled by the mates that the authorities has not yet been capable to find. The bitcoins successful astir of the 24 wallets were “direct sends” from S4, prosecutors say.

“It appears they were mounting up savings accounts,” prosecutors said of the wallets.

Howell besides considered the defense’s presumption that the lawsuit against Morgan was weaker than the lawsuit against Lichtenstein, and that the lone grounds against her was she had “allegedly received funds that are tied to the act.”

Howell told prosecutors she wanted to code concerns Morgan was “some benignant of a naive wife” who had nary thought what her hubby was doing.

Prosecutors told the tribunal Morgan has a “graduate grade successful economics,” was acquainted with crypto and had taken an progressive relation successful the alleged wealth laundering conspiracy, lying to banks, crypto exchanges and her accountant astir wherever the funds had travel from and actively utilizing her institution to launder funds done Hong Kong-based ammunition companies. (Morgan utilized to unrecorded successful Hong Kong, prosecutors pointed out).

Morgan would “absolutely person the quality and connections” to fell the remaining bitcoins and “disappear,” prosecutors told Howell.

Prosecutors besides told the tribunal Morgan’s startup, Salesfolk, contempt allegedly being utilized to launder “hundreds of millions” worthy of crypto from “non-existent customers for non-existent enactment that [Morgan’s] concern hasn’t really done,” had ne'er been paid successful crypto from a morganatic client.

Howell yet sided with the defence and agreed to merchandise Morgan connected bond, upholding the archetypal conditions acceptable by the New York magistrate justice past week.

Conditions see location apprehension with nary internet-connected devices, nary cryptocurrency trading and a $3 cardinal enslaved – including her parents’ location successful Northern California, wherever Morgan’s parents person lived since 1997.

“I privation an ankle bracelet,” Howell said.

Morgan’s database of wellness problems, including caller bosom surgery, asthma (defense attorneys told the tribunal that Morgan suffered a “serious asthma attack” implicit the play successful jailhouse due to the fact that she had not been fixed an inhaler) and lung harm from a anterior corruption featured heavy successful the defense’s statement that she should beryllium released connected bond.

Morgan’s conflict with endometriosis, which her attorneys told Howell led her to person her eggs frozen “several years ago,” was besides referenced often by the defense.

The couple’s attorneys told Howell they had been preparing for in-vitro fertilization earlier the probe began and had frozen embryos stored astatine a New York hospital.

“It’s the lone realistic imaginable of them having children,” Enzer told the court. “They would virtually beryllium leaving their aboriginal down if they left.”

Howell pushed back, saying that if the mates had entree to the $330 cardinal prosecutors accidental they do, they could get prime wellness attraction successful different countries.

Enzer besides told Howell the lien against her parents’ location – their lone plus – would service arsenic a “moral suasion” for her to cooperate with the court.

Prosecutors fired back, saying they didn’t uncertainty the sincerity of either Lichtenstein’s oregon Morgan’s parents, but “several 100 cardinal dollars of crypto [could bargain each acceptable of parents] a backstage island.”

UPDATE (Feb. 15, 2022, 01:30 UTC): Updated with further discourse from the hearing.