The US Department of Justice (DOJ) recovered $3.6 billion worth of Bitcoin (BTC) on Tuesday. The money recovered was stolen way back in 2016 from the Bitfinex crypto exchange. The story of the now infamous crypto hack and its recent recovery outplays most modern-day crime thrillers like Money Heist.
According to the DOJ, the hack was orchestrated by a relatively well-known New York City-based couple, one of whom was a rapper. This is perhaps the most significant financial seizure made, and as internet memes put it, it has made the US government the second biggest HODLer currently, overtaking Tesla but slightly short of Michael Saylor.
Here’s What Happened
In August 2016, the Hong Kong-based Bitfinex crypto exchange, which is owned and operated by iFinex Inc. (also affiliated with the world’s largest stablecoin, Tether), was hacked by some unknown individual(s). As many as 1,19,754 BTC, worth $71 million at the time (now worth $4.5 billion), were stolen, tanking the market by nearly 40%.
According to the DOJ, the hackers initiated more than 2,000 unauthorized transactions to siphon the BTC from Bitfinex and transfer it to digital wallets held by the two individuals.
Meanwhile, Bitfinex issued a crypto token named Unus Sed Leo (LEO) in 2019 to recapitalize the exchange and reimburse the losses incurred. In LEO’s white paper, Bitfinex promised to use at least 80% of the recovered funds to repurchase LEO and burn the outstanding tokens within 18 months of recovery.
(Post the recovery announcement on Tuesday, the price of LEO tokens shot up by 59%.)
In 2020, Bitfinex even announced a bounty of $400 million, but nothing really changed until the beginning of this year. All the while, blockchain observers were able to track the stolen BTC without knowing the identities of the hackers or having any means to recover them.
However, soon, the DOJ says that it was able to trace some of the stolen BTC to the personal accounts of two individuals: Ilya Lichtenstein and his wife, Heather Morgan.
Crypto Not a Safe Haven for Money Launderers
Lichtenstein, 34, was a dual citizen of Russia and the US and a tech entrepreneur, while Morgan, 31, was an angel investor, TikToker, and a rapper who went by the name “Razzlekhan”.
The duo allegedly deployed sophisticated techniques to launder the stolen BTC, including “chain-hopping” or jumping between cryptos in rapid succession to avoid being tracked.
Once they got hold of their identities, the DOJ says that it was easy to break into their cloud account. Ironically, for a couple who helped hack into a centralized exchange like Bitfinex, they had their private keys stored in plain text on the centralized cloud that contained 94,000 BTC worth $3.6 billion.
Whether the couple conducted the hacking is yet to be confirmed. However, they have been charged with conspiracy to commit money laundering, which could land them a sentence of 20 years in prison if convicted.
“This is further proof that the nature of the blockchain—the forever open ledger—allows investigators to follow the money in ways impossible in complex webs of shell companies and bulk cash smuggling,” head of legal at blockchain data company TRM Labs, Ari Redbord, explains.
What Happens to the Recovered BTC?
Well, that remains to be seen. At present, the DOJ is in possession of the BTC.
Bitfinex released a statement that it had cooperated extensively with the DOJ and will seek to establish its rights in order to return the stolen BTC. Similarly, the DOJ officials in their press briefing indicated establishing a court process that allows victims to reclaim their stolen BTC.
Unlike in 2016, crypto exchanges have moved to cold wallets, which are extremely difficult to hack. Also, intelligence agencies now closely monitor the crypto ecosystem to prevent thefts and cybercrime.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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