In June of 2020, Heather Morgan wrote a column for Forbes that was headlined, “Experts Share Tips To Protect Your Business From Cybercriminals”. Now US authorities are alleging she was more of an expert than she let on.
On Tuesday, the entrepreneur and budding rapper was arrested and charged with attempting to launder more than $ 3.6bn in stolen Bitcoin with her husband, Ilya Lichtenstein, as the US government took control of $ 3.6bn of Bitcoin – the largest financial seizure in the history of the Department of Justice.
The DoJ accused the couple, who are now in custody, of employing a “complicated money laundering process” – but did not try to tie them to the actual theft – in a 20-page court filing outlining the allegations against them.
Samson Enzer, the couple’s lawyer, argued in a filing on Wednesday that there were “significant holes in the government’s case against them”.
Its glossy flow charts cannot mask the many deficiencies in the government’s proof and unsupported, conclusive leaps, ”added Enzer, who did not respond to requests for further comment.
Since their arrest on charges of conspiracy to commit money laundering and to defraud the US, speculation has swirled around Morgan, 31 and Lichtenstein, 34, who suffered colorful online lives while allegedly sitting on a fortune of stolen cryptocurrency for more than five years.
In 2016, unidentified thieves made off with 19,754 Bitcoin, nearly 1 percent of the cryptocurrency then in circulation. Since then, its value has ballooned from $ 71mn to more than $ 4.5bn today.
The DoJ alleges that the couple converted about $ 2.9mn of Bitcoin into fiat currency. But authorities said more than 80 percent of the stolen crypto remained untouched in accounts associated with Morgan and Lichtenstein, who describes himself as a tech entrepreneur.
The government’s specific money laundering allegations involve relatively small sums, including the purchase of a $ 500 Walmart gift card. The couple also allegedly bought gift cards for Uber, Hotels.com and PlayStation.
The sheer size of the heist would have been problematic for whoever masterminded it. “If they had stolen 500 bitcoin, no one would have bothered trying to find them, but this was the heist of the century,” said Frank Weert, the co-founder of Whale Alert, a blockchain tracking and analytics company. “It [would be] mindbogglingly stupid to steal this much bitcoin. ”
Morgan is a self-described serial entrepreneur, [software] investor, and surrealist artist / rapper ”. In addition to her regular columns for Forbes she also wrote for Inc magazine on topics ranging from leadership skills to “snake handling techniques to help you deal with stress”.
Her Forbes author bio read: “When she’s not reverse-engineering black markets to think of better ways to combat fraud and cyber crime, she enjoys rapping and designing streetwear fashion.”
A budding rap artist, Morgan’s lamé-clad rapper “alter ego” Razzlekhan sang on YouTube about the US healthcare system, entrepreneurship and a gynecological condition called endometriosis. She described herself as having a “hacker mindset”, and rapped that “blindly following rules is for fools”.
Lichtenstein was a devoted fan. His marriage proposal to Morgan in 2019 involved him buying multiple Razzlekhan billboards in New York’s Times Square. Lichtenstein wrote on Facebook that his fiancée’s rapper persona was “surreal, mysterious, creepy and sexy. . . horrifying enough to grab attention, and enticing enough so you can not look away ”.
The money laundering allegations focus mostly on Lichtenstein, who is a dual citizen of the US and Russia, though he led a more subdued life on the internet. “Her rap is overshadowing his rap sheet,” said Nicholas Weaver, a lecturer at the University of California at Berkeley School of Computer Science.
Lichtenstein founded a company called EndPass in 2018, which was described as “a blockchain start-up solving problems in decentralized identity and authentication”. More recently, he has run an angel investment firm called Demandpath, according to his LinkedIn profile.
In photos on social media, their lower Manhattan apartment, which they appear to rent, was cluttered with cat toys, work-from-home set-ups and exercise equipment. The couple have a Bengal cat named Clarissa, which they walked on a leash. Morgan worked and made YouTube videos about entrepreneurship, juicing and prosthetic eyeballs at a small desk decorated with collages of postcards, and currency from Kazakhstan and Vietnam.
Their lawyer argued in court documents seeking bail that they were not a flight risk because their frozen embryos were at a New York hospital. “The couple would never flee from the country at the risk of losing access to their ability to have children, which they were discussing having this year until their lives were disrupted by their arrests,” Enzer wrote.
He also said the couple had been aware they were under investigation since November and had complied with authorities since the DoJ searched their apartment in January 5, seizing travel documents and computers.
The DoJ alleges those searches were fruitful – and colorful. It alleges that codes for the missing Bitcoin were found in a file in Lichtenstein’s cloud account, which “contained a list of 2,000 virtual currency addresses. . . almost all of [which] were directly linked to the hack ”.
One electronic document, labeled “passport ideas”, included links to darknet vendors that the DoJ said appeared to sell false identification. Another contained the name of a Russian bank that one member of the couple had dubbed “sketchy Russian oligarch bank”. Lichtenstein’s cloud storage allegedly contained a folder labeled “personas” with false identification documents.
“Being smart in no way stops you from being stupid,” said David Gerard, author of Attack of the 50-Foot Blockchain. He said that bitcoin was harder to launder than other cryptocurrency because it is more easily traced on blockchain.
The DoJ alleges that the couple sometimes used their real names and addresses when creating accounts on regulated exchanges that were later used to buy gold with bitcoin. Weaver said that in an investigation of this nature: “One mistake becomes the breadcrumbs that can be followed”.
On her website, Razzlekhan, who called herself the “Crocodile of Wall Street”, wrote that she was always pushing the limits of what is possible. “Whether that leads to something wonderful or terrible is unclear; the only thing that’s certain is it will not be boring or mediocre ”.