Did This Couple Steal Billions in Bitcoin?

Did This Couple Steal Billions in Bitcoin?

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♪ Bad bitch, bad bitch, bad bitch, ♪ mother-f--king bad bitch.♪ There was no one like Heather. There's no question about it.

She says, "I'm many things." "A rapper, an economist..." "A journalist..." "A writer..." ♪ A CEO and a dirty, dirty, dirty dirty ho. ♪

Is this a joke? If it is a joke, is it funny? The department has charged Ilya Lichtenstein and Heather Morgan for their alleged roles in a conspiracy to launder stolen cryptocurrency taken during the 2016 hack of a virtual currency exchange. It's almost like you're watching a movie unfold. When Heather and Dutch were arrested, we realized that this was possibly the biggest heist in the history of the world. But when we looked at it, we were like, 'wait, this is the alleged conspirator of a billion dollar crypto heist?' Bitfinex is one of the biggest cryptocurrency exchanges in the world.

In August 2016, Bitfinex got hacked. Somebody broke into their computer system and was able to access the keys, which are like the cryptographic passwords, to the Bitcoins that they hold for their customers. And they transferred these Bitcoins to other wallets. And before anyone noticed what happened about half the exchanges' Bitcoin had been transferred. So Bitfinex had to shut down the exchange. Obviously the customers were really worried.

They announced that they'd been hacked and that a lot of the customer funds were lost. The hackers stole 119,754 Bitcoins. I believe at one point the pile was worth as much as $8 billion. Just like an insane amount of money for anyone to have. This is a story that very much plays out on social media and I think that is the reason why it hit our desk.

Tonight, I want to talk about the Bitcoin Bitfinex hackers or money launderers. Something doesn't feel right. I will show you what people have found. When I started Googling, like everybody else on the internet, I realized that they didn't seem like the sharpest criminals. And in this episode, we're talking about these two idiots.

What really triggered our interest was these videos that started going around showing Heather Morgan, who is one of the alleged conspirators in this crypto heist, rapping about being the crocodile of Wall Street in these really weird music videos that were all of a sudden making rounds across social media. ♪ Mother-f--king crocodile of Wall Street ♪ ♪ Silver on my fingers and boots on my feet ♪ The Bitcoin crimes are nothing compared to calling this sh-t rap. I definitely wanted to dig into it and know more. Heather grew up in a tiny town in California. It was about a couple hundred people that lived there and as she was living there, she really craved getting out.

Growing up, I did not have a lot of friends and it was really hard because no one was trying to do the things I wanted to do professionally as far as entrepreneurship, technology, seeing the world. And as soon as she graduated, she got out of the country. She did a short stint in Hong Kong and then found her way in Cairo, where she was trying to get a master's degree in international economics.

But remember, this was back in 2011. This was a time when tech was really taking off. San Francisco was really booming and I think, for her, it really became clear very soon that if she wanted to become something she had to move back to California. I met Heather about eight years ago at 500 Startups. It's a startup incubator based out of the Bay Area.

Man, I haven't seen these faces for so long. That's a good picture. Heather's right there, you can see. Right? Everybody's like upbeat. Everybody's optimistic.

And everybody's looking for that, you know, next break. Heather really enjoyed that environment. She was very in tune with, you know everybody, what's going on around her, interacting with all these different kinds of people, different founders, different investors, VCs, mentors. She was always there.

Personality-wise, like, super friendly, very bubbly, very ambitious, very helpful. She was like a fish in water there. This principal who was also my teacher, he told me, "Listen. You're a big fish in a small pond. But if you go to the ocean you might drown." The ocean, yeah, it's big but I'm a shark.

I belong in the ocean, not in a mud puddle or a pond. That's around the time that she meets Ilya Lichtenstein, who goes by Dutch. My name is Ilya Lichtenstein, I'm the co-founder of a start called Mixrank. Dutch is someone who grew up in Chicago but was born in Russia. His family were Russian immigrants and he really was someone who, in high school, was describing himself as a nerd.

He was captain of the math team and really didn't have, you know, really good social skills. When he was in college, I saw that he posted a lot on forums about affiliate marketing and this is sort of like the the shady side of internet marketing where you're posting ads about like, miracle diet pills or like, can't miss investment tips. I think his specialty was adult dating sites. He was bragging that when he was in college, he was making more than a hundred thousand dollars a year from this affiliate marketing. Dutch then went from that to starting a company that was in this internet marketing space that was more legit.

They raised money from some angel investors. Well we're at a really exciting place as a company right now because we are at a point where we have initial product-market fit, we have good revenue growth, we have over a hundred customers- According to reports that we saw out there, even though Dutch's company was doing super well, one day in 2016 he just quit. He packed up all his things with Heather and they moved to New York City. And I think that became a really interesting date, for prosecutors as well, because that's around the time when the Bitfinex hack happened. The reality is that a lot of those hacks are not the most sophisticated hacks that you would see in the cybersecurity space.

A lot of them really rely on social engineering and that's kind of the entry point for the hackers to obtain access to the internal systems, the IT infrastructure, of the compromised target. In social engineering attacks, the victim, which is usually the employee of the company, is being persuaded by the hackers through some kind of an email message, a phone call, sometimes even a video chat to do some interaction which will open malicious files on their desktop or laptop. I've been writing forever. And I've been sending cold emails, at least sending one a day for more than 10 years now.

So I've definitely written more than 10,000 cold emails. And once that file is open, the attackers are able to implant and to install a malware that once installed provides them full access to that computer. I like to do what I call e-stalking. Going on LinkedIn. Twitter works too if they're on Twitter And if that computer is not properly isolated and has access to the entire network, they're able to propagate to other components in the network or to access other really sensitive resources. And a little pro tip for LinkedIn is to look on their references.

Who they're referring and who has referred them. Because those are actually really rich with keywords and gives you a good sense of how they talk. That was also the case in the Bitfinex hacks but also like, you know, in many hacks that you see even today. Heather embarks on a multitude of different activities, including running her tech company, and it essentially offers businesses services for cold emailing and for branching out and marketing. You can influence people a lot of ways.

You can influence them with flattery, by adding value to them, bribing them, you can also influence them with fear. And so she's going around New York and she's actually giving talks and presentations to people who are showing up to hear her advice. And in 2019, perhaps one of the most notable ones was one that she gave at the Williamsburg Hotel called "How to Social Engineer Your Way into Anything." Social Engineering is basically, I hate the term manipulating, but it's getting someone to share information or take an action that they otherwise would not. And some of these in hindsight just were all very funny 'cause it was almost like she's telling on herself. So I like to think of social engineers as underdogs.

A lot of times if you don't have an advantage you have to create one for yourself. I mean, she's great at cold emails, she's great at manipulating people. Is it such a stretch to think that she could have participated in, you know, sending a phishing email to a crypto exchange? As soon as they moved to New York City, they ended up living in an apartment on Wall Street. It was a million dollar apartment. It's like a pretty normal-looking apartment. Well, no, it's not normal-looking at all because Heather decorated it.

The apartment's full of like weird knickknacks that she's collected, like crocodile skulls or something she called Ukrainian sewer rocks. They had an elliptical but she painted it like a zebra. I mean they seem like they have a lot of fun together like around the financial district, traveling, going to restaurants. It wasn't like they were living like a billionaire lifestyle but they were definitely spending a fair amount of money. You'd think that somebody who allegedly laundered billions of dollars would try to keep a low profile but Heather actually seemed to be trying to turn herself into some kind of like internet famous personality. Heather started appearing across social media with an alter ego.

That alter ego was named Razzlekhan and she was a rapper. Moon in stars, we don't own cars. F--k the pandemic, in the pandemic. Party like a Beiruti, labne and tabouleh.

Bitch, I'm the mother-f--king crocodile of Wall Street. Wall Street! Razzle dazzle. There are few people I've come across in my life that you just say like, there's nobody like them. Heather is one of them.

She was a frequent guest at our gallery. She was fun, she was always entertaining, good to be around. I remember distinctly the day she told me that she wanted to become a hip hop artist and then started to rap. And when I heard that, those words, that's what shocked me. They were some of the most vile, mind-blowing concepts. It fits totally into Heather.

It's just unapologetic. She rapped about smoking her grandfather's ashes at a graveyard. That was colorful. Masturbating a horse.

But also rapped about finance bros and like on Wall Street, and misogyny, and all those things. It was almost a challenge. It was how can you keep a straight face when she's keeping a straight face free-styling, being completely who she is. And she was really serious about being a hip hop artist.

But also I couldn't keep myself composed. Like motha' f--kin' pond scum. She would kind of smirk when I was smirking but she wasn't joking about this stuff.

Your real self is always your best self. Razzle dazzle! Stay awkward and weird! I never really thought about where she's getting the money from but when I heard the music, the first thing that did come into my head was, who's paying for this production? It's not that bad of production, it has to cost some money. ♪ Mother-f--King crocodile of Wall Street- ♪ I love you, I support you, but I don't wanna be involved.

It's a private club and you ain't in it. Dutch is sort of in the background. He's like reluctantly on camera, he kind of complains about it.

Are you just keep filming me expecting something to happen? What do you want me to do? You want me to just like shove something up my ass? When he decided to propose to her, he essentially hired a marketing agency to put up posters of Razzlekhan around New York City. The campaign described Heather as someone who captured the essence of Razzlekhan. "Surreal, mysterious, creepy, and sexy?" I think the fact that they really sort of craved that attention was also visible at their wedding with social media videos that circulated from the day of the ceremony showing Heather rapping throughout the ceremony. But perhaps the most interesting thing was that she was carried down the aisle while sitting on a throne, by eight people, while "Final Countdown" was playing in the background.

Heather and Dutch, they would've known something was up because they'd been notified by their internet service provider that someone had asked for their records through a legal request. After the hack, Bitfinex publicized the addresses that the hackers had used. This was to put everybody on alert so that they didn't do any deals with those bitcoins. It's almost like setting off the dye pack in the bag of stolen money after a bank robbery.

So the hackers had all these Bitcoins, but it'd be difficult to find someone who wanted to handle them because now they're sort of marked as dirty money. So they needed some sort of less ethical player that didn't mind accepting payments from their marked accounts. And for five months the coins didn't move at all. Then they found somebody who was willing to take at least some of them. This less picky business was called AlphaBay.

Kind of like a eBay on the dark web where you can buy drugs, guns, whatever. So obviously the administrator of this underworld eBay tried to keep his identity secret. As it turned out, it was a 25 year old Canadian named Alexander Cazes who was living in Thailand. So the Bitfinex hackers first sent funds to AlphaBay in January, 2017. What they didn't know is that AlphaBay was already the target of this international investigation called Operation Bayonet. And just a few months later in July, Royal Thai Police raided Cazes's compound and so they were able to access all of AlphaBay's files.

When you send the money to AlphaBay, you're like sending it into this box and when you withdraw it no one can tell like where it came from exactly. But now the FBI has the box, they look inside and they can make all the connections between the deposits and the withdrawals. So if you are able to track the cryptocurrency transactions and eventually the hacker is sloppy, or didn't really think about how they're going to cash out, the cryptocurrency that they were able to steal then they would authenticate themselves with a financial institution, let's say a centralized exchange, a FinTech app or something like that, through which they will try to convert say, the bitcoins, to regular cash. The police or the law enforcement agencies can now identify who was trying to basically cash out the funds.

At least in some cases, some of the money went to accounts that had been opened by Dutch using his real name. Presumably he thought this would never be traced back to the hacked funds. But the raid on AlphaBay I think made it possible to make the connection. 94,000 Bitcoin, that is $3.6 billion. On Tuesday, police in New York arrested a husband and wife couple that allegedly tried to launder just that amount.

When the indictment came out- I got a text message from my business partner being like, you need to see this. I clicked on it and I saw a picture. It just popped up right there saying, okay, such and such. But then I said, Heather Morgan, I know that name.

And then when I clicked on it, you know, their photo was there. I was like, oh my goodness. This blew my mind. I immediately messaged her like, "Dude, what's going on?" It was January 5th, 2022. Heather's parents were visiting and obviously Heather and Dutch had no idea that these agents were coming on this day.

These FBI and IRS agents come into Heather and Dutch's apartment, start taking their electronic devices. The agents described the search in a court filing and at some point Heather says, "This is taking a long time. We'd like to leave, but can we take our Bengal cat Clarissa with us?" She crouches down next to the bed and tries to get Clarissa out. But it was actually kind of a trick 'cause what she really wanted to do was grab her cell phone off the nightstand, she starts hitting lock, but the agents are right there, able to get the cell phone from her. They found burner phones, hollowed-out books, all sorts of electronics. The authorities had also gotten warrants to search Dutch's cloud storage accounts.

And in this, they found evidence that they'd been preparing fake identities, it looked like maybe they were planning to flee the country. And by the end of the month, on January 31st, they were able to crack the encryption to one of his files which had all the passwords to the Bitcoin wallets that held the stolen Bitcoins. This was like the jackpot. This is what they were looking for because it doesn't necessarily prove that Dutch was the hacker but somehow he'd come into possession of these passwords and whoever has the passwords, controls the Bitcoins. And by this point, they're worth billions of dollars. And so all of a sudden, these two quirky, awkward individuals that post seemingly, you know, innocent videos across social media, have become these two individuals that allegedly conspire to launder $4.5 billion in crypto,

what the DOJ describes as their largest financial seizure ever. I couldn't believe it. It didn't seem real, knowing the kind of person she is. She's kind, she's thoughtful, she's interesting, she's all these things but maybe she doesn't realize that this isn't a movie.

I'm not defending anything. Right? People do weird things and some take it too far. Yo, razzle dazzle. In terms of general scrutiny that the women have to go through is definitely much harder than guys. And that's the same with Heather's case, now I see is that everybody's just focused on the entertainment aspect of it. Do you ever wanna get f--ked up? First thing that came out is all about, 'oh, you know, look at, you know, the rapping and this and that.

Probably crazy.' So immediately the objectivity of the case itself is kind of lost. In the crypto world almost nothing shocks me anymore but this was definitely pretty surprising. This is a world where all sorts of peoples are getting rich and then losing it overnight. You have a crypto scam, you have TikTok videos going viral.

You have that hype and that need to be sort of a celebrity across social media. And so really these are all the forces that came together to create a crypto heist that was made for the digital times. I would say that the big exchanges seem to have tightened their security but then the hackers have also stepped up their game. We are seeing the hackers really moving into the area of DeFi protocol, Web3 organizations, gaming companies that are using cryptocurrencies because they're the new targets for them.

The fact that social engineering still happens today and it's the number one entry point. That's definitely true. I went down to the courthouse where Heather and Dutch would've gone for their pretrial hearing. And on a traffic pole right across from where she likely would've walked into court, there was a sticker, one of the same ones that she'd posted all over the financial district, that showed Razzlekhan riding a crocodile. Who knows, maybe she's riding the crocodile off into the sunset. ♪ We're too weird for average Joes ♪ ♪ Everyone knows you're the best for me ♪ ♪ This is how our story goes ♪ ♪ This is the Razzlekhan and Dutchie shows ♪ ♪ Ready to party down and let's get weird ♪ ♪ Moon and stars, moon and stars, moon ♪ ♪ And stars, stars, stars ♪

2022-12-22 17:20

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