Crocodile Of Wall Street And The Battle Over Billions In Stolen Bitcoin

Crocodile Of Wall Street And The Battle Over Billions In Stolen Bitcoin

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On the morning of August 2nd, 2016, Bitcoin investors woke up to news of a shocking digital heist. Breaking overnight, nearly 100,000 bitcoins have been stolen from exchange platform Bitfinex. I logged into my account and noticed that my entire account had been drained. I was crying and sweating.

The word started spreading on social media quickly. Everyone was freaking out. It was gut wrenching.

I had a panic attack. As panic grew, Bitcoin prices plummeted and Bitfinex, one of the largest cryptocurrency exchanges in the world, halted trading. The price of Bitcoin dropped nearly 20%, bringing down the value of the stolen bitcoins to about $65 million.

And suddenly thousands of people around the world have the same burning questions. Who pulled off this high tech heist and how would the victims ever get their money back? At first, the only clues were on the blockchain and crypto detectives began following the stolen assets, Spotting them in a wallet. Address, they say, begins with the digits one. See G. We sold this 120,000 bitcoins taken from Bitfinex and put in this bitcoin wallet. It's a little bit like you're robbing a bank in the middle of a stadium full of spectators. Thousands of people are watching.

That's exactly what it is now. The difference is it is hard to know exactly who the individual is. Just one problem.

No one could access the wallet without the key. And as the loot just sat there, the trail began to grow cold. And people kind of forgot about this particular hack. For six years, as the value of the stolen crypto skyrocketed to over four and a half billion dollars. No one knew who done it. Was it a criminal gang? Spies, digital anarchists.

It was a global manhunt and the bad guys could be out of reach. I spent my career as a prosecutor working both cash smuggling cases and cases involving Russian cyber criminals and North Korea hackers. And there were never arrests in those cases because you just simply couldn't get your hands on those individuals. But as federal investigators scour the dark Web for digital clues, court records show they focused in on two suspects who weren't anything like what the experts expected. I'm a mother and lizard married to a goddamn wizard.

And in early 2022, a blockbuster announcement in Washington. 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 the largest financial seizure in the history of the Department of Justice, and the announcement sets the Internet on fire as the world discovers hundreds of videos the young married couple shared on social media. My mother is living on the coast.

That's super, super weird story. And particularly Heather Morgan, a self-described serial entrepreneur and surrealist rapper who posts music videos on YouTube under her rap alias Razzle Con. All of a sudden, I hear this voice rapping a female voice, and I look over on stage as he was on the microphone and it's Heather. She just picked up the mic and started rapping in front of the crowd.

In this music video dedicated to misfits and hackers, she calls herself another name. Come real far but don't know where I'm heading. Mother, Crocodile Wall Street.

If they are found guilty, the crocodile of Wall Street and her husband could be going to jail. So who is the couple accused of laundering Bitcoin from one of the biggest crypto heists in history? Russell does want. To see these people acting the way they are and just being so open about their lifestyle and stuff.

It was just fascinating to me. Honestly, I could only laugh. What led investigators to them? Can you keep pulling the threads? It's the iterative process of identifying each lead that you can follow up on. And in a case like Bitfinex, that's quite extensive because of the many layers of essentially laundering that was done. Who stole the nearly 120,000 Bitcoin from Bitfinex? The prosecutors charged them here with the money laundering, but they didn't charge them with the initial hack.

So that raises the possibility that there is a mystery hacker out there somewhere who's maybe not being charged. Who do you think that person is? It's a great question. And of course, what happens to the billions of dollars worth of recovered Bitcoin? You want to know what fight is coming? I can tell you right now, $3.6 Billion people are going to spend hundreds of millions of dollars to get their hands on that pot of gold. I do think it's going to be a fight.

I can imagine that in the future there will be movies about it. Matt Price is a former federal agent for the IRS. A lot of people don't even realize the IRS has special agents that carry guns and our law enforcement officers, just like FBI or DEA agents.

And because of that, as an IRS agent, we use the same tools. That's physical surveillance that's walking the streets of Manhattan, following someone around online undercover operations, as well as using undercover agents for for meetings and things like that. It was those gun toting IRS agents who led the Bitfinex investigation. Matt, can I talk about the details of this case specifically? But he can explain how investigations work. Bitfinex in particular because of the complexity of it.

At some point, you kind of almost have to wait for the next transaction. Most federal financial investigations are quite time consuming. You are requesting and obtaining records from numerous sources its banks exchanges, email service providers. But when you have that kind of light bulb moment like I got them, that's when it goes into overdrive.

In this case, that light bulb moment led the feds to a surprising location for a huge cyber crime. There are certainly nation state actors out there that engage in this. But given the size and the brazenness that that is a thought. But the trail didn't lead to a nation state spy. Instead, investigators say the evidence pointed to an apartment in this high rise on Wall Street.

Details revealed in court documents describe the dramatic moment on January 5th, 2022, when IRS agents knocked on Heather and Ilias front door. They found Heather crouched next to the bed, calling for her pet, an exotic Bengal cat named Clarissa, who has her own Instagram account. Sleepy Kitty saw Kitty rumble over. Then IRS agents say they noticed a bin under the bed with a bag labeled burner phone, multiple cell phones, SIM cards and assorted electronics. They also found hollowed out books in Elias office, a file labeled passport ideas with links to Darknet vendors and about $40,000 in cash. All of it gave the feds the evidence they needed.

This is the largest seizure of cryptocurrency ever by US law enforcement. As news of the arrests broke. But the Department of Justice announcing just within the past couple of minutes the arrest of two individuals in Manhattan this morning. The world learned more about the couple arrested in the alleged $4.5 billion laundering scheme and the fact that so much bizarre content about them was available to gawk at on social media helped the story go viral.

I'm obsessed with Heather Morgan. Her story is wild. Please go down this rabbit hole. You will not be disappointed. Her husband, Ilya, is more private, though he does make several appearances in his wife's Tik Tok videos and he seems annoyed by the camera. If you're interested in what I say recorded the first time.

And in this video where Ilya reveals he tasted their pets cat food, he. Says, 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 little dance? Just three days after the couple's arrest, Netflix revealed plans for a docu series directed by an executive producer for Tiger King.

Like a crypto version of Joe Exotic. Videos of Heather on Social Media Give us a peek into the private life of a mystery woman accused of a multibillion dollar crime. I made this really dope orange balaclava which is inspired by Joe Exotic.

On Tik Tok. She posts videos showing off art projects where her medium was taxidermy. It's a camel skull product, right? And shows off quirky talents like using chopsticks to eat with her toes.

People also discovered razzle icon Heather's alter ego, a satirical rapper serving up rhymes and videos she describes as something between an acid trip and a delightful nightmare that combines her fearless entrepreneurial spirit and hacker mindset. Your password, All your mods transferred. In court documents. Prosecutors say those rap lyrics show her technical proclivities and note spearfishing is a term that refers to a hacking technique to gain access to a user's password and then transferring all of the user's funds out of the account. Even so, their friends were surprised to hear of the couple's arrest. I heard the news the afternoon the story broke.

I was bit in shock, honestly. I just kind of sat there dumbfounded all afternoon, just trying to completely understand what on earth was going on. Matt Hayes met Heather a few years ago at the Greenwich Village Comedy Club in New York. A friend of mine connected me to Heather back in 2017. Heather was doing a cold email comedy roast, taking business cold emails from her company, Sales folks. We were roasting.

Them. Honest reactions to the emails. That's what we want. I was the comedian, host, emcee of it. It was also his first time meeting Ilya, who went by the nickname Dutch. Dutch makes some noise for Dutch, everybody. It's getting a unicorn.

You could tell that Dutch really supported her. She really supported him. He sat in the front row right there and even did not mind heckling me in any way, shape or form. You could tell that even his personality and sense of humor was very different, the way he would heckle me.

At the time, Heather was the CEO of a company she started called Sales Folk that writes outbound sales email templates. I could tell that she was a good business person. She had a couple of employees at the time. It seemed as if, though, she was trying to make this bigger than what it was.

Sometimes she would throw some numbers out about what the company was doing and all and I would go, Och, that seems good. But comparing it to how many employees she had and wasn't so sure about that, I didn't look at it as a red flag. It was just very New York in that way of everybody kind of will add a zero. Heather also landed columns at Forbes and Ink Magazines, one focus of her writing cybersecurity.

In court documents, prosecutors point to an article titled Experts Share Tips to Protect Your Business from Cyber Criminals. And note that Heather interviewed several virtual currency exchange employees who discussed their company's anti-money laundering and anti fraud protocols. But for outsiders watching videos of Heather and Ilya on social media, the idea that this couple could be charged with conspiring to launder billions in cryptocurrency didn't seem possible. And Twitter lit up with speculation about the audacity of it all, though investigators say the blockchain doesn't lie. But the nature of the blockchain, this open ledger where crypto sort of lives and moves, allows for visibility.

We work with law enforcement to trace and track the flow of funds. You might expect someone who calls herself the crocodile of Wall Street, who IRS investigators say has access to billions in stolen Bitcoin to be living lavishly in Manhattan. By New York standards, they were living a great life, but it was almost like an everyday New Yorker life.

They had a nice apartment. It was a little bit bigger than what you normally would see when you go visit your New York City friends. Photos of Heather and Elias apartment on Zillow Show, a spacious two bedroom with a modern kitchen and marble bathrooms. Videos inside the apartment reveal Heather's passion for decorating with taxidermy like crocodile heads, antelope skulls and even zebra skin hanging on the wall. The apartment rents for an estimated $6,500 a month. Expensive, but not outrageous in the pricey Big Apple.

When we would go out, she always would pay the bill. Heather and Dutch would definitely splurge on travel, but they were still kind of very proud to be almost a man of the people. They weren't too lavish. How much was this? I'd be shocked if this is more than $4 $7 month. The problem is, even though the stolen crypto is worth billions, converting those coins into actual cash isn't easy.

It's difficult to launder large amounts of cryptocurrency in short periods of time because it draws attention. If you try and just move that all to an exchange and cash out, then that's going to set off alarm bells. Investigators say about 80% of the stolen Bitcoin never moves from the digital wallet the hacker transfers them to. But according to the criminal complaint, the couple did try to cash out some of the crypto investigators say Liechtenstein uses. Some of the digital currency to purchase gold from a precious metals dealer using his home address for the shipment. None of the gold was found in the couple's apartment.

Funds connected to the hack are also used to buy a $500 Walmart gift card. Investigators say Heather Redeems in her name and New York City address. The couple's email addresses are also connected to gift cards purchased for Uber, and PlayStation. When you have that interface between the crypto world and the real world. You in some way disclose your identity. If you're buying a gift card with crypto, you generally need to give your address to whichever retailer the gift card is from.

So how do Heather and Ilya end up here living just like everyday New Yorkers right up until the feds come knocking at their door? They come. Too. Ilya grew up in Glenview, Illinois. He moves there with his parents from Russia. A citizen of both countries. I mean, in many ways it's just like a pretty average suburb of Chicago. He meets Charles Austin in coding class in high school.

In terms of extracurriculars, I think he mostly just took all the coding classes that were offered at the school. We're definitely various types of nerds. I guess in the classic jock versus nerd thing where obviously nerds, right? We're not football quarterbacks here.

I would wager that he never had a girlfriend in high school as my feeling and like I only had a girlfriend in senior year, you know what I mean? Like, we were not like, cool. Overall, if you had asked me about him the day before this story broke, I would have said like, Oh, yeah, I remember that guy. Like, he's super nice. He was like, quiet and somewhat awkward. But if you actually talk to him, be super funny and nice. After graduation, Charles never sees Ilya again.

So Ilya went to University of Wisconsin, Madison, which is a fairly common school to go to from Glenbrook South. I don't think it gives you a huge amount of insight into his direction in life because it's not a crazy place to go. I think it's more interesting that he ended up in the Bay Area after that where that speaks to some amount of direction.

That's where Ilya will eventually meet his future wife. Heather grew up in Tehama, California, a small agricultural town only 400 people call home. I am from the smallest city in California originally, believe it or not. In this YouTube video, Heather talks about her family's humble background.

My parents didn't have a lot of money. They both work for the government. My dad was a biologist for the government and my mom was a high school librarian. And I've also been totally broke and homeless multiple times for college. Heather attends UC Davis near Sacramento, studying international relations and economics.

Professor Travis Libert remembers meeting her on campus. The first time I met her, it was in the context of a guest lecture I gave to a big, big undergraduate class. She did introduce herself, but so did many other students, and it was about a year and a half later that she followed up by email. And and we began to correspond at that point.

Heather graduates during the summer of 2011 and moves to Hong Kong for work. She was living and working in Hong Kong. She was applying for a master's program at American University of Cairo.

Six months later, in January of 2012, Heather reaches out to the professor to pitch herself as a research assistant. It was sort of coincidental that just a little bit before she sent me an email, I had agreed to write a chapter in a book that was focused on food insecurity and sociopolitical instability. At that point, just in the wake of the Arab Spring. He hires Heather to help with data collection and analysis. But within a month, he offers her a bigger role.

She sort of proved. Herself in those early stages, enough that I invited her to join me as a coauthor on the paper. She had a very quick mind.

She was fast learner. There was probably a period of about eight or nine months that were that we were working pretty intensively together all by Skype. She was in Hong Kong at the beginning of that period and then had picked up and moved to Cairo. Mostly they talk about economics, but the professor gets a glimpse into Heather's personal life.

She was very fond of belly dancing. I know that because when she got to Egypt, she was really thrilled that there was quite a lively belly dancing culture. What he couldn't see coming was that his coauthor would later become a rapper accused of laundering funds from one of the biggest crypto heists in history. I can't say that there were sort of glimmers of this in our interaction, but but the one thing that does stand out is that her signature block had evolved over that brief period. Under her name was economist, Entrepreneur.

Hustler Heather leaves Cairo in 2013 after just one semester at school, never finishing her master's. Instead, she heads to Silicon Valley, where her aspirations shift from studying economics to becoming an entrepreneur. When she lands a job at a middle Eastern gaming startup called Hamilton, which will give her a front row seat to some of the biggest names in tech through an early stage global business accelerator program called 500 Startups.

The connections Heather makes here will change the course of her life forever. So with Heather, being in that space itself gives a lot of credibility that you are part of this group. Silicon Valley itself is competitive, and within that, here's a bunch of 3040 companies who are crazy enough to lock themselves in our office for 18 hours, for four months at a stretch to build something unique. Startup founder Tal Vander Singh recalls meeting Heather at orientation in early April of 2013.

So they were founders and then they were employees of the companies who were also involved. So Heather was the employee of a company called the Madam. Of course, she has a personality that ensures that she will get noticed. And suddenly a small town girl is breathing rarefied air. Every week there will be at least two sessions with some notable brains from the Bay Area Airbnb founders that would include Dropbox founders. During these intimate fireside chats, the budding entrepreneurs learn what it takes to succeed in Silicon Valley from their idols.

When you get exposed to such people and you hear their stories of how they hit a wall after wall, after wall after wall, and they made it work, you start believing that you can always convert a note. Yes, you can always figure out a way to make something work for you. In this intense environment, founders work 16 to 18 hours a day under one roof, and Heather wasn't exactly like any of the other founders. There's something odd about her, and she owned it.

It's like, I'm weird and I know it. I'm not ashamed of it. Heather shows off her unique personality while filming an internal company.

Video for startups. Quirky ritual was to create a music video. We did a parody of Thrift Shop that was a very popular song, very grungy. I remember we I have some footage of us going in an ugly ass van, going to the thrift shop, picking up stuff. For their parody of Macklemore hit Thrift Shop. Founders dress up in wacky clothes like thrift did fur coats.

But out of nowhere, Heather decides to take her clothes off, stripping down in front of everyone. Without any plan or provocation. She decided to strip to her undergarments.

Nobody else was doing that even remotely close to it, so it was pretty odd. Maybe we got the first view of Wrestlecon. And Heather makes other choices that raise eyebrows. I think she had that completely raw passion to achieve more at perhaps all costs. People who are ambitious, people who are opportunistic, they jump from opportunity to opportunity and they go to the next level as fast as possible.

Just three months into the program, she grabs an opportunity to work with another company from Brazil called PIN My Pet and marries one of the founders. During the last three or four weeks, the news came out that Heather is now married and she is in Brazil. After a whirlwind marriage and a breakup in Brazil.

Heather comes back to the Bay Area and starts her digital marketing company, Sales Folk. She also meets her next husband, Dutch Ilya Lichtenstein. In a tweet from June 2013. Heather writes about listening to Elias speak at 500 startups at the time. Ilya is running a company he co-founded called Mixed. Ranke. Mixed Drink is a spy tool for display ads that lets you find your competitors ads and see what's working for them.

And learn from that. Mix. Ranke receives investments from Y Combinator, 500 startups and even Mark Cuban. Less than a year later, Heather tweets that she's traveling to Hong Kong with Ilya and he becomes an advisor to sales folk. Heather was going through a really rough time through a divorce, making some life changes, and Dutch really was by her side that formed in a friendship early on and then eventually became a relationship.

Then in January of 2015, court documents show Ilya opens an account at an unnamed virtual currency exchange simply listed as VC five. It's verified with photos of his California driver's license and a selfie style photograph. It's a picture that will come back to haunt him years later when law enforcement uses it to connect him to an infamous wallet on the blockchain. Ilya leaves mixed rank. In May of 2016.

Three months later, Bitfinex is hacked and nearly 120,000 bitcoins are stolen. On a hot summer morning in Fort Worth, Texas, Frankie Cavazos logs into his computer and discovers some alarming. News the day of the hack. On August 2nd, 2016, I had hopped on to Reddit and I noticed that people were posting that the Bitfinex platform had completely frozen and there was 15 bitcoins that were just completely removed from my account.

Time $10,000. That was a small fortune for me. It was a hot Texas summer and I was crying and sweating. A few years before the hack, Frankie was working as a welder. He saved up and bought some bitcoin, hoping the investment would help him pay for college. Sat on those for two years, just kind of stared at them.

And Bitfinex started marketing for how they were going to revolutionize how you could use your bitcoins. I decided to move my funds over there about six weeks before the hack. On the other side of the globe in Poland. Rafal Bologna learns his bitcoins are gone. I sitting in my office and I got an email from them that there were some sort of a security breach and they were investigating it. I was super scared at the time.

I had 91. Bitcoin was about more than $60,000. It was gut wrenching. I had a panic attack. At the height of the market in 2021.

A single Bitcoin was worth $65,000. If Rafal still had those 91 bitcoins, they would have been worth nearly 6 million bucks. Obviously, everyone was freaking out.

I would say I had about 20 bitcoin on their will. Hogarth is in Canada at the time, frantically searching for information on social media. It was a discussion in the community on how are you going to make people whole. A lot of people were arguing that the losses should be socialized around everyone who held the balance. Four days later, Bitfinex makes an announcement stating We have arrived at the conclusion that losses must be generalized across all accounts and assets at a rate of 36%. That means everyone who had an account at Bitfinex lost 36% of their holdings on the platform, not just users whose accounts were hacked.

To pay people back for their losses, Bitfinex gives account holders an IOU in the form of a digital token labeled bf X. Customers receive one token for each dollar lost. When they dumped all these tokens on the consumers.

They pegged them to $1 per token and then they put them on the open market and it went from $1 to like $0.20. So they were essentially allowed to basically FOMO everyone out of their debt. I sold those tokens as fast as possible immediately when they became available, and I was only able to get like 25% of their value. There was no point in time that they refunded me, not in dollar terms and not in Bitcoin terms. Then in September, Bitfinex gives both token holders the option to convert their IOUs into equity shares of iPhone X, the corporate entity behind Bitfinex through a so called recovery rights token. If the company receives the recovered Bitcoin back, those token holders will each be paid a dollar.

We were pissed they were taking all the risk in terms of OC. Here's this token. Here's debt that we're going to issue to you and don't worry, we'll pay it back as long as everything works out. From from a customer standpoint, that's pretty frustrating because, you know, I didn't agree to to take on an unsecured debt from Bitfinex. I just was trying to trade Bitcoin on their platform. Bitfinex declined CNBC's request for an interview, but said in a statement, We have been very clear about the tokens and recovery rights tokens that were issued to compensate customers harmed by the security breach, and we have met and will continue to meet all of our obligations.

We are very proud of the proactive steps we have taken to compensate our customers, even though it was not known whether the stolen Bitcoin would ever be recovered. Meanwhile, blockchain investigators are tracking the stolen bitcoins. Finding them on the blockchain is pretty easy. The nature of the blockchain, the sort of open ledger. Every transaction is recorded and immutable. So it really allows more visibility on financial flows than really we've ever had before.

Every red board is the head of government affairs at TRM Labs, a blockchain intelligence firm that works with government agencies on investigations like Bitfinex. The blockchain is partly anonymous, right, because we don't know who owns the wallet, but we do know where the wallet is and what's in the wallet, right? That's right. Call it sued. Anonymous investigators could track the stolen funds. They just didn't know who owned the 34 digit alphanumeric wallet that was holding them. So the trick is to take those numbers that you have that are the wallet and match them up with a name which is a real person.

So ultimately, that is up to investigators. And what they use a blockchain analytics tool like TRMM to do is to track and trace the flow of funds that are potentially associated with, again, illicit activity, like a hack. In the same way a daypack explodes on a bank robber covering the stolen cash with red ink, making it impossible to spend. The digital coins are marked electronically for fraud, so crooks have to find a way to clean the crypto before cashing out. The Bitcoins first started to move in January 2017.

And what we saw at first were the funds being sent to a Darknet marketplace called Alphabay, a dark web retailer, basically where you can buy everything from narcotics, the hacking tool. The fake IDs. On the surface, it may seem like navigating the dark side of the internet to launder crypto would take the knowhow of a James Bond villain. But in reality, all it takes is a special browser. It's very easy to download the Tor browser and use it.

You can do it in under 5 minutes and you'll see. Here. It looks very much like a normal Internet browsing experience. Cybersecurity expert Sandra Joyce is showing us around a Darknet e-commerce site similar to Alphabay. It's like doing deals in a dark alley where buyers and sellers want to remain anonymous. We're going to browse actually to a Russian language site called XSS.

This is basically a very professional site. They even have rules about conduct on the site, a sort of criminal code of conduct. They even have an FAQ here where you can see what are the rules and buying and selling. How do you deposit money? How do you do it anonymously? You don't really need to be that sophisticated because they really spell it out for you. We'll just search for crypto and we're using a translation feature here so that you can see what's being said in English. So this threat actor, for example, is claiming that they're going to be able to cash out cryptocurrency here.

So this is the type of activity that somebody who's trying to move cryptocurrency would find something like this very helpful. According to the criminal complaint, the couple also used Alphabay to exchange some of the stolen Bitcoin for a privacy coin called Monero. Monero is considered a privacy token, which means that it hides virtually all transaction details, which allows cyber criminals greater freedom from some of the tracking tools that authorities have developed to trace payments on Bitcoin's blockchain.

But investigators say Heather and Ilya didn't stop there. They were using absolutely every trick in the book. They used a money laundering technique involving what they call sort of mixers or tumblers. And what they do is they take cryptocurrency Bitcoin in

particular from all kinds of different users, and then they scramble all of that up and then they spit it out the other side redistributed. So your bitcoin that go into the mixer come out essentially as, as someone else's bitcoin on the other end. Another laundering technique outlined in court documents is called a peel chain. So you have a single wallet containing a lot of dirty bitcoin from some kind of criminal activity. All you do is deposit it in small amounts. And so from this wallet you'll send a small amount to the exchange, but you'll send the bulk of the funds to a new wallet, and then you'll send a small amount from that to the exchange, the rest to another wallet.

And so at each stage here, you're peeling off a small amount of the bitcoins. It also adds hops in the transaction chain, which are harder for the exchange to trace back and link to the criminal activity. The money moves made the crypto harder to trace, but not impossible.

In February of 2017, just one month after the Bitcoin first starts to move into Alphabay, investigators say the account Ilya opened on VC five receives a deposit, according to court documents. One month later, three additional accounts opened at a different exchange called VC seven start receiving Bitcoin as well. And over the next four years, around $2.9 million worth of Bitcoin flows into those accounts. At VC seven, nearly all of it is converted into cash and transferred to bank accounts held by the couple, according to the criminal complaint, and the feds were closing in on their suspects.

I think that the key mistake was using Alphabay and that was potentially because Alphabay was taken down by law enforcement. A few months later. Alphabay gets shut down in July of 2017 and the feds gain access to valuable information about its users who thought they were using the site anonymously. Today, the Department of Justice announces the takedown of the dark Web market alphabay. Meanwhile, Heather starts writing for Forbes magazine. She's also working on a new startup with Ilya called End Pass.

This YouTube video posted by the company describes their products. Meet and bars, a 100% open source, Etherium and Token Wallet you'll be delighted to use. We protect your funds with multiple layers of security. Eureka Kosky meets Ilya while interviewing for a product marketing position at the company in October of 2018. What did he tell you about this company and what it was going to do? He said that they are trying to create basically two companies.

One is a crypto wallet, some specific new type of crypto wallet as and one is the software for password management. So did he seem like an expert in cryptocurrency to you? No, I don't think so. Did the company ever build the product that they said that they were going to build? Oh, no, no, no, not at all. And during all my work for six months, marketing team literally didn't do anything.

This is around the same time Heather launches her rap career in 2018. The couple is not married at the time, but Heather is listed as the CEO of Ilias new startup. Did you guys see the videos when you were. Working for her? No, no, no. At least I didn't see them before all this news. So she came off as a professional businessperson, not a rapper or an entertainer.

Yeah. And did she seem. To have any cryptocurrency or security. Skills, as far as you could tell? No. No, she didn't even know.

What is it like search engine optimization? So. I don't think so. According to Yuri. Heather and Ilya didn't have the skills to build a successful crypto security company and with no product to market. After six months in March of 2019, Ilya fired the entire marketing team. We were sitting around Zoom.

Everyone was talking about their future plans as usual and said, Guys, all of you are fired, but I will pay your next month's salary. And that was it. Yes, that's it. Three months later, Ilya asks Heather to marry him, sharing the elaborate details of his proposal on Facebook.

He writes, What better way to propose to an entrepreneur slash rapper than with a weird, creative, multichannel marketing campaign? He hires an agency to place Wrestlecon posters around New York City and even buys billboards in Times Square. Shortly after their engagement, employees from VC seven start reaching out to Heather via email with questions about how she came to own the Bitcoin in this account. According to the criminal complaint, her reply My boyfriend now husband gifted me cryptocurrency over several years On a summer night at the Williamsburg Hotel in 2019, the crocodile of Wall Street stands up in front of an audience and starts rapping mother fucker. Down on Wall Street.

Heather Morgan's warming up the crowd at NYC Salon, a Speaker series that aims to be a TEDx talk with friends. The PowerPoint slide above her reads How to Social Engineer Your Way into Anything. The subject of her speech. The social engineering is basically and even the term manipulating.

But it's it's getting someone to share information or take an action that they otherwise would not. Usually social engineering is a term used to describe digital techniques hackers use to trick people into sharing confidential information like account passwords through phishing or malware. But in this context, Heather says, scrappy entrepreneurs can use social engineering in real life to get a leg up in the business world. Underdogs. A lot of times if you don't have an advantage, you have to create one for yourself. And how do you do that?

And I like to do that through social engineering. We asked Americus Reed, a Wharton professor who studies social psychology, to watch Heather's presentation. My exact reaction to this was like, Wow, this is either an interesting sort of conversation about how to hustle or this is perhaps the most egregious master class and deception you've ever seen that is being paraded as this intellectual persuasion exercise. Under a slide titled Some Places I've Infiltrated. Heather tells the story of she and her friend breaking into a historic Hindu temple in Cairo. Then a security guard came and cut us both red handed.

She says they offer the guard a cigaret and ten Egyptian pounds, convincing him to give them a tour instead of placing them in handcuffs. Some of the places I've infiltrated that word tells me something. The aura here is very much of the flavor of something that is manipulative. It's a little bit dark.

It's a little bit CV I'm getting in, even though I'm not supposed to. Heather also gives the audience tools for crashing events and explains how to socially engineer yourself out of a bad situation. At the end of her presentation, someone asks if she ever feels guilty about using the shady techniques.

Her reply. My goals aren't like bad or evil. Like I'm not trying to scam someone out of money or like like get someone hurt in any way. She is literally saying, I have a line and I don't believe that I've crossed it. A few weeks after this event in August of 2019, prosecutors say Heather and Iliya leave for Ukraine during the month long trip, receiving multiple packages with fake Ukrainian IDs, bank cards and SIM cards for mobile phones.

After that trip, it'll take investigators two more years of searching for clues before they're led to the person with the keys to access the digital wallets holding all that stolen Bitcoin. In a typical investigation, I followed the cryptocurrency along the blockchain. I've worked with exchanges. I've subpoenaed records, I've identified

email addresses, and I've built out. All right, this is my target. I have this evidence to implicate this individual in the crime, but I need the additional evidence. I need the possession of hardware, wallet that may hold some of that Bitcoin or the private keys to access some of these wallets or emails. So we're we're at the point where I know who the subject is.

I'm looking to get in front of that person. I want to get into the location where I think the evidence is that's going to implicate this person. And a lot of times that's their house, their business. You see on TV, the FBI or the DEA, SWAT team ramming down the door, the ERs, they do that on a regular basis. You have a federal search warrant, You're making entry into someone's home.

There's all kinds of prep that goes into that doing surveillance. You're trying to get a feel for the area. And while IRS agents are preparing to execute a search warrant, Heather and Ilya are planning their wedding in California.

Heather posts a video from the ceremony on Twitter. She's wearing a gold gown and headpiece rapping on stage while her bridal party waves golden palm leaves. Turkish. Michael Short Turkish. But the celebrating is short lived. Less than two months later, federal agents searched the newlyweds Wall Street apartment by the end of January. Investigators say they are able to decrypt several key files in Elias Cloud storage account, including a file listing all of the addresses within Wallet one G and their corresponding private keys.

And that gives the feds access to more than 94,000 stolen bitcoins. When the news breaks, Bitfinex releases a statement saying it has a right to the money Bitfinex will work with the DOJ and follow appropriate legal processes to establish our rights to a return of the stolen Bitcoin. But some of the customers believe the Bitcoin belongs to them. I still am going to be trying to get a hold of these 15 bitcoins because I truly believe they are mine. I can prove it through the blockchain explorers.

I still expect my bitcoin back and I don't see any reason why they would keep it. Why would anybody question that I should get my money back? That was my property. Ultimately, it's going to be a dogfight as to who gets this money, whether or not the government gets to keep it, whether or not bitfinex gets to keep it, whether or not the customers get it back. Anyone who tells you there's a clear answer is lying for their own benefit. David Silver is a lawyer specializing in crypto disputes. I would say the odds are best the government is going to keep this money.

The government will try its best to give restitution to victims who can show they actually are the victims of the Bitfinex hack. You're going to have to show how you purchase the Bitcoin, how you sent the bitcoin to Bitfinex and that you're the rightful owner of that account and that you're the rightful owner of all of that crypto. And that's going to be very, very hard to do for a lot of people. The multibillion dollar battle over the money could take years, and David expects over time more details will emerge about the hack that led to the digital heist.

But so far, the hackers identity remains a mystery and no one has been charged with the crime. So the end of this story, we don't know yet. But you can't just simply walk away with a hack like this.

There's someone that's going to be caught up in this that has to tell the truth. And when that shoe drops, it's going to be really interesting and it's going to impact who gets the money. In the meantime, the crocodile of Wall Street and her husband are charged with conspiracy to commit money laundering and conspiracy to defraud the United States, facing maximum sentences of more than two decades in prison. But their odd love story lives on.

Through the lyrics Heather wrote in a song called Moon and Stars. She released it on YouTube just three days after the feds raided their apartment. For average Joes, everyone knows you're the best for me, this is how our story goes. We reached out to Heather and Ilya to hear their side of the story. Hi, you've reached Heather.

Please leave your name and number and I'll get back to you and I can. Cheers. Both Heather and Ilya are innocent until proven guilty, and neither agreed to an interview. So there's still some questions we don't have answers to. How did Heather and Ilya allegedly get their hands on the stolen Bitcoin? And who pulled off that $65 hack? But it's clear that the feds are watching the blockchain, and technology is making it more difficult to make money from crypto crime.

Lisa monaco is the deputy attorney general of the United States. The bitfinex arrest of the couple in New York was dramatic, the largest seizure of cryptocurrency in history. What does that case tell us now about what the Department of Justice can do to track cryptocurrency through the financial underground around the world? I think what it tells us is that we're at a crossroads when it comes to. Cryptocurrency. We have to be focused on the use of crypto to hide ill gotten gains, to launder money to hide proceeds. And what you're seeing from the Justice Department is an enhanced focus on that.

You've seen us launch a new team of prosecutors, the National Cryptocurrency Enforcement team. We've got the best people on this. We've got expertise that we're bringing to bear. And what you're seeing is our ability to both combine very sophisticated tools and abilities that are behind the scenes with the ability to trace the movement of money, of ill gotten gains. And that's what you saw us do in Bitfinex. And we've got to be focused on that because as the saying goes, that's where the money is.

And blockchain investigators say the DOJ's arrests in this case should send a clear message to crypto criminals. It may take years, but they're going to find you and you're going to get caught. I think law enforcement capabilities have advanced and become very sophisticated. So you think life is going to get harder for the bad guys? I think life is going to get harder. The law enforcement techniques have gotten better and so have the illicit actors.

2022-10-21 13:19

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