Couple — including unimpressive rapper — charged in case involving bitcoin heist

A courtroom sketch of attorney Sam Enzer, Heather Morgan and Ilya "Dutch" Lichtenstein in federal court.
In this courtroom sketch, attorney Sam Enzer, center, sits between Heather Morgan, left, and her husband, Ilya “Dutch” Lichtenstein, in federal court on Feb. 8 in New York.
(Elizabeth Williams / Associated Press)

Good morning, and welcome to the Essential California newsletter. It’s Thursday, Feb. 17. I’m Justin Ray.

This month, the Justice Department announced its “largest financial seizure ever” involving a bizarre cryptocurrency case. To understand what happened, you need to understand three parts: a crypto heist, a couple who was arrested, and why this all matters.

Leggo my crypto

It all began six years ago with a breach. Hackers stole $71 million — valued today at more than $4.5 billion — from Bitfinex, a virtual currency exchange. The funds were pilfered though more than 2,000 unauthorized transactions, according to the Department of Justice.

At the time, the news was another blow to the world of crypto, which had seen breaches before. Another exchange, Mt. Gox, notoriously lost 850,000 bitcoins. When the company filed for bankruptcy in 2014, the bitcoin was worth more than $450 million.

Now, the thing to know about bitcoin is that although they are anonymous to a degree, they are actually very traceable. Every transaction ever made is publicly viewable by everyone. Don’t believe me? You can click here and see real-time transactions (you should pay close attention to the staggering amounts on the far right).


This information is important for understanding the arrests.

Money laundering via Walmart

Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31, were arrested this month in Manhattan on suspicion of laundering cryptocurrency linked to the hacks.

To be clear, they are not being charged with participating in the hack themselves, and they have not been convicted. The information about the case has been obtained through the Justice Department. The people responsible for the original hack have not been identified.

Friends told Wall Street Journal that the couple previously lived in the San Francisco Bay Area. The paper also reported that Lichtenstein had gone through Y Combinator, a well-known Silicon Valley training program for entrepreneurs.

“Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform,” the Justice Department said.

The unauthorized transactions sent stolen bitcoin to a digital wallet under Lichtenstein’s control. For the last five years, “approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process,” according to the agency.

Bitcoin tokens photographed on April 3, 2013.
A New York couple were arrested last week in Manhattan on suspicion of laundering cryptocurrency linked to a 2016 hack of virtual currency exchange, according to the Justice Department. Above, bitcoin tokens.
(Rick Bowmer / Associated Press)

Actually, it’s not that complicated. Millions of dollars’ worth of transactions were cashed out via bitcoin ATMs and used to purchase items like gold and nonfungible tokens, according to the Department of Justice. They also bought a $500 gift card to Walmart, and the goods they purchased with it were delivered to their Manhattan address.

The couple’s lawyer wrote in a filing that “the money-laundering accusations in the government’s complaint are predicated on a series of circumstantial inferences and assumptions drawn from a complex web of convoluted blockchain- and cryptocurrency-tracing assertions,” according to CNBC.

The connection to the crypto heist isn’t the only reason the case has captured attention. Morgan has posted rap songs on Spotify and TikTok under the name Razzlekhan. (On the track “Versace Bedouin,” she says, “f— yo Jane Austen romance, rather be taking a taxidermy class.”)

Why this matters

To me, there are two main takeaways from the whole saga. The first is, crypto crimes are easily spotted.

“It’s better than cash. It’s easier to track,” Paul Vigna, a reporter at the Wall Street Journal, said on the paper’s daily podcast “The Journal.” “You can try to cover your tracks, but you can’t erase your tracks. And if the government wants to throw enough resources to implement it, they can absolutely trace every single step that bitcoin takes.”


The second is, if you want to get into crypto, you should be very careful. It remains vulnerable to bad actors, including myopic ones accused of sending Walmart purchases made with stolen currency to their actual home addresses.

I gave you the quick version of the case but you can find more information here, including more details about how the couple allegedly attempted to hide their money.


Star-studded Super Bowl ads for crypto were the latest example of the entertainment industry’s growing interest in everything blockchain. In the last year, there’s been a preponderance of actors, musicians and athletes talking up digital currencies and NFTs — unique digital records authenticating ownership of an item, tracked on a digital ledger.

And now, here’s what’s happening across California:

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Rising sea levels pose perilous threat to California coast as study raises new alarms. Los Angeles and other coastal areas of the United States will experience frequent flooding, degraded infrastructure and other profound challenges as sea levels rise by as much as 1 foot by 2050, a federal study released Tuesday found. Los Angeles Times

Joe Dombroski fishes in Malibu on March 24, 2013.
Joe Dombroski fishes off public access stairs during high tide at Broad Beach in Malibu.
(Christina House / Los Angeles Times)


O.C. D.A. made racist comments in a case involving a Black defendant, memo alleges. An Orange County prosecutor who was fired last week previously wrote a memo detailing racist comments he alleged his boss, Dist. Atty. Todd Spitzer, made while discussing the case of a Black murder defendant, according to copies of the internal documents obtained by The Times. Los Angeles Times

Rams fans celebrate Super Bowl champions at victory parade in L.A. What went down during the parade? We have all the highlights. Los Angeles Times

A view of the Rams victory parade in Los Angeles.
A view of the victory parade in Los Angeles on Wednesday as the Rams celebrate their Super Bowl win.
(Allen J. Schaben / Los Angeles Times)

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Feinstein’s approval ratings hit an all-time low; Harris underwater, poll says. Views of Sen. Dianne Feinstein’s job performance have tumbled to the lowest point in her three-decade Senate career, with just 30% of California voters giving her positive marks in a new UC Berkeley Institute of Governmental Studies poll co-sponsored by the Los Angeles Times. Respondents gave similarly unenthusiastic marks to Vice President Kamala Harris. Los Angeles Times

Sen. Dianne Feinstein answers questions.
Sen. Dianne Feinstein (D-Calif.) answers questions on Capitol Hill in Washington, D.C., in May 2017.
(Jacquelyn Martin / Associated Press)


Oakland police arrested a man who witnesses say attacked an elderly man, his son and a bystander. Police said the suspect was yelling at the elderly man in Chinatown and then hit him for no apparent reason. The man was arrested on elder abuse and battery charges, officials said. KTVU

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As the number of hospitalized coronavirus-positive patients continues to fall, Los Angeles County relaxed its outdoor masking rules Wednesday. The revised guidance allows people to go without face coverings outdoors at K-12 schools (including transitional kindergarten) and child-care facilities and in exterior areas of mega events, such as those at the Hollywood Bowl, Dodger Stadium, SoFi Stadium and Los Angeles Memorial Coliseum. Los Angeles Times


A man plunged 75 feet from an observation deck near the top of the Palm Springs Aerial Tramway over the weekend and miraculously survived, authorities said. An employee at a restaurant atop the Mt. San Jacinto summit noticed a man climbing over a railing on Saturday just before he slipped and fell. Los Angeles Times

Diocese in San Diego advises new baptisms for people worried about priest’s mistake. A Catholic priest who recently resigned acknowledged that he wrongly performed thousands of baptisms in recent years. The Roman Catholic Diocese of San Diego is urging anyone concerned that their baptism might have been performed improperly to contact local priests for a do-over. The Rev. Andres Arango reportedly said, “We baptize you in the name of the Father, the Son and the Holy Spirit,” a notable departure from the “I baptize you …” protocol. San Diego Union-Tribune


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Today’s California memory is from Joe Olson:

In 1947 my parents bought a lot in a walnut grove in then still-rural West Covina, population less than 5,000. My father and my older brother, barely 13, spent the entire summer working long hours almost every day with only a little outside help to build a house that my father had designed. By the start of the school year the house was not fully finished, but we were able to move in just in time for my brother to enroll at Covina High School and for me to enroll in the now long-gone Sunset Avenue Grammar School.

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