FEDERAL COURT,
March 3 – After Ilya
“Dutch”
Lichtenstein
and his wife,
Heather Morgan
were arrested in lower
Manhattan for allegedly trying
to launder $3.6 billon in
crypto-currency linked to the
hack of Bitfinex, they
appeared in before Magistrate
Judge Debra C. Freeman of the
U.S. District Court for the
Southern District of New York.
After a
lengthy proceeding, conditions
of release were set: $5
million and $3 million bond,
respectively. Vlog.
Then, as Inner City Press
predicted at 7 pm, the order
was stayed by the DDC - Chief
Judge Beryl Howell, pending
DDC review. Photo here.
Judge Howell ordered the
Marshals to move Lichtenstein
and Morgan to DC for an
in-person hearing on February
14. There was no provision for
a call-in line, so Inner City
Press wrote to Judge Howell
and counsel to request a call
in line. Letter on
DocumentCloud here.
On February
14, Judge Howell conducted the
hearing, and ultimately
detained Lichtenstein while
allow Heather Morgan /
Razzlekhan out on the NY
conditions. Inner City Press
live tweeted it, thread here
and below.
But on February
24 when Inner City Press
covered Magistrate Judge Robin
Meriweather's proceeding on
Lichtenstein, with Morgan's
counsel on the line, Morgan
was still detained. Inner City
Press live tweeted it here
now Bitfinex
hack/launder case of US v.
Lichtenstein and Morgan before
DDC Magistrate Judge
Meriweather.
Assistant US
Attorney: Whatever was filing
in the SDNY did not address
Speedy Trial, so we'd like to
address it here. Judge
Meriweather: How about March
25 at 3 pm? It will be before
[Magistrate] Judge Faruqui.
AUSA: We
anticipate starting to produce
discovery next week but it
will be complex. We'd like to
exclude time to discussion
resolution before trial as
well. Let us exclude from when
we filed out motion and March
25. Judge Meriweather:
Granted.
Judge
Meriweather: We have counsel
for Ms. Morgan on the line and
we're trying to set a
proceeding for her. Counsel:
We wish to secure her release
on bail. She's been in custody
since the 8th. The final piece
is securing the bond with a
home...
Razzlekhan's
lawyer: We anticipate
recording the lien against her
parents' home in California
today - but to get it might
take weeks. We want to put in
an affidavit. Judge
Meriweather: I'd need to
coordinate. We'll look into
it. So, Monday? Counsel: Yes.
Clerk: Monday the
28th at 2 pm, for Ms. Morgan.
If she's still in custody
we'll send the info to where
she is. Anything else? No.
Adjourned.
On February
25, as first reported here,
Morgan was actually freed,
photo here.
On March 3, DDC
Magistrate Judge Faruqui
approved pro hace vice for
Heather Morgan's new (and
separate) lawyer: "ORDER
Granting [38] Motion for Leave
to Appear Pro Hac Vice
Elizabeth Slater as to HEATHER
RHIANNON MORGAN (2). Signed by
Magistrate Judge Zia M.
Faruqui on 3/3/2022."
Razzlekhan...
On February 17,
DOJ wrote to DDC Magistrate
Robin Meriweather, "The
parties have agreed to seek a
30-day continuance of the
Preliminary Hearing in the
Southern District of New York,
and a corresponding
continuance of proceedings in
this Court following any
Initial Appearance. The
government anticipates that
discovery in this case will be
voluminous and complex. 4. The
government moves, pursuant to
18 U.S.C. § 3161(h)(7)(A), to
exclude time under the Speedy
Trial Act in the interests of
justice from February 17, 2022
until the date of the next
status hearing in this case on
or before March 18, 2022."
Full letter on Patreon here.
OK - now in
#Bitfinex hack case of US v.
Lichtenstein, now 2d bail
hearing, before DDC Chief
Judge Beryl Howell.
Judge Howell: We
are here on the US' motion for
pre-trial detention. The NY
facility [MDC] was unable to
provide virtual access to the
defendants, so I ordered them
transported here... I have
questions; I have reviewed the
Complaint and subsequent
filings. Judge Howell: I do
not have the pre-trial service
report used in the SDNY.
Assistant US Attorney: SDNY
does not provide it to anyone.
We do not have a copy, either.
Defense: Neither do we. [True?
In SDNY Mag Court, they give
the report to the parties]
Judge Howell: Are
you not relying on risk of
obstruction as well as risk of
flight? AUSA: We have concerns
about that, sure. Judge
Howell: That's how it appears
to me. So you are raising risk
of flight - but also further
dissipation?
AUSA: Yes. Judge
Howell: So this concerns the
2016 hack, and attempts to
money launder those funds. You
have not charged the
defendants will the actual
hack, correct? AUSA: Correct,
your Honor. As currently
charged.
Judge Howell: And
the government has not named
who it believes were the
hackers? AUSA: We have not. At
the moment. Judge
Howell: So the victim(s) could
see the Bitcoin in the wallet,
but could not access it,
correct? AUSA: Yes, Your
Honor.
Judge Howell:
Defense counsel argue that
there is not direct proof. But
are you saying that having the
private keys to the wallet is
direct proof, like the smoking
gun? AUSA: Yes, your Honor.
Judge Howell: So,
using the private keys found
in Defendant Lichtenstein's
cloud account, the US was able
to seize the $3.6 billion in
Bitcoin? AUSA: Yes. Judge
Howell: How are you sure it
came from the hack? It's just
one hop? AUSA: Exactly.
Judge Howell: So
when the US seized the bitcoin
in Wallet 4F, do you move it?
Or just switch the private
keys? AUSA: We move it to a
new wallet. Judge Howell: As a
prosecutor I had experience of
bitcoin being taken back from
the US, by recreating the
seized wallet
Judge Howell: So
how secure is this $3.6
billion of bitcoin that the
government has seized?
AUSA: In the case you're
referring to, we only had the
hardware wallet, not the keys.
Judge Howell: So
it's this is not a possibility
with Wallet 4F? AUSA: But
there are $100s of millions we
haven't been able to seize,
more than a hop away. Judge
Howell: The defense says there
no connection between those
and the hack.
Judge Howell: Do
you know where the rest of the
bitcoin is? and how much it
is? AUSA: Some funds have been
laundered, in wallets we don't
know the location of.
Judge
Howell: What links the 24
accounts? AUSA: We traced them
to the defendants. Judge
Howell: Were these 24 accounts
linked to Wallet 4F? AUSA:
Yes, they are separately by a
single transaction. We have a
listing of the private keys.
Judge Howell: So
this other money, you can't
access it, you just look at
it? AUSA: Yes... The cloud
account was tied to Mr.
Lichtenstein's email. It was a
comprehensive offering. Judge
Howell: Do you have info that
his wife accessed it? AUSA:
Common devices.
Judge Howell: You
say it was a long password
that couldn't be broken in a
lifetime. So how did you do
it? AUSA: Without getting into
specifics, one way is to
randomly guess. But sometimes
you learn other info to make
more educated guesses. It
wasn't password 1-2-3
AUSA: Even after
we search, the defendants
didn't know we could gain
access. We didn't seek
specific evidence from the
search to gain access.
Judge Howell: In the cloud
account, is it fair to say
only the inculpatory files
were encrypted?
AUSA: The
"personas" file was split
between UA meaning Ukraine and
RU, Russia. Judge Howell: So
the US has an interesting
story how it traced the stolen
bitcoin to 4 pounds of gold.
Was that all shipped directly
to Lichtenstein in NY?
AUSA: They were
living in SF. Judge Howell:
Was it sent only to Mr.
Lichtenstein? AUSA: They were
living together. 4 pounds of
gold were $200,000.
Judge Howell: You also have
photos of foreign currency.
How much? Was it left over
from a trip? AUSA: We said,
what appears to be
substantial.
Judge Howell: So
you don't have evidence that
defendant Morgan had access to
Mr. Lichtenstein's cloud
account... These
defendants didn't flee. I want
to pin down the time frame.
What notice did they have from
the ISPs? November? AUSA: Yes.
Judge Howell: Did
the government fail to get a
gag order on the ISP? Or
did the ISP not comply? AUSA:
Administrative oversight.
Judge Howell: So
was it the same ISP that
posted to the cloud account?
AUSA: No, a different one. Let
me consult with my colleague.
We have a medium degree of
confidence. Let me address of
Ms. Morgan has been tricked.
No, she is sophisticated &
could buy dark IDs
Judge Howell: But
the evidence against Mr.
Lichtenstein is stronger?
AUSA: It's very strong against
her. She knows what cold
storage is -- Judge Howell: I
don't know what it that is.
AUSA: Safekeeping. She told
financial institutions she got
the coins in 2014.
Judge Howell: OK,
I'll hear from Mr. Enzer.
First, I understand they are a
married couple. Still, I'm
concerned at conflict of
interest in joint
representation. It's said Ms.
Morgan may be an unwitting
recipient of tainted funds.
Judge Howell:
It's my feeling I should
conduct a Rule 44(c) hearing
even in the bail hearing.
Enzer: We don't want to delay
anything. Feel free to
inquire, and do a colloquy.
AUSA: Pre arrest we asked for
clarification Judge Howell:
Mr. Enzer, sit down please.
AUSA: We could
see arguments about relative
culpability, right up to
sentencing. We have seen it in
the detention filings. Judge
Howell: This wasn't raised in
front of the NY Magistrate
Judge, she didn't do a Rule 44
inquiry. It would have been
appropriate then.
Judge Howell: So
Mr Enzer do you really think
this inquiry is interfering
with clients' 6th Amendment
rights? Enzer: I never said
that. Judge Howell: Maybe it
was another lawyer on the
team. Enzer: I did say on the
call [Why was there no public
call in to that?]
Judge Howell
(addresses Lichtenstein and
Morgan) - You may waive a
conflict. But I am obliged to
determine you fully understand
the conflict. You may have a
counsel appointed, if you
qualify. [Billions in bitcoin]
Enzer: They got
the subpoena in November 2021,
they retained counsel, not
Cahill, but prior counsel. In
January, they still didn't
run, but they retained Cahill,
a sign they were taking it
seriously. [And retaining
prior counsel didn't?]
Judge Howell: Mr.
Enzer you say you were shocked
they were arrested. I'd be
shocked it took so long.
Enzer: By the
government's own account it
was February 1 -- Judge
Howell: So they didn't flee
Feb 1-8. But wasn't defendant
Morgan recuperating from
surgery?
Enzer: Sure there
was a January 31 surgery. But
she was mobile. She came to
Cahill. I could document that.
And the snow storm? In NY it
doesn't slow anyone. If snow
would stop them, home
detention would.
Enzer: They are
unlikely to flee because it's
only in New York they can have
children. Their eggs are
stored here.
Judge Howell: I
think they could do that
elsewhere. Enzer: The eggs are
good, and they are here. And
there is Chainalysis KYC
Enzer: I can't
speak to the dark net. I
didn't consult an expert about
that - the prosecution has
more access. But if you're on
the dark web, you don't want
to do business with someone
who's hot.
Enzer: We need
bail because we can't access
our clients. They were
arrested on Tuesday. We tried
to visit the jail on Thursday,
we were turned away. Friday, a
short call on his way to DC.
Less than an hour. Today, let
than 10 minutes. Ms. Morgan, 2
legal calls
Enzer: I think
this evidence may be
suppressed --- Judge Howell:
This is not a suppression
hearing. Enzer: But it goes to
the strength of the evidence.
Judge Howell: It would turn
every bail hearing into a
suppression hearing.
Judge Howell: If
you are saying the evidence is
flimsy, I disagree as I'll
explain in a moment. Enzer:
The unwitting receipt of
tainted funds is not a crime.
Judge Howell: There the Know
Your Customer communcations,
and her pretty clear
dissembling Judge Howell: What
about the false personas?
Enzer:
We're talking about Ms.
Morgan. Judge Howell: Some of
the personas were female.
Enzer: Their
families are here. They would
give up their homes. We can't
prepare for trial if they're
in jail. Judge Howell: The DC
Jail give iPad for evidence.
They allow video conferencing.
And contact visit. Enzer:
There's Ms. Morgan's health
Enzer: Over the
weekend Ms. Morgan had a very
serious asthma attack... She
had a previous case of MERS.
Bernie Madoff got bail. Lee
Harmon got bail... Judge
Howell: Government? AUSA:
These defendants used complex
routes.
AUSA: It's said
they are so committed to
having children. But that's
hard, if you're in jail for 25
years. Judge Howell: Let's
take 5 minutes. Enzer: I have
12 letters. Judge Howell: My
court reporter needs a break.
You'll have to repeat that.
Judge Howell is
back. Enzer: We have 12
letters of support.
Judge Howell: It's a little
late in the day, when I'm
about to rule. This is the
kind of thing that's usually
filed on the record, so I see
them before I come out on the
bench. But give them to me.
Judge Howell:
Then file them not as a motion
but as a notice. I see that
some letter call him "Dutch."
Enzer: Yes, it's an a/k/a in
the caption of the complaint.
Judge Howell (after a pause)
OK I've read them. I'm
prepared to rule.
Judge Howell: The
still unidentified hacker
transferred bitcoin from the
exchange to Wallet 4F. I agree
with the NY Magistrate Judge
this case involved
sophisticated means... There
was the file,
"Passport_Ideas." And "vetted
vendors" about the dark web.
Judge Howell: There was a
vendor with fake Ukraine
passports, and the defendants
were in Kiev on that day.
There were bags, with SIM
cards and phones, one of which
was labeled "Burner Phones."
Judge Howell: On
January 5, she grabbed a phone
and attempted to lock it. Law
enforcement had to wrest if
from her. The NY Magistrate
put weight on "no flight."
I'll address that in a second.
Judge Howell: The
defense claims there is no
direct proof is a vast over
simplification. Lichtenstein's
cloud account held the keys.
Judge Howell:
Defendant Lichetenstein had a
list of the accounts. He had
wallets with file names
containing variations of the
word "dirty." I agree with the
NY Magistrate that the
evidence against Ms. Morgan is
not as strong. But she
actively concealed
Judge Howell:
Defendant Lichtenstein renewed
his Russian passport in 2019.
It seems Defendant Morgan
spoke to him in Russian. I
disagree with the NY
Magistrate on the "didn't
flee" issue.
Judge Howell: If
anything, the delay gave the
defendants false confidence.
Defendant Lichtenstein will
remain in detention, given his
access to the private keys. As
to Defendant Morgan, she will
be released on the NY
conditions.
Enzer: Your
Honor, the government consents
for Lichtenstein to be moved
(back) to jail in NYC.
Judge Howell: No,
he is a DC defendant. He will
stay here. Acela is running.
You are excused.
On
February 10, the US filed a
supplemental memo to detain
them (and reverse SDNY
Magistrate Judge Debra C.
Freeman's order allowing
release on bond). Inner City
Press quickly tweeted some of
the photos, here
In US v.
Lichtenstein & Morgan, now
in DDC Court DOJ puts in a
chart of Bitfinex hack
laundering they allege -
including through #Uber,
#WalMart, Hotels [dot] com and
#PlayStation. [Here]
Among Ilya
Lichtenstein's Passport_Ideas
files, this: "real russian
passport from Lugansk. Must
pick up in person." Also, "eu
doc fakes." [Here]
More from the DOJ
filing in DDC: "Morgan posted
photos to social media during
her trip indicating that she
was staying at a Hilton hotel
near the 11 Mirrors Design
Hotel. Document titled
“ukraine_package,”
explains “how to anonymously
receive a parcel in Ukraine”
At last - photo
of the "burner phone" bag in
Lichtenstein's and Morgan's
lower Manhattan apartment [Here]
On February 9, a
schedule: "as to ILYA
LICHTENSTEIN, HEATHER RHIANNON
MORGAN: defendants' opposition
to 8 Motion for Review of
Release Order due by 5:00 PM
on 2/9/2022; government's
reply due by 2:00 PM on
2/10/2022; Motion Hearing
scheduled for 2/11/2022."
Inner City
Press live tweeted the SDNY
proceeding, thread here.
The substantive case, in DDC,
is US v. Lichtenstein, et al.,
22-mj-22 (RMM)
The SDNY cases:
US v. Lichtenstein, 22-mj-1279
(Freeman) and US v. Morgan,
22-mj-1280 (Freeman)
***
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