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DDC Stayed Release In $3.6B Crypto Launder Case of Lichtenstein and Morgan Now Briefing

By Matthew Russell Lee, Patreon Maxwell Book
BBC - Guardian UK - Honduras - ESPN Vlog

SDNY COURTHOUSE, Feb 9 – 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.

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 aims to cover it.

 Inner City Press live tweeted the SDNY proceeding, thread here: 

All rise! Heather Morgan is in a white hoodie; Lichtenstein in grey V-neck.

Judge Freeman asks if the press is observing social distancing. "I am responsible for safety in this courtroom.... Apologies for the delay."

Two separate Mag Court docket numbers.

 AUSA: Both defendants were arrested this morning at approximately 7 am.

Judge Freeman: Mr. Lichtenstein is a Russian citizen - has consular notification been made? AUSA: It has.

Judge Freeman: Is that required where it's a dual citizen, as here? AUSA: Yes. Judge Freeman: Mr. Lichtenstein - is that how you say it? If you do not hear from someone from the consulate...

Judge Freeman: The charges against you in the District of Columbia are money laundering and 18 USC 371, which makes it a crime to defraud the US. You have the right to a [removal] hearing, an identity hearing. Counsel, do you need something? I want to be heard

[In the interim, here's the DDC "Statement of facts

And here, via YouTube, is Heather Morgan a/k/a Razzlekhan

Assistant US Attorney: We are asking for detention. The case is involves the theft of bitcoin now worth $5 billion. The funds were found in accounts, with private keys for a wallet containing bitcoin worth $3.6 billion. Lichtenstein had log in info for accounts

AUSA: Bitcoin is not like cash. With complex analysis you can find where it comes from - in this case, the 2016 hack. Their guidelines are over the 20 year statutory maximum. They have the means to flee - $330 million have yet to be found.

AUSA: Lichtenstein had a computer folder called "Persona," with ID for different people. He had another file called "Passport_Ideas." They had 50 electronic devices, in a bag labeled "burner phones."

 AUSA: Lichtenstein was born in Russia. They were in Ukraine in 2019. Morgan, from 2011 to 2013, lived in Hong Kong and Egypt. Morgan has been studying Russian, and speaks Korean.

[Morgan leans over and whispers to her Cahill Gordan lawyer]

 Judge Freeman: Did the use use aliases? AUSA: Yes. They used false names to open accounts.

Lichtenstein's lawyer: He fled Russia to escape religious persecution. It is unremarkable that his wife has been learning Russian. He grew up in Chicago.

Lichtenstein's lawyer: They have been planning a family. I'll get to there. Morgan is a journalist and runs a sales consulting company that employs 30 freelance writers. Her father works for US government agencies.

 Defense lawyer: Mr. Morgan has a fibroid removed from her breasts. She's at risk of COVID. They are going IVF. I have told the government, not the SDNY but Main Justice, about her surgery since January. I was surprised to learn of her arrest this morning.

Defense lawyer: They have been aware of this investigation since Nov, from a service provider which received a subpoena. There was a search warrant at their apartment, not five minutes from here. That where this evidence is from.

 Defense lawyer: So what changed? Only Treasury had access to this money now. On the missing money, there is nothing that connects our client to it. They claim the proof is strong. On Ms. Morgan, they have almost nothing. Receiving is not conducting a transaction

 Defense lawyer: Ms. Morgan is several steps removed from the S.U.A. Judge Freeman: What is SUA? Defense lawyer: Specified Unlawful Activity, sorry, your Honor...

 [Cites Para 37(f) "although MORGAN advised representatives from VCE 7 that SalesFolk received virtual currency from some of her customers, investigators were not able to locate anything on the SalesFolk website referencing accepting or dealing with cryptocurrency"

Defense lawyer: I have traveled to more countries than Mr. Lichtenstein in the past 10 years. Am I a flight risk?  Our defense would be hamstrung if they are held in. Before trial it could be several months to a year.

 Judge Freeman: Today I will only decide if they should remain in detention to be transported to DC. Defense lawyer: They're in NY. It's a train ride. We have co-signers...

[Lichtenstein hand note to lawyer who's talking] ... Ms. Morgan's parents.

 AUSA: In late January, the government manage to decrypt their accounts, with $3.6 billion of bitcoin inside. 

[Now Lichtenstein is whispering to his lawyer] Judge Freeman: Everyone knows the government had tools. Why didn't they flee? This was not just a passcode

 AUSA: When the search was executed, we took their passports. So fleeing was at least delayed. But evidence has been discovered in the last week. Judge Freeman: It's not hard bringing someone back from Illinois. AUSA: There is no extradition from Russia.

 AUSA: He gain citizenship in 2002. Defense lawyer: He came at six. They were refugees. Judge Freeman: Ms. Morgan told pre-trial her husband became a citizen as a political refugee. Why does he have a Russian passport? Defense lawyer: He's never traveled there.

 AUSA: His Russian passport expires in 2029. Judge Freeman: When was it issued? AUSA: 2019. Defense lawyer: If he ever intended to return to his homeland, he needed it.

 AUSA: The Passport_Ideas file has info on how to obtain one on the Dark Web. [Lichtenstein whispering with lawyer again]

AUSA: The apartment was equally hers, with the bag labeled "burner phones." Judge Freeman: How does that show risk of flight?

 Judge Freeman: Is there a date for the appearance in DC? AUSA: No. Judge Freeman: It is not necessarily the case that the decision on one should follow the other. Pre Trial Services recommends detention of both, on risk of flight. Inner City Press @innercitypress ·

Judge Freeman: Here's what I'm thinking, on flight risk the standard is a preponderance of the evidence. It's clear that the defendants have means, have traveled, and that the charges are serious. I'm troubled by the Cloud-based account about passports Inner City Press @innercitypress

 Defense lawyer: I heard that the false names were to open financial accounts, not to help flee -- Judge Freeman: On the other side, they have stayed put, even after the search warrants. Ms. Morgan has doctor's appointment she does not want to miss.

[Note, #MoneyTalks: earlier today before Judge Freeman a 31-year old New Yorker was remanded to the MDC or Essex for... failure to report to probation, here]

Judge Freeman: Ms. Morgan's parents, are they here? [They stand up] Judge Freeman: Would you post your own home, to lose it to the government if she didn't know up in court? Do you have more than one home? AUSA: We still ask for detention. They have enough bitcoin to buy a new house.

Defense lawyer: Mr. Lichtenstein's parents live in Illinois. They are willing to post their home. Judge Freeman: I got a call in Chambers, I was the only one there, and defense counsel called and I picked up the phone and he said he was surprised they were arrested. I'm putting that on the record. I'd like to hear from both parties on the size of a bond

 AUSA: In DDC they don't request monetary bond. They would like a stay in order to appeal. Judge Freeman: That wouldn't be necessary, because it would take time to post the homes.

Defense lawyer: Her parents are here! She has surgery tomorrow!

 Judge Freeman: I am finding in your favor, that condition of release can be set.  AUSA: $100 million, your Honor. Defense lawyer: I've never heard that in 22 years. Judge Freeman: It does seem a bit much.

 AUSA: Mr. Lichtenstein has an account -- Defense lawyer: We're talking about the co-signers. Judge Freeman: I'm going to do this separately. Mr. Lichtenstein, $5 million bond, parents' home posted. 5 co-signers. Home detention with GPS.

 [Now Lichtenstein is whispering to seated lawyer Enzer, the author]

Defense lawyer: Could he get a flip phone, to communicate with us? Could he come to our office on Old Slip, near their apartment?

Judge Freeman: These accounts, are they crypto accounts? Defense lawyer: Cash. Currency. Judge Freeman: Can we control how much he can access?

Judge Freeman: I don't think it can happen so lightening fast. Maybe in 24 hours. So I don't have to issue a stay to allow for the appeal. For Ms. Lichtenstein [that is, Ms. Morgan] Same on co-signers, all the same but the bond is $3 million.

Defense lawyer: Her parents are here and you've taken the measure of them. [Really?] Judge Freeman: OK, just the parents for Ms. Morgan.  Defense: And Mr. Lichtenstein? Judge Freeman: Still five co-signers. Come back if there's a problem.

 Judge Freeman (to defendants) - Do not prove me wrong and make me sign a warrant. And Ms. Morgan's parents, it is important that she appear. OK. On the medical front, appointments after conditions are satisfied. Follow up on surgery - any concern there?

Defense lawyer: There has been some pain. She needs to make sure there is no infection.

 Judge Freeman: I suspect if there is a slight delay, there are people in the facility, I'll do a medical attention form. I'm going to hand down to defense counsel some forms

 Judge Freeman: I'm going to add some conditions after speaking with Pre-Trial Services. Defendants to pay for all or part of location monitoring... 

Now they are led away by the Marshals.

    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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