Razzlekhan Crypto Heist Underscores Broader Problems with Crypto Crime
Incoming Congress and Administration Likely Loosen Oversight of the Industry
By Mark Hays
This week, a chapter closed on one of the more outlandish crypto crimes we’ve seen (which is saying a lot for crypto): a couple of internet influencers pulled off a massive crypto heist that fueled their lavish lifestyle, leading to the Department of Justice’s largest asset seizure in history. Heather Morgan — aka online rapper “Razzlekhan” — was sentenced to 18 months in prison for helping her husband hide and launder 120,000 Bitcoin he says he stole from the crypto platform Bitfinex in 2016.
Morgan and her husband, Ilya “Dutch” Lichtenstein (who received a five year sentence after pleading guilty to money laundering charges) initially drew attention because of their eccentric online presence and lavish lifestyle. Prior to their arrest, the pair lived in luxury buildings in San Francisco and New York, stockpiled gold, and presented themselves as savvy tech entrepreneurs.
Morgan went further, posting eccentric videos of herself rapping under the moniker “Razzlekhan” — and called herself the Crocodile of Wall Street, offering commentary on finance, crypto, and other musings. Some of her writings were even picked up by business magazines. In a 2020 Forbes article, Morgan explored how “cybercriminals and fraudsters are taking advantage of disruptions caused by the pandemic,” demonstrating how crypto con artists often say the quiet part out loud.
Lichtenstein and Morgan’s scheme to steal their crypto hoard and launder the proceeds was also similarly outlandish. In his guilty plea, Lichtenstein admitted he hacked into the Bitfinex exchange in 2016 and fraudulently authorized the platform to transfer nearly 120,000 Bitcoin in more than 2,000 transactions to a wallet he controlled. Dutch then covered his tracks, erasing his access credentials and any other records that might leave a trail.
After laying low, Lichtenstein and Morgan began moving the stolen funds through elaborate money laundering schemes. Some included commonly-used techniques used by crypto crooks to conceal their crimes:
- Crypto mixers, which take crypto assets and transactions and “mix” them in a sort of virtual “black box,” making it difficult to trace transactions and token ownership;
- Privacy coins, which offer additional anonymity for those buying and using them;
- Chain-hopping, a practice of quickly moving crypto tokens from blockchain to blockchain, creating a complex pattern that obscures transactions and ownership; and
- Darknet markets, online marketplaces that match buyers and sellers with no questions asked.
But they also used more conventional money laundering methods, including:
- Setting up shell companies to create fake bank accounts, which they bought from “money mules” based in Eurasia;
- Converting crypto or regular currency into gold (apparently the duo even bought a stash of gold coins and buried them for safekeeping); and
- Traveling to Ukraine and Kazakhstan to convert crypto into debit cards and in some cases bulk cash, which they then sent to other jurisdictions.
This case brings to light two important lessons. First, it is quite easy to commit and conceal fraud and scams in the crypto ecosystem. Crypto technology offers many tools to hide illicit funds, which often go hand in hand with more conventional money laundering strategies. Such technology makes combatting money laundering difficult, and makes crypto attractive for criminal actors for many reasons — just as this case shows. The alleged transparency of blockchain didn’t stop crypto’s Bonnie and Clyde from taking the money and running. It took six years and considerable resources just to crack this one case and recover the assets.
Second, while these two were eventually apprehended, this win is more the exception than the rule. Crypto remains a space where financial crime is rampant and few are brought to justice — meaning those that get fleeced rarely recover their losses. In 2023, the FBI reported 69,000 complaints related to crypto scams that led to at least $5.6 billion in losses. Hacks and thefts on many crypto platforms happen on average more than once a day. These crimes don’t just harm crypto enthusiasts; crypto is a vector for a wave of financial fraud targeting older people that tripled from 2021 to 2023, according to the FBI.
Sadly, the incoming Congress and administration seems eager to roll out the red carpet for the crypto industry, which spent hundreds of millions in this past election cycle to push a deregulatory agenda that will leave more people vulnerable to the crypto crooks. So even as hype and speculation inflate another crypto bubble, new, unsuspecting investors will be more vulnerable to the endemic crypto fraud, scams, and financial crimes. Not all the stories will involve colorful villains like Razzlekhan and Dutch, but the pain and harm they inflict will be no less dramatic.
###