This week, the Department of Justice announced its largest financial seizure ever: New York-based Ilya Lichtenstein and his” rapper” wife Heather Morgan are accused of laundering more than $4 billion in stolen cryptocurrency. The DOJ said that the majority of that belongs to victims of the famous 2016 Bitfinex hack.
The department undoubtedly achieved a big success, but it is still unclear how the victims will be reimbursed for their losses. There are over 94,000 Bitcoins at stake here – and thousands of people, including Bitfinex itself, are likely to clamor for the money.
David Silver, a lawyer who specializes in financial and cryptocurrency-related fraud, told Bloomberg that he does not believe the DOJ will hand over $3.6 billion to an organization that cannot identify the owner of the bitcoin.
For now, Justice Department officials said they intend to establish a court process for victims to reclaim their stolen digital assets, which have appreciated significantly in value. Bitfinex said it would “seek legal counsel to claim the right to the return of the stolen bitcoins” because it claimed it had already paid investors for losses.
To some degree, Bitfinex is telling a half-truth – the exchange, and the crypto sector, was at a fairly primitive level in 2016. The company had no reserves, insurance, or resources to reimburse users – so, in true crypto fashion, they made a token to reimburse users.
This token, UNUS SED LEO, surged after news of the DOJ’s recovery went live. However, not everybody who was compensated in this way would likely agree that it was fair and equitable compensation. After all, Bitcoin has risen many multiples since 2016 – and people might have felt they needed to take Bitfinex’s settlement.
The company indicated that – if it was able to recover the Bitcoin, it would use “80% of the recovered net funds to repurchase and burn outstanding UNUS SED LEO tokens.” That could drive up the price and make things more equitable, but it’s unknown if the DOJ will be open to handing off billions in Bitcoin to a company that was incapable of protecting it in the first place – even if they really are more resourced now.
Whatever the court decides about the future of $3.6 billion, the way that the DOJ handles this seizure will be unprecedented. However, it’s confidence-inducing – maybe even heartening – that U.S. politicians are recognizing cryptocurrency as valuable and reuniting people with their hard-earned crypto after all these years.