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By: Julia Bover
On February 8, 2022, the Department of Justice (“DOJ”) successfully seized over $3.6B in stolen cryptocurrency linked to a 2016 hack of Bitfinex, a virtual currency exchange platform. The Bitfinex hack was one of the biggest digital currency compromises since cryptocurrency’s inception in 2009. Hackers were able to capitalize on a vulnerability within Bitfinex’s security system, which allowed them to initiate more than 2,000 unauthorized transactions. As a result, 119,756 bitcoin (approximately $72 million at the time) were stolen and transferred into a single cryptocurrency wallet.
The duo behind the crypto-laundering were Manhattan residents Ilya Lichtenstein and his wife Heather Morgan. The two were arrested and charged with conspiracy to commit money laundering and defraud the United States. Special agents discovered the keys to the digital wallet that were being used to house the stolen funds after obtaining search warrants to obtain lawful access to an online account actively managed by Lichtenstein. The DOJ has announced that there will be a court process for the victims of the 2016 Bitfinex hack to help them reclaim some of their stolen assets.
The question now becomes: Which victims of the hack have rights to these newly reclaimed bitcoin? In the months following the hack, Bitfinex took certain measures to help mitigate the losses sustained by its compromised users. A number of proprietary digital currency tokens were created by Bitfinex, which were then gifted to its compromised users to cancel out some of their losses. Many compromised users, fearing no other recourse, were quick to accept Bitfinex’s offer without fully understanding what they were agreeing to. Did these compromised users sign away the rights to their stolen assets?
Given all that it has done for its compromised users since the 2016 hack, Bitfinex believes that it now has a legitimate claim to some, if not all, of the recovered assets. Bitfinex’s compromised users, on the other hand, could not disagree more. They never wanted the dollar equivalent to what was lost, which was effectively what Bitfinex offered them. They simply wanted their bitcoin back. Now that the original bitcoin has reentered the equation, many Bitfinex users feel cheated out of the massive gains that bitcoin has experienced over the last six years. Is Bitfinex entitled to some of the recovered assets? Should all of the recovered bitcoin be redistributed to their original owners? Should those that received reimbursements from Bitfinex still be eligible for their “fair share” of the recovered assets? In a sea of unknown, one thing is for certain: We are on the brink of an unprecedented legal battle that will determine who holds the rights to over $5B worth of cryptocurrency.