(Bloomberg) -- The woman who dubbed herself the “Crocodile of Wall Street” and “Razzlekhan” in rap videos was ordered to serve 18 months behind bars for helping her hacker husband launder cryptocurrency he stole from the Bitfinex exchange.
Heather Morgan, 34, was sentenced Monday in Washington federal court. Last week, her husband, Ilya Lichtenstein, got five years in prison for his role in the scheme, which stemmed from his 2016 hack of the exchange and the theft of Bitcoin currently worth billions of dollars. Both pleaded guilty last year.
Morgan wasn’t involved in the hack, and her husband said he recruited her to help hide the loot he’d stolen. They could have faced more prison time, but he agreed to aid the US in other crypto prosecutions and she persuaded him to cooperate with the authorities.
“Your actions were deliberate” and involved “elaborate and extensive planning,” US District Judge Colleen Kollar-Kotelly told Morgan, while noting that the defendant appeared genuinely remorseful and unlikely to be a repeat offender.
But the judge agreed with US prosecutors that Morgan should face prison time to help deter others from similar crimes. “There seems to be, particularly around cryptocurrency, more of an increase in thefts,” Kollar-Kotelly said.
According to prosecutors, Morgan and Lichtenstein engaged in complex money-laundering techniques, including creating accounts under fictitious identities, moving the stolen proceeds in small amounts, and breaking up the trail of transactions by depositing and withdrawing funds from crypto exchanges and darknet markets. They purchased nonfungible tokens, gold and Walmart gift cards, court records show.
At the time of the hack, the stolen Bitcoin was worth about $71 million. Now it’s valued in the billions of dollars as the price of Bitcoin has surged from $580 to more than $90,000. The couple laundered 21% of what was stolen in the Bitfinex hack, according to the government.
Morgan could have faced as long as five years in prison for each of the two counts: money laundering conspiracy and conspiracy to defraud the US. The government had asked for 18 months because of her substantial assistance.
She’s the latest in a handful of crypto-related criminals to get less prison time after cooperating with authorities.
Larry Harmon, who pleaded guilty in 2021 to laundering more than $300 million of Bitcoin on behalf of drug dealers, was given three years in prison after he helped law enforcement. Roman Sterlingov, who didn’t cooperate, was sentenced to 12 1/2 years after a jury convicted him of laundering tens of millions of dollars from darknet markets that sold illegal drugs. The sentence, however, was much less than the 30 years recommended by the government.
Loyalty to Husband
Morgan’s attorney had argued that she get no more time in prison after she’d spent 17 days locked up following her arrest. He said she didn’t plan or orchestrate the offense, and had engaged in misconduct out of loyalty to her husband.
“She acted at her husband’s instruction in a limited capacity,” said Eugene Gorokhov, her attorney.
In between tears, Morgan apologized Monday for her actions. “I used my time and energy to do harm instead of good, and I’m ashamed of that,” she told the judge.
Before the Bitfinex hack, Morgan and Lichtenstein were entrepreneurs working in legitimate businesses, according to their lawyers. He helped expand a software company to 30 employees and she started her own business helping Silicon Valley startups with cold email campaigns meant to generate sales, the lawyers said. Morgan met Lichtenstein while participating in a venture capital tech accelerator called 500 Startups, her lawyer said. They began dating in 2014.
In 2016, Lichtenstein left his company after a bitter disagreement with the other co-founder, according to Morgan’s attorney. Lichtenstein started becoming isolated and spent a lot of time on his computer, her attorney wrote.
Alter Ego ‘Razzlekhan’
Morgan also faced some professional setbacks that led to “burnout,” her attorney said. She tried to deal with the stress by creating rap videos under the name “Razzlekhan,” an alter ego that years later would “make Ms. Morgan a target for ridicule on social media and in the press,” her attorney wrote.
Morgan was living with Lichtenstein when he hacked Bitfinex in 2016. He gradually withdrew the stolen crypto over several years and sought help from Morgan to hide the source of the funds, the government said. During her plea hearing, Morgan said she initially thought the proceeds came from illicit activity such drugs or tax avoidance. It wasn’t until 2020 that Lichtenstein revealed to her that he was behind the hack, but she continued to help him launder the money, she said.
“She fully committed to laundering this money and laundering it well,” said C. Alden Pelker, a prosecutor on the case. “For years she lived a lifestyle she knew was funded by money that didn’t belong to her,” Pelker said.
The case is US v. Morgan, 23-cr-00239, US District Court, District of Columbia (Washington).
(Updates with background on case.)
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