Ex-Microsoft Dev Gets 9 Years in Prison Over $10M Theft Involving Bitcoin Mixing

A former software engineer at Microsoft received a nine-year prison sentence Monday for an elaborate multi-million dollar criminal scheme involving bitcoin and digital gift cards.

Ukrainian citizen Volodymyr Kvashuk, 26, was sentenced in the U.S. District Court in Seattle for 18 federal felonies related to his scheme to defraud Microsoft of more than $10 million. This marks the first case of its kind in the U.S., according to a press release by the Department of Justice.

Kvashuk was involved in the testing of an online retail sales platform for Microsoft from August 2016 until he was fired in June 2018. He had used his employee access to steal “currency stored value” (CSV), namely digital gift cards. He then resold that value online and used the proceeds to fund a lavish lifestyle including a $1.6 million lakefront home and a $160,000 Tesla car.

What initially began as a small sum of $12,000 in CSV using his own email account access Kvashuk eventually moved to email accounts belonging to other employees in order to mask the growing thefts. Kvashuk then employed a bitcoin mixing service, attempting to conceal the source of funds arriving in his bank account.

“Stealing from your employer is bad enough, but stealing and making it appear that your colleagues are to blame widens the damage beyond dollars and cents,” said Brian Moran, a U.S. attorney for the Western District of Washington.

Over a period of seven months, Kvashuk's illegal activity saw a total of $2.8 million in bitcoin transferred to his bank and investment accounts. He then filed fake tax return forms claiming the bitcoin had been a gift from a relative, according to the department's statement and court records.

Kvashuk must now pay more than $8.3 million in restitution – the value of CSV redeemed by third parties who had purchased stolen Microsoft gift cards. The software giant was able to block a further $1.8 million in CSV redemptions totaling more than $10.1 million, according to a court memorandum filed on Nov. 2 in the Western District of Washington.

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In February, Kvashuk was convicted of five counts of wire fraud, six counts of money laundering and two counts of aggravated identity theft by a Jury. His sentencing concludes a 16-month trial.

The Ukrainian citizen was also convicted on two counts of filing false tax returns, and one count each of mail fraud, access device fraud and access to a protected computer in furtherance of fraud, a court judgment document shows.

"Kvashuk’s criminal acts of stealing from Microsoft, and subsequent filing false tax returns, is the nation’s first bitcoin case that has a tax component to it,” said Ryan Korner, IRS Special Agent. "Today’s sentencing proves you cannot steal money via the Internet and think that bitcoin is going to hide your criminal behaviors."

See Government's sentencing memorandum in full below: