Blockchain & Cryptocurrency , Cryptocurrency Fraud , Fraud Management & Cybercrime

Feds Recover $154 Million Allegedly Stolen by Sony Insider

More than $154 million in funds stolen from Sony Group Corp., the electronics giant based in Tokyo, was recovered after an insider allegedly embezzled money and converted it to bitcoin, the U.S. Department of Justice reports. The U.S. government has filed a civil action lawsuit in federal court to return the funds to Sony.

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Following an investigation by the FBI, authorities allege that Rei Ishii, 32, a former employee of the subsidiary Sony Life Insurance Co. - also known as Sony Life - diverted millions through Silvergate Bank, based in La Jolla, California.

Ishii allegedly falsified transaction instructions and transferred the funds from Sony's Citibank account located in Bermuda into a Silvergate account with the Coinbase cryptocurrency exchange platform, where the funds were then converted into bitcoin, according to court documents.

Prosecutors allege that Ishii sent an anonymous email, typed in both Japanese and English, to his supervisor and executives at Sony trying to deter them from participating in the investigation, according to court records. "If you are going to file criminal charges, it will be impossible to recover the funds," his message allegedly read. "If you accept the settlement, we will return the funds back."

Ishii allegedly obtained 3,879 bitcoins, which today would have a value of more than $180 million.

"Ishii has been criminally charged in Japan," the Justice Department says, noting that all of the stolen funds have been recovered.

FBI Traces Cryptocurrency

The FBI began its investigation in June with the cooperation of Japanese law enforcement agencies, including Japan's National Police Agency, the Tokyo Metropolitan Police Department, the Tokyo District Public Prosecutors Office, and the Japan Prosecutors Unit on Emerging Crimes, also known as JPEC.

Working alongside Japanese agencies, the FBI secured access to Ishii's bitcoin address and traced the money. Ishii, after transferring the money in Japanese yen to Silvergate's Coinbase account, stored the money offline in a cold wallet, according to Bleeping Computer.

Randy Grossman, the acting U.S. attorney for the Southern District of California, says FBI agents worked with law enforcement counterparts in Japan to recover the stolen funds from the "audacious" theft.

"Criminals should take note: You cannot rely on cryptocurrency to hide your ill-gotten gains from law enforcement," Grossman said.

FBI Special Agent in Charge Suzanne Turner credits the fund recovery to Sony and Citibank's cooperation, saying that each notified law enforcement agencies once the funds had been discovered missing.

Convicted Terrorist Turned Crypto Trader

In another criminal case involving cryptocurrency transactions, convicted terrorist Khuram Iqbal of Cardiff, Wales, faced a trial hearing on Tuesday, after he reportedly used crypto funds to engage with linked to fraudulent credential-purchasing marketplaces on the darknet, according to the U.K. Counter Terrorism Policing.

Originally jailed in 2014 for possession of an al Qaida-linked online magazine called Inspire, Iqbal violated a 10-year notification order when he failed to disclose two Coinbase cryptocurrency accounts to police, authorities say.

In a Tuesday court hearing at London's Central Criminal Court, Iqbal received a 16-month prison sentence.

Michael Fasanello, who has served in various roles within the U.S. Justice and Treasury departments, including for Treasury's Financial Crimes Enforcement Network, or FinCEN, says that the case - including Coinbase's suspicious activity report - demonstrates that major cryptocurrency players are perfectly capable of adhering to regulations in an effort to keep crypto transactions safe from money laundering or terrorist financing.

Fasanello, who is currently the director of training and regulatory affairs for the firm Blockchain Intelligence Group, wrote the following in a LinkedIn post:

In recent weeks, U.S. officials have been actively debating the potential benefits - and dangers - of cryptocurrency.

For example, a bipartisan group of six U.S. senators sent a letter to the Department of Treasury criticizing recent cryptocurrency regulations in the Infrastructure Investment and Jobs Act passed on Nov. 15 for using an overly broad interpretation of the word "broker," which they say could impose new regulations on those who do not meet broker requirements.

In a Stablecoin hearing last week, Sen. Elizabeth Warren, D-Mass., a critic of cryptocurrency's volatility, said decentralized finance, known as DeFi, where public traders can use the blockchain-based financial system to trade without a middleman such as a brokerage or bank, is "the most dangerous part of the crypto world" (see: Senators Urge Treasury Department to Address Crypto Brokers).

ISMG Staff Writer Dan Gunderman contributed to this report.