A Ukrainian man living in the U.S. is facing up to 20 years in prison after being convicted of 18 federal felonies to defraud his former employer Microsoft out of more than $10 million in digital value.

What has happened?

According to the press release by the U.S. Attorney's Office for the Western District of Washington, 25-year-old software engineer Volodymyr Kvashuk worked as a contractor at Microsoft and then as an employee from August 2016 until he was fired in June 2018.

The Ukrainian national from Renton, Washington, was convicted of 18 felonies including five counts of wire fraud, six counts of money laundering, two counts of aggravated identity theft, two counts of filing false tax returns, and one count each of mail fraud, access device fraud, and access to a protected computer to keep up the fraud.  Kvashuk is facing up to 20 years in prison when he is sentenced in June.

What does this mean?

According to testimony at the trial and records filed in the case, Kvashuk was involved in testing Microsoft's online retail sales platform and used that testing access to steal "currency stored value", such as digital gift cards. He then is said to have resold the value on the internet.

Initially, Kvashuk stole smaller amounts totalling around $12,000 in value using his own account access, but he then started using test email accounts belonging to other Microsoft employees when the thefts escalated into the millions.

Kvashuk tried to conceal digital evidence that would trace the fraud and the internet sales back to him by using a bitcoin 'mixing' service to hide the source of the funds going into his bank account. During the seven months when Kvashuk carried out his illegal activity, around $2.8 million in bitcoin was transferred to his bank account. He then filed fake tax returns claiming the bitcoin was a gift from a relative.

Kvashuk, who used the proceeds from the fraud to buy a $1.6 million lakefront home and a $160,000 Tesla car, testified at trial that he did not intend to defraud Microsoft, claiming to be working on a special project to benefit the company.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while keeping track of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.