Stolen Bitcoins Returned

The US has returned $154 million in bitcoins stolen by a Sony employee.

However, on December 1, following an investigation in collaboration with Japanese law enforcement authorities, the FBI seized the 3879.16242937 BTC in Ishii’s wallet after obtaining the private key, which made it possible to transfer all the bitcoins to the FBI’s bitcoin wallet.

Posted on December 22, 2021 at 10:20 AM32 Comments

Comments

martin December 22, 2021 10:48 AM

So what are FBI’s policies for its BC wallet? Do they cash out or hold to transfer back to rightful owners (quickly). Etc.

M@ December 22, 2021 11:06 AM

While not considered currency, BTC, etc. are considered property, and are dealt with in much the same matter. If ownership can be established, it will be returned, if not, it will be auctioned.

Len December 22, 2021 11:44 AM

According to the article text (not its misleading headline), no bitcoins were stolen. The theft was of old-fashioned money, which was later used to buy bitcoins.

me December 22, 2021 5:42 PM

@Andy
So how did FBI obtain the private key?

They used the FBI backdoor, duh. No seriously that is the good question I would have wanted answered as well.

lurker December 22, 2021 5:50 PM

@Andy: So how did FBI obtain the private key?

From the articles: “with the assistance of Japanese [LEAs]”. Maybe Japanese methods of obtaining the key would be inadmissable in a US court, but once the FBI have the key they seem not to need to prove that Ishii was the “owner”, so long as the key accesses BtC bought with funds from Ishii’s bank acct.

Seems to me Ishii’s first mistake was the transfer to an acct in his own name at a bank in La Jolla CA. For all the freedom that money sloshes around the USA, the FBI has become quite skilled at tracking down wire fraud, which should have been known to somebody at Ishii’s level in an international life insurance Co.

Clive Robinson December 22, 2021 6:42 PM

@ Andy, lurker, mr, ALL,

So how did FBI obtain the private key?

There are many ways, the simplest is via the modern equivalent of a “keylogger” on a “wiretap”. But also grabing “plaintext over the wire”

Thus the question you should be asking is “When and how did they know it was Ishii?”

The thing about “over the wire” activities is the difficulty of “attribution” thus the ease of creating “false flags”…

And people wonder why I don’t connect my computers to any type of external communications, and advise people that as a minimum they should have a “two computer” policy.

That is where one computer is used for private activities and is fully issolated, or as near fully issolated towards being “energy gapped” as possible and hopefully locked in a safe when not in use.

The second computer is used for public activities such as wrb browsing and “has no semi-mutable storage” that is it is all RAM and real ROM. That is no Flash ROM, Battery backed RAM, hard drives etc, where malware might lodge. Which can be more than quite difficult to do with modern hardware these days. Preferably have it run it’s OS in RAM off of a CD or DVD that is “write once and closed” not off of a USB memory device, convenient though it might be it is “mutable” thus vulnerable to malware.

Private information should never ever be taken off of the private computer except in “encrypted form” and the “gap crossing” method should be not by electronic means.

I’ve mentioned in the past on this blog how to do all of these things.

veritas December 22, 2021 7:02 PM

@Clive Robinson
That is where one computer is used for private activities and is fully issolated

But wouldn’t your “private activities” nowadays involve online activities?

chris neglia December 22, 2021 7:22 PM

Did the FBI ask the NSA to crack the wallet using their texas cryptologic facility or prism supercomputers (or something much newer like their dwave quantum computers)? Or did Japan’s NSA do it? Or was it something more simple like waterboarding the perp to get the private key? This needs to be answered, because I think people need to understand that the agency that created cryptographic algorithms might know a thing or two about precisely how to break the cryptographic algorithms. Or they may have more powerful quantum computers that can do it and have greatly understated their agency’s capabilities in this direction (have greater qbit capacity than CNN or the Atlantic wants to tell us they have). This could be one of those, they don’t want to reveal their space lasers because then russia china and the whole world want to get their own space lasers moment. Replace space laser with whatever is in your imagination of an advanced technology.

Clive Robinson December 22, 2021 8:54 PM

@ veritas, ALL,

But wouldn’t your “private activities” nowadays involve online activities?

Increasingly so, yes, if you play “their” game.

But this has only been the case for a part of this century. Society arguably worked better last century when the Internet was justva curiosity.

There is a curious fact that few realise, which is computers are actually “anti-efficiency”. We make the mistake of seeing some part of an given activity happening faster and incorrectly assume it is somehow more efficient. Mostly it turns out it is not. By nearly all useful measures “Office efficiency” was highest around 1973. I can give the reasons for this but consider three things,

1, We still communicate by paper but we add so much wasted effort in “image”. We once used to have expert typists in typing pools, that would take the voice off of a tape faster than it was recorded and type the words up very quickly. Now we have non experts doing their own typing which interferes with their thinking. The result a document takes three to four times as long to produce.

2, Because Email and Messaging is so fast we end up using it “interactively” rather than spend a little time and send just one or two letters we can send many tens of emails. Worse we start detailing minutiae in depth. The result is it takes a lot lot longer than when we sent letters out by first class post.

3, Many believe their are hidden truths in large amounts of data. That is there must be precious signals hidden in there Actually most of the time with human activity whilst there is structure there are no regular signals. So it’s mainly noise grouped around a structure. So as you “average” the signal you get reflects the structure which is known already. If you don’t believe me consider the image patterns people see in the noise on old analog television receivers… It is truely just noise put in a regular structure of the line and frame frequencies. It’s almost the same with seeing images in clouds.

We don’t realise it but computers are very very bad for our health as well. They cause us to “be faster” not “better” our lives have become pointless “Red Queen Races” because of computers and always connected communications. I could go on about what they do to other asspects of our health. But just look on them as knocking back an espresso every 15mins, for the first half hour you feel good, then you end up being manic but without real purpose.

I try where ever possible not to play the “online” game for as many things as possible.

My Doctor is shocked that I don’t do email, texting, or speak over the phone. And instead give them hand written letters. As I point out they can read a letter five times faster than I can tell them and I can think things through in advance and give precice information rather than half remembered vague answers. Also I don’t have the issue of trying to lip read what they are saying, which is heavily contexted based which can take time to establish which is not just their but my time being wasted as well.

The biggest lie of this century so far is “Computers increase productivity” they don’t in all but a few specialized cases that humans just wouldn’t do anyway.

Clive Robinson December 23, 2021 7:23 AM

@ Canuck,

Why was office efficiency highest around 1973?

Well it goes back to Hut 8 at Bletchley Park during WWII.

A young “civilian” got put in charge of a small section that very rapidly grew. His name was Gordon Welchman.

He realised that “optomising s process” was actually detrimental to organising a system.

He was not unique in his views about spliting jobs into small processes and sub processes Henry Ford knew it as did pin makers in France hundreds of years before,

https://www.johnkay.com/2019/12/18/adam-smith-and-the-pin-factory/

What Welchman brought to the party that the famed Adam Smith did not in his work of fiction book the wealth of nations was actual insight from being not just a “real observer” but one who was “part of the system”.

But before all of that nature had evolved processess that were based first on resilience then system efficience then process efficiency.

If you try doing it the other way you always end up with a very fragile system thst lacks stability.

What Welchman did after the war was start “systems analysis and application” to business. The result by the 1970’s were resilirnt and efficient systems.

The introduction of the business personal computer with the Apple ][ and VisiCalc had a very very unfortunate result. It made sub process efficient at the expense not just of processes but systems and caused chaotic systems to exist and become increasingly chaotic and less stable.

The result of chaotic systems is sometimes things are very good sometimes they are very bad. If you ride the good but not the bad, or atleast appear to you look like some kind of guru…

The simple fact is chance is random, and though chaos can look random it is not it had structure… If you can spot the structure you can ride it like a surfer does a wave. But the ability to ride a wave to success does not mean you control the wave…

The thing is as production systems became chaotic due to computers some gurus thought adding more computers was the solution and to pay for it they ripped out processes in the middle. Because they did not realise that whilst senior managment might be like a pilot of a vessel set the direction, they did not work the vessel to keep it ship shape and seaworthy and importantly ensure the ship gets through not just storms but also when it is becalmed.

So they ripped out the most important part of any organisation the “experience” held in “middle managment”. This disastrous process that started in the 1980’s and went through to “crash on the rocks” in the 1990’s was “Business Process Reengineering”.

It’s a lesson that should bee beaten into the heads of those at the Chicargo School with industrial grade sledge hammers…

But they won’t change because they are paid not to change, thus the Upton Sinclair observation applies.

But who is paying them you might ask. Well remember I said chaos has structure, so although you can not control it you can ride it?

Well theres lots of money to be made if you know when to jump on and then jump off… Some go by the name of Hedge Fund Managers, and their sole source of income is extracting resillience out of systems in the good times then jumping away before the ship hits the rocks…

I hope that helps answer your curiosity.

Clive Robinson December 23, 2021 9:01 AM

@ Anonymous, ALL,

There’s always https://xkcd.com/538/

It obviously only works if,

1, The user knows the valid key or passphrase.
2, The key or passphrase are still valid.

I designed a system that I’ve given details on here in the past that stopped those two from being true.

Importantly though for legal reasons the user had no control over it in any way, and could demonstrate that,

A, They had no control.
B, Those –plural– that have control not only have it anonymously, but they are in other –plural– jurisdictions.

So not only would the $5 wrench be usless, so would threats of “contempt”[1]. But it can also make provable deniability at trial more clear cut and that can be quite adventageous in some cases, but not all[2].

Though this might all sound “crazy impossible” it’s actuall not that difficult and all the crypto primatives to do it have been around for quite some time.

[1] The rules of contempt of court are complicated, but if it can be shown that the person can not comply the “wilfull” aspect colapses to zero thus they are not in contempt by deductive logic. Which makes detaining them unlawful on contempt (though they could be held on remand pending trial[2]).

[2] In many jurisdictions you have a right to a speedy trial, though time scales are not in the legislation. Sometimes it’s worth pushing for this as it limits what the prosecution can do, and forces them to show their hand earlier than perhaps they are ready to do.

Scam Coin December 23, 2021 9:13 AM

M@ writes, “While not considered currency, BTC, etc. are considered property”

One of the most ridiculous legal fictions ever to exist. You can exchange bitcoins for cash at the bank teller.

https://www.bitcoin.com/bitcoin-atm/

Name me any other “non-currency property” where one can do that? If it walks like a duck and quacks like a duck it’s duck.

What is especially galling is that if the government ever does regulate bitcoin you can bet all your bitcoin that the owners of it are going to squawk like plucked chickens about how the government is robbing them of their “property” under the 5A.

Fuck bitcoin. It’s a trashy low life scam that a degradation of humanity.

Nick December 23, 2021 11:49 AM

The question of most interest to readers of this blog is “How exactly did the FBI obtain the private key?

And nowhere is there an answer.

Ted December 23, 2021 12:19 PM

@Nick

“How exactly did the FBI obtain the private key?”

Does Coinbase have any ability/requirement to expose a private key? I really don’t know.

12) Coinbase, Inc., the company that operates Coinbase and Coinbase Pro in the United States, is registered as a Money Services Business with the United States Treasury’s Financial Crimes Enforcement Network and is a financial institution, as defined in Title 31, United States Code, Section 5312(a)(2).

https://s3.documentcloud.org/documents/21165768/us_vs_rei_ishii_bc_forfeiture.pdf

Clive Robinson December 23, 2021 1:38 PM

@ Nick, Ted, ALL,

“How exactly did the FBI obtain the private key?”

A clue might be found in the documrnt @Ted linked to.

Look for the bit about the account pin, being “sent to the phone” where the phone was the alledged perpertrator’s “personal phone” registered with Sony HR and having been used by the alledged perpetrator.

If that “account pin” was sent in “plain text” then it would be easily recoverable. If the person controling the account did not change the pin, then “game over”.

As far as I can tell from the document all the evidence against the alleged perpetrator appart from the phone is at best circumstantial and could have been carried out by his supervisor.

It’s just the use of the phone that appears to be more than maybe circumstantial.

It’s entirely possible that the supervisor had access to the alledged purpetrators personal phone for various reasons (leaves it in desk at lunch etc). So could have used it or just “pulled the SIM”.

Which suggests there is other evidence out there we have yet to find out about…

So pop some more Popcorn in the microwave and get comfy in the LazyBoy for the next episode 😉

Ted December 23, 2021 2:19 PM

@Clive, Nick, Andy, ALL

Which suggests there is other evidence out there we have yet to find out about…

Yes @Clive. I’m tending to agree with you. First let’s look at Coinbase.

Coinbase is a hosted wallet service, which means we manage your private keys for you, securing your funds with a password, device confirmation and 2-factor authentication. We take security very seriously at Coinbase and utilize our secure cold-storage technology to protect our customer’s funds. 

https://help.coinbase.com/en/coinbase/privacy-and-security/other/is-a-crypto-address-safe-to-display-publicly

Did this apply to Ishii?

and then…

Ted December 23, 2021 2:33 PM

… and then

Didn’t @veritas mention Colonial Pipeline?

Well, it looks there was speculation about how the FBI obtained the private key for this ransomware payment.

Here was one person speculating (by tweet):

More info from the warrant here. So it looks like I was right. The FBI did not obtain the private keys. Instead, they took legal action against an exchange or some kind of custodial wallet that has servers in N California (Coinbase, lol?). These “hackers” were grossly incompetent [picture of the warrant]

https://twitter.com/JordanSchachtel/status/1401996717394960389

That tweet and more speculation about this incident are discussed in this article. What do you all think?

https://protos.com/fbi-didnt-hack-bitcoin-but-it-wont-say-how-it-got-darksides-private-key/

Max December 23, 2021 3:22 PM

@Max

Provide a link to where I can find an ATM that allows me to deposit cash and spits out gold. Or the inverse.

Who? December 24, 2021 7:40 AM

I would have moved these BTC to a cold (i.e. “hardware”) wallet and keep the seed phrase out of any electronic device always. There are steel devices designed to reliably store BIP39 24-word sequences; these are small enough to be easy to hide.

Modern HD wallets support key derivation and extended public keys making tracing a bit harder. Some HD wallets (e.g. Ledger’s ones) allow creating a 25th word (technically not a word, but a passphrase) giving access to an entirely different set of addresses. These hidden addresses provide plausible deniability.

@ martin

So what are FBI’s policies for its BC wallet? Do they cash out or hold to transfer back to rightful owners (quickly). Etc.

The FBI does not cash out its BTC wallet, of course their policy is hodl.

Sorry, it was an easy joke. 🙂

Who? December 24, 2021 7:52 AM

@ Max

Who wants an ATM that spits out gold when we have ATMs that spit out BTC right now?

hxxps://www.bitcoin.com/bitcoin-atm/

It would be great having more entries in the blog focusing on the risks of BTC ATMs and, in general, risks associated with both the technology used in this new field and some misconceptions (like buying a cold wallet to store cryptoactives, and lose them a few days later after typing the seed phrase on a computer infected with malware).

Our world is moving to this new paradigm, and people needs to understand the basics before it is too late.

Zorro December 26, 2021 7:25 PM

As to this question
So how did FBI obtain the private key?

If Coinbase wanted to, would it not be relatively easy for them to include a mechanism into their Coinbase-web-app to expose a private key when needed?

I mean, the web-app has some interface through which user enters/selects/creates a “private key” for their account. It should not require much to copy that also to some other table in the back-end DB.

For extra security, send it through SMTP (one-way traffic) to some receiver that copies the data to a NoSQL DB that is only accessible from inside the company.

Brian January 4, 2022 2:56 PM

“Returned” seems an odd word. Nothing in the article suggests that the money has been returned to Sony. From the article it seems that the coins were seized by the FBI and remain with the FBI.

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