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Paxful co-founder Artur Schaback has admitted guilt to conspiring to run a cryptocurrency exchange without adequate anti-money laundering measures.
He submitted his plea in a federal court in California on Monday, potentially facing a maximum sentence of five years in prison.
The US Department of Justice reported that the 36-year-old Schaback from Estonia oversaw Paxful from July 2015 to June 2019.
During this period, Schaback is accused of undermining Paxful’s safeguards against illicit activities. He facilitated account creation without sufficient identification, promoted Paxful as requiring no ID verification, provided fraudulent anti-money laundering policies, and overlooked suspicious user behavior, according to the DoJ.
Paxful Inc. Co-Founder Pleads Guilty to Conspiracy to Fail to Maintain Effective Anti-Money Laundering Program
: https://t.co/B3DCa5DFQY pic.twitter.com/Zbkgi90dEr
— Criminal Division (@DOJCrimDiv) July 8, 2024
Paxful Co-Founder Admits Guilt in Money Laundering Scheme, DOJ Claims Platform Used for Criminal Activity
The department stated that Schaback transformed Paxful into a venue for criminals due to the absence of adequate anti-money laundering and identification protocols. This facilitated money laundering, violations of sanctions, and other unlawful activities such as fraud, romance scams, extortion, and prostitution.
Schaback acknowledged his guilt in a conspiracy to deliberately neglect the establishment, creation, operation, and maintenance of a program to combat money laundering, as required by the Bank Secrecy Act. His sentencing is scheduled for November 4, and he will also resign from Paxful’s board of directors.
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Paxful Suspended Operations Amid CEO Concerns and Legal Disputes
In April 2023, Paxful declared it would halt operations. This decision was prompted by uncertainties regarding the potential resumption of activities following the departure of key personnel.
Before the suspension, CEO Ray Youssef expressed worries about the security of customer funds. These concerns emerged after a lawsuit from Schaback, who accused Youssef and the company of wrongful termination and other matters.
Schaback held the position of chief operating officer at Paxful until February 2022. He was reportedly restricted from participating in the company’s operations due to conflicts with Youssef. These disputes centered on the marketplace’s future direction, operational methods, and concerns regarding undisclosed payments to external parties.
However, one month later, the exchange resumed its operations.
Youssef collaborated with Jack Dorsey’s crypto firm TBD to launch Civilization Kit (Civ Kit), a decentralized peer-to-peer (P2P) cryptocurrency trading platform. He also heads Noones, a financial communication application designed to integrate the Global South into the global financial system.
Meanwhile, Schaback remained on the board.
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