Schaback faces up to five years in prison and will face sentencing on Nov. 4.
Artur Schaback, the co-founder and former Chief Technology Officer of Paxful, is the latest crypto executive to plead guilty to federal crimes in the United States.
On July 8, the U.S. Department of Justice (DOJ), announced that Schaback pleaded guilty to charges of conspiracy for failing to establish and maintain an effective anti-money laundering (AML) program overseeing the company’s peer-to-peer (P2P) cryptocurrency trading platform between July 2015 and June 2019.
Paxful is a marketplace platform facilitating P2P cryptocurrency trades.
Court documents revealed that Schaback allowed users to create accounts and trade without collecting the necessary identification. Schaback also misrepresented the Paxful platform as not requiring KYC compliance and presented fraudulent AML policies to third parties, according to the DOJ.
“Schaback allowed customers to open accounts and trade on Paxful without gathering sufficient [KYC] information; marketed Paxful as a platform that did not require KYC; presented fake AML policies to third parties that he knew were not, in fact, implemented or enforced at Paxful; and failed to file a single suspicious activity report, despite knowing that Paxful users were perpetrating suspicious and criminal activity,” the DoJ said.
Schaback faces up to five years in prison and is scheduled for sentencing on November 4. As part of his plea, Schaback will also resign from Paxful Inc.’s Board of Directors. The case is being investigated by Homeland Security Investigations (HSI) and the IRS Criminal Investigation (IRS-CI).
The DOJ noted that Schaback’s neglect enabled illicit actors to leverage the platform to launder ill-gotten gains, including scammers perpetrating fraud and romance scam schemes.
“As a result of his failure to implement AML and KYC programs, Schaback made Paxful available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution,” the Justice Department said.
According to Coin.dance, Paxful previously ranked as the largest P2P crypto exchange with an all-time high of 46 million weekly users in June 2020.
Internal dispute
In Jan 2023, Schaback sued Ray Youssef, Paxful’s other co-founder and CEO, accusing him of misappropriating company funds, engaging in money laundering, and evasion of U.S. sanctions against Russia.
Schaback, who served as Paxful’s Chief Operating Officer until February 2022, claims he was sidelined over disagreements with Youssef. Schaback claimed the disagreements included a spat over dubious “expenditures to undisclosed entities.”
Court documents filed on March 21, 2023, state that a significant portion of Paxful’s Bitcoin was transferred to a Turkish company called “EMiR” — which Schaback claims is not a genuine software firm.
“It doesn’t have a website showcasing software or web development services, and its physical address seems to belong to a clothing company,” he noted.
Another company, Dekslektika based in St. Petersburg, Russia, allegedly received payments from EMiR. According to the court filings, Schaback alleged that these transactions had no legitimate business purpose.
The platform faced temporary closure in April 2023 amid legal disputes over company control and Youssef’s resignation.
“Today is my last day as CEO of Paxful,” Youssef tweeted at the time. “I have officially resigned. The full story shall soon be revealed.”
Paxful appointed Roshan Dharia as Interim CEO in May 2023.
Paxful did not respond to The Defiant’s request for comment at the time of publication.
Related: DoJ Sentences HYDRO Founders In First Ruling That A Cryptocurrency Is A Security
