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10/07/24
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U.S. DOJ Says Paxful Co-founder Schaback Pleaded Guilty
On July 8, the Office of Public Affairs of the U.S. Department of Justice published a press release noting that Paxful’s co-founder and former chief technology officer (CTO) pleaded guilty to conspiracy to fail to maintain an effective anti-money laundering (AML) program.
Artur Schaback operated Paxful between July 2015 and June 2019, allowing opening of accounts and trading on the online peer-to-peer virtual currency platform without collecting sufficient know-your-customer (KYC) information.
Schaback’s marketing materials claimed that the platform did not require KYC and he presented fake AML policies to third parties that he knew were not. He was able to implement and enforce such AML policies at Paxful and did not file any suspicious activity reports, despite having knowledge of Paxful users’ perpetration of suspicious and criminal activity.
Hence, the platform became a ground for money laundering, sanctions violations, as well as other criminal activity such as fraud, romance scams, extortion schemes, and prostitution. “He pleaded guilty to conspiracy to willfully fail to establish, develop, implement, and maintain an effective AML program as required by the Bank Secrecy Act,” reads the press release.
Schaback, whose sentencing is scheduled for November 4 faces a maximum of 5 years imprisonment; likewise, he will resign from Paxful’s Board of Directors. According to a plea agreement filed in a California District Court on July 8, government prosecutors agreed to pitch a fine of $5 million fine, with Schaback allowed to pay in three installments, including $1 million by the date of his guilty plea, $3 million by his sentencing and the final $1 million in 2 years.
On April 4, 2023, Paxful founder and CEO Ray Youssef announced suspension of operations, with reports of a legal dispute with Artur Schaback. Schaback sued the firm a few months earlier regarding control of the exchange and alleging misappropriation of funds, money laundering and sanctions evasions, among others. In May 2023, Paxful relaunched its marketplace.
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