The recent developments at Paxful Inc. have shocked the cryptocurrency community, as co-founder and former CTO Artur Schaback pleaded guilty to conspiracy charges related to failing to maintain an effective anti-money laundering (AML) program. According to the Department of Justice, Schaback’s negligence turned Paxful into a hub for money laundering, sanctions violations, fraud, romance scams, extortion schemes, and prostitution. His actions allowed criminal activities to proliferate unchecked, jeopardizing the integrity of the financial system.
As a result of his guilty plea, Schaback faces a maximum penalty of five years in prison and will be sentenced on Nov. 4. In addition, he will resign from Paxful’s Board of Directors. The severity of his punishment will be determined by a federal district court judge after considering the US Sentencing Guidelines and other statutory factors.
Court documents revealed that Schaback operated Paxful between July 2015 and June 2019, during which time he allowed customers to trade virtual currency without sufficient know-your-customer (KYC) information. He marketed Paxful as a platform that did not require KYC and presented fake AML policies to third parties. Furthermore, he failed to file a single suspicious activity report despite being aware of suspicious and criminal activities by Paxful users.
The DOJ’s investigation into Paxful also uncovered deeper conflicts within the firm. Co-founders Schaback and Ray Youssef have been embroiled in legal disputes, including allegations of misappropriation of funds, money laundering, and evasion of US sanctions against Russia. These conflicts led to a temporary suspension of Paxful’s operations in April 2023, with the marketplace resuming limited functions in May.
In an attempt to stabilize operations and explore strategic alternatives, Paxful appointed Roshan Dharia as interim CEO in May 2023. Former CEO Youssef warned users to avoid the platform during the shutdown, citing a spate of scams and further tarnishing the company’s reputation.
The downfall of Paxful Inc. serves as a cautionary tale of the importance of maintaining effective AML programs and adhering to regulatory requirements in the cryptocurrency industry. The consequences of negligence and mismanagement can be severe, not only for individuals involved but also for the integrity of the financial system as a whole.