Artur Schaback, the co-founder of Paxful, entered a plea of guilty to the charge of conspiring to operate a crypto exchange platform without effective anti-money laundering policies.
He entered his confession in a federal court in California on Monday, leaving him with the potential for a maximum penalty of five years in prison.
Schaback, a 36-year-old Estonian national, was the manager of Paxful from July 2015 to June 2019, as per the US Department of Justice.
Schaback is purportedly responsible for undermining Paxful’s defenses against illicit activity during this period.
The DoJ stated that he advertised Paxful as requiring no ID checks, made it simple to open accounts without proper identification, provided false anti-money laundering policies, and ignored suspicious activity by users.
Paxful Co-Founder Pleads Guilty in Money Laundering Scheme, Platform Used for Crime, DOJ Says
Schaback, according to the department, converted Paxful into a platform for criminals by failing to implement adequate anti-money laundering and identification checks.
This permitted the commission of money laundering, the violation of sanctions, and other unlawful activities, including fraud, romance scams, extortion, and prostitution.
Schaback acknowledged his involvement in a conspiracy to evade the establishment, development, operation, and maintenance of a program to combat money laundering, as required by the Bank Secrecy Act.
His sentencing is scheduled for November 4. Additionally, he will be resigning from the board of directors of Paxful.
Paxful Paused Operations Amid CEO Concerns, Legal Battles
Paxful declared its intention to cease operations in April 2023. This determination was precipitated by uncertainties regarding the potential resumption of operations due to the departure of certain critical personnel.
CEO Ray Youssef expressed apprehensions regarding the security of customer funds before the suspension. These concerns resulted from a lawsuit filed by Schaback, who accused Youssef and the company of unlawful termination, among other things.
Schaback served as Paxful’s chief operating officer until February 2022. He was purportedly prohibited from participating in the company’s operations due to disagreements with Youssef.
The focal points of these disagreements were the marketplace’s future trajectory, operational practices, and concerns regarding undisclosed expenditures to external entities.
Nevertheless, the exchange recommenced its operations one month later.
Civilization Kit (Civ Kit), a decentralized peer-to-peer (P2P) crypto trading platform, was launched by Youssef in collaboration with Jack Dorsey’s crypto firm TBD.
Additionally, he serves as the director of Noones, a financial communication application designed to integrate the Global South into the economic system.
In the interim, Schaback continued to serve as a board member.