Bitcoin’s ‘First Felon’ Faces More Legal Trouble

Charlie Shrem went to prison in 2015 after he pleaded guilty to helping people buy drugs online. Now he’s being sued by the Winklevoss twins.

SAN FRANCISCO — Over the last year, Charlie Shrem, a 28-year-old Bitcoin investor, has bought two Maseratis, two powerboats — one of them 32 feet long — and a $2 million house in Florida, along with smaller pieces of real estate.

In the world of cryptocurrencies, where millions can be made and lost in a day, that might not make Mr. Shrem stand out. But unlike most Bitcoin entrepreneurs, in 2016 Mr. Shrem got out of prison, where he spent a year after pleading guilty to illegally helping people turn dollars into Bitcoin to buy drugs online.

Mr. Shrem, who had been the chief executive of Bitinstant, one of the first prominent Bitcoin businesses in the United States, has said in recent interviews that he went to prison with almost no money.

So where did the money for the expensive toys come from? That’s what two former business partners want to know.

Cameron and Tyler Winklevoss, the twins who turned money from a settlement with Facebook’s Mark Zuckerberg into a Bitcoin fortune, said they suspected Mr. Shrem had actually been spending Bitcoin that he owed them since 2012, according to a lawsuit unsealed in federal court on Thursday. The Bitcoin would be worth around $32 million at current prices.

“Either Shrem has been incredibly lucky and successful since leaving prison, or — more likely — he ‘acquired’ his six properties, two Maseratis, two powerboats and other holdings with the appreciated value of the 5,000 Bitcoin he stole from” the Winklevoss twins in 2012, the lawsuit says.

The judge who oversaw Mr. Shrem’s earlier trial has already agreed to freeze some of Mr. Shrem’s financial assets, according to court documents.

The lawsuit could blossom into an even bigger problem for Mr. Shrem because an affidavit filed in court suggests that Mr. Shrem has also not paid the government $950,000 in restitution that he agreed to as part of his 2014 guilty plea.

Mr. Shrem’s lawyer, Brian Klein, said in a statement that the claims by the Winklevoss brothers were baseless. “The lawsuit erroneously alleges that about six years ago Charlie essentially misappropriated thousands of Bitcoins,” he said. “Nothing could be further from the truth. Charlie plans to vigorously defend himself and quickly clear his name.”.

The lawsuit from the twins threatens another reversal of fortune for Mr. Shrem, who went from being one of the earliest Bitcoin millionaires to being called Bitcoin’s “first felon.”

When he was arrested in 2014, Mr. Shrem was accused by federal authorities of using his company, Bitinstant, to knowingly sell Bitcoin to people who wanted it to buy drugs from the online black market, Silk Road.

Since his release in 2016, Mr. Shrem has said in numerous interviews that he recognizes his past mistakes and wants to cut a new and legal path. On the podcast “Love, Sex and Money,” Mr. Shrem said that in the first months out of prison, he worked as a dishwasher and didn’t look at his email.

Over the last year, though, Mr. Shrem, has already gotten involved with a number of troubled projects.

He was among the leaders of two efforts — one a cryptocurrency credit card and the other an initial coin offering — that had to give money back to investors after various partnerships that Mr. Shrem had promised fell through.

But those are likely to be mere headaches compared to what he could face in a confrontation with the Winklevoss twins. Mr. Shrem helped get the brothers interested in Bitcoin in 2012 and became their first adviser in the young industry.

A few months into this partnership, the twins said they realized that Mr. Shrem had not given them all the Bitcoin they were due. The brothers gave Mr. Shrem $250,000 in September 2012, but the lawsuit says that a month later, he only delivered around $189,000 worth of Bitcoin at the going price, which was around $12.50 at the time.

The 5,000 or so missing Bitcoins became a point of tension between the twins and Mr. Shrem. They asked him numerous times for an accounting of the Bitcoins he had purchased and eventually brought in an accountant who documented the missing funds, according to court documents.

“I have been patient and at this point, it’s getting a bit absurd,” Cameron Winklevoss wrote to Mr. Shrem in 2013 in an email quoted in the lawsuit. “I don’t take this lightly.”

The missing Bitcoin, which were worth 98 percent less at the time, appeared to have been forgotten in a broader battle between the brothers and Mr. Shrem over an investment in Bitinstant.

In 2013, Bitinstant fell apart and the twins blocked Mr. Shrem’s efforts to revive the company with new investors because of their concerns about his management style. By the time Mr. Shrem was arrested in 2014, as a result of activities at Bitinstant that took place before the brothers invested, they had cut off contact with him.

The Winklevoss twins’ problems with Mr. Shrem have not held them back. They were briefly each cryptocurrency billionaires last year, and they have built one of the leading cryptocurrency exchanges, Gemini. Despite this year’s big drop in cryptocurrency prices, their holdings are still worth nearly a billion dollars.

Cameron Winklevoss said that he and his brother decided to pursue the missing Bitcoins again after they saw Mr. Shrem’s recent spending patterns.

“When he purchased $4 million in real estate, two Maseratis, and two power boats, we decided it was time to get to the bottom of it,” Mr. Winklevoss told The New York Times.

The brothers hired an investigator, who found that 5,000 Bitcoins were transferred in 2013 through addresses associated with Mr. Shrem and onto the Bitcoin wallet services Xapo and Coinbase, according to the complaint. The investigator traced the money on the blockchain, the public ledger where all Bitcoin transactions are recorded.

Jed S. Rakoff, a judge in the Federal District Court for the Southern District of New York, approved an application the twins made in September to freeze any funds that Mr. Shrem holds with those companies. Judge Rakoff wrote in his order that Mr. Shrem had “evidenced an intent to frustrate the collection efforts of his creditors.”

The court fight could cause problems for Mr. Shrem’s latest venture, a firm called Crypto.IQ. The company, which promises market intelligence to Bitcoin traders, is holding a conference for customers in Las Vegas this month promising “unparalleled insights from a roster of experts at the very epicenter of the crypto universe.”

In an interview with Breaker magazine last month, Mr. Shrem said he was getting used to the ups and downs.

“My personal life goes through bull and bear markets, too,” he said. “So the key is how to deal with it when you’re in the bear markets.”

Bitcoin [BTC] worth $5.84 million stolen from MapleChange; Binance CEO gives his insight

MapleChange, a Canada-based cryptocurrency exchange, recently announced that their platform was hacked. The exchange platform took to their Twitter handle to provide clarity on the situation, stating that they could not refund the stolen cryptocurrencies.

According to their official post, a bug on the platform enabled a group of hackers to withdraw funds remotely. The platform reported that 913 Bitcoins [BTC] were stolen and that they cannot refund any of the funds until a “thorough investigation” was conducted.

Another controversial aspect was that the “thorough investigation” resulted in the exchange platform realizing that they did not have funds for repaying its users. Furthermore, they stated that the platform would not function anymore and that they would soon deactivate their social media channels. Their official post stated:

“We have sustained a hack, and we are investigating the issue.”

On their official Twitter handle, the exchange stated that they had not “disappeared”, but had temporarily turned off their accounts to think of a solution.

In addition, they could not refund “everyone with all their funds”, but would soon open wallets in order to allow its users to “hopefully” withdraw whatever funds were left on the exchange. They added:

“We CANNOT refund any BTC or LTC funds unfortunately. We will try our best to refund everything else.”

Changpeng Zhao, the CEO of Binance, the world’s largest cryptocurrency exchange in terms of trading volume, was surprised by the hack and stated that a procedure was required to rank exchanges based on their wallet storage. He added that users had to avoid using exchange platforms which did not have anything in their cold wallets.

Maplechange’ed, a platform dedicated to find, take down and expose maplechange.com, with the help of members from the Lumeneo [LMO] telegram channel, allegedly found that Glad Poenaru, a service technician at American Piledriving Equipment, could have been responsible for the hack.

Joseph Young, a cryptocurrency investor and analyst, stated:

“A small crypto exchange pulled off an exit scam, taking all customer funds. There is no incentive for using small exchanges. Use established exchanges that are regulated, & transparent. Small exchanges also focus on maximizing profitability, not security or investor protection.”

MapleChange further added:

“We are sending all of the coin developers the wallets containing the coins we have left. So far, LMO and CCX have been handed over the funds.”

https://ambcrypto.com/bitcoin-btc-worth-5-84-million-stolen-from-maplechange-binance-ceo-gives-his-insight/

How Binance is Legitimizing the Crypto Market by Eliminating Money Laundering

Binance, the world’s largest crypto exchange, has voluntarily engaged in an initiative to eliminate money laundering on its platform.

For years, despite the inherent lack of privacy measures on major public blockchain networks like Bitcoin and Ethereum that discourage the settlement of illicit transactions, a widely pushed narrative against crypto has been the suspected usage of digital assets by criminals.

Eliminating Easily Refutable Claims

Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, and many other major cryptocurrencies are not anonymous by nature. With Know Your Customer (KYC) and Anti-Money Laundering (AML) systems integrated by cryptocurrency exchanges, it is extremely difficult for criminals to utilize digital assets to settle the transfer of illegal proceeds.

Authorities and government agencies across the globe are well aware of the non-anonymous characteristic of blockchains, which could have motivated governments like the US, Japan, and South Korea to legitimate and recognize the cryptocurrency market.

This week, Binance has started to cooperate with Chainalysis, a leading blockchain analysis company that evaluates suspicious transactions and addresses, to improve its AML system and to further legitimize the cryptocurrency sector.

binance cryptocurrency exchange

“Cryptocurrency businesses of all sizes face the same core challenge: earning the trust of regulators, financial institutions and users. We expect many to follow Binance’s lead to build world-class AML compliance programs to satisfy regulators globally and build trust with major financial institutions,” said Jonathan Levin, co-founder and COO of Chainalysis.

In 2018, some of the world’s most influential banks were cracked down for money laundering. Danske Bank laundered $243 billion from criminal groups, and as CCN reported on October 20, Nordea Bank, the largest financial group in the Nordic countries, is said to have taken several illicit payments from banks in the Baltic region.

With the institutional market of cryptocurrencies growing exponentially, the tightening of AML systems employed by public exchanges is expected to solidify cryptocurrencies as a recognized asset class and the digital asset market as a well-regulated sector.

Wei Zhao, the CFO at Binance, said that maintaining the firm’s vision of increasing the freedom of money globally, the exchange will continue to adhere to regulatory mandates in the countries it operates in.

“By working with Chainalysis, we are able to continue building a foundational compliance program that enables the next phase of our growth. Our vision is to provide the infrastructure for a blockchain ecosystem and increase the freedom of money globally, while adhering to regulatory mandates in the countries we serve.”

Importance of Compliance

The cryptocurrency sector is entering a new phase of development and growth, as Zhou explained.

During the 2017 bull market in which the valuation of the cryptocurrency market surged to $800 billion, the asset class obtained significant mainstream awareness in both countries that support crypto and regions that have established impractical regulatory frameworks to prevent local blockchain markets to flourish.

In a period in which governments are introducing increasing efforts to embrace crypto and blockchain businesses as a part of the fourth industrial revolution, voluntary initiatives by companies like Binance to legitimize the industry will ease the process of governments in regulating and acknowledging the global market.

https://www.ccn.com/how-binance-is-legitimizing-the-crypto-market-by-eliminating-money-laundering/

Dark Web Dealer ‘OxyMonster’ Forfeits $700,000 in Crypto with 20-Year Prison Term

US District Judge Robert Scola has imposed a 20-year prison sentence on 36 year-old Gal Vallerius also known as “Oxymonster” on the dark web drug hub Dream Market.

In June, CCN reported that the French-Israeli citizen was apprehended by police at Atlanta airport in 2017 while attending the World Beard and Moustache Championship in Austin Texas. He will now start his prison term in Southern Florida after being convicted of money laundering and narcotics trafficking.

Huge Crypto Seizure

In his plea agreement, Vallerius admitted to selling drugs like oxycodone, heroin, cocaine, fentanyl and Ritalin in exchange for cryptocurrencies including bitcoin and bitcoin cash on the dark web. More than 100 BTC and 121.95 BCH – equivalent to over $700,000 – seized from him as proceeds of illicit activity will now be forfeited to the government.

For many, the big question following the forfeiture is: “What becomes of this huge amount of crypto in the hands of the U.S. government?”

A development of this nature is not new. In 2015, after Silk Road creator, Ross Ulbricht was given a life sentence, the government took possession of 144,336 BTC found on his laptop. At a time when the price of one bitcoin was just over $300, the government realized a total of over $48 million selling to multiple auctions. Some later criticized the government’s hasty sale which prevented it from earning far more.

With his plea agreement, sources say Vallerius would have to “provide all necessary passwords” to enable the government gain access. It remains uncertain if the government will take similar action to that taken of Silk Road, or delay auctions till prices show upward movement. The rarity of this situation makes it hard for analysts to predict what decision the government will make.

Earlier this week, Irish native Gary Davis pleaded guilty to conspiring to sell drugs on the Silk Road under the alias Libertas. In 2017, the District Court in California also seized over $8 million worth of cryptocurrency from Alexandre Cazes who committed suicide in Thailand after being accused of running a dark web market AlphaBay. With more cases related to crime which might ultimately lead to similar forfeitures, the U.S. government might just be dealing with crypto auctions more regularly.

Some have however suggested that at a time when the U. S. Justice Department is investigating the possible manipulation of cryptocurrency prices, crypto acquired through the legal system is somewhat unlikely to last in the custody of government for long.

https://www.ccn.com/dark-web-dealer-oxymonster-forfeits-700000-in-crypto-with-20-year-prison-term/

Bitcoin Hedge Fund and CEO Slapped With $2.5 Million Penalty for Ponzi Scheme

A New York federal court has ordered cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman to pay over $2.5 million for operating a fraudulent Ponzi scheme, according to an official announcement published Oct. 18.

GBI is a New York-based corporation and denominated Bitcoin (BTC) hedge fund incorporated in 2014. As stated on the company’s website, by 2015 it had 85 customers and 2,367 BTC under management.

The order is the continuation of the initial anti-fraud enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC) against GBI in September 2017. The CFTC charged GBI for allegedly running a Ponzi scheme from 2014 to 2016, telling investors that it had developed a computer algorithm called “Jigsaw” which allowed for substantial returns through a commodity fund. In reality, the entire scheme was a fraud.

Per the announcement, GBI and Gelfman fraudulently solicited over $600,000 from at least 80 customers. Moreover, Gelfman set up a fake computer “hack” to conceal the scheme’s trading losses. It eventually resulted in the loss of almost all customer funds.

The current order charges GBI and Gelfman to pay over $2.5 million in civil monetary penalties and restitution. GBI and Gelfman are ordered to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, respectively.

James McDonald, the CFTC’s Director of Enforcement, said that “this case marks yet another victory for the Commission in the virtual currency enforcement arena. As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”

Last month, the CFTC filed a suit with the U.S. District Court for the Northern District of Texas against two defendants for the allegedly fraudulent solicitation of BTC. Per the suit, defendants Morgan Hunt and Kim Hecroft were running two fraudulent businesses and misleading the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.

https://cointelegraph.com/news/bitcoin-hedge-fund-and-ceo-slapped-with-25-million-penalty-for-ponzi-scheme

Microsoft engineer charged with money laundering over Reveton ransomware

A Microsoft employee has been arrested on suspicion of infecting victims with the Reveton ransomware, and money laundering.

Forty-one year-old Raymond Uadiale, who worked as a network engineer for the software giant, faces a 20-year federal prison sentence for playing a key role in the global ransomware campaign, if found guilty.

Law enforcement officials explained that the UK citizen installed the ransomware onto victim’s computers, while Uadiale looked after the financial side. He would transfer payments to K!NG.

Reveton is one of the earliest strains of ransomware. When a cyber criminal installs it into someone’s computer, their screen is instantly locked and they cannot gain re-entry until they pay a ransom fee.

Trojan:W32/Reveton is a ransomware application. It fraudulently claims to be from a legitimate law enforcement authority and prevents users from accessing their infected machine, demanding that a ‘fine’ must be paid to restore normal access,” according to security firm F5 Labs.

“After the Trojan successfully infects a machine, it will prevent the user from accessing the desktop and will display a fraudulent message alleging that the system was locked by a local law enforcement authority.

“The specific authority mentioned varies depending on the affected user’s location, though most of the samples we have seen mainly mentioned various European authorities.”

In the past, most ransomware attacks have demanded payment in Bitcoin. However, in this particular attack, the hackers asked victims to purchase GreenDot MoneyPak vouchers – a form of bank pre-payment debit card.

The victims had to enter the voucher code into a screen locker, and from here, K!NG would transfer the money to a debit card obtained by Uadiale.

Throughout the campaign, Uadiale used the fake name of Mike Roland. After shifting the money into Liberty Reserve, a centralised digital currency based in Costa Rica, the attackers pocketed more than $130,000.

Uadiale used Liberty Reserve as a form of money laundering. However, Liberty Reserve was closed down by US authorities in May 2013 and its servers seized. The creator of Liberty Reserve was sentenced to 20 years in prison in May 2016.

If convicted of the charges, Uadiale could spend up to 20 years in prison and be ordered to pay a $500,000 fine. He is currently on bail.

Eight people charged with online romance money laundering scam

COLUMBUS (WCMH) — Eight people from Central Ohio have been charged in federal court for an online romance scam.

According to the Department of Justice eight men charged on Valentine’s Day have been indicted by a grand jury for conspiring to launder and for laundering the proceeds of online romance scams.

According to the indictment, the eight men created several profiles on online dating sites and then contacted men and women throughout the United States developing a sense of affection, and often, fake romantic relationship with the victims.

Those charged include: Kwabena M. Bonsu, Kwasi A. Oppong, Kwame Ansah, John Y. Amoah, Samuel Antwi, King Faisal Hamidu, Nkosiyoxoxo Msuthu and Cynthia Appiagyei.

After establishing relationships, perpetrators of the romance scams allegedly requested money, typically for investment or need-based reasons, and provided account information and directions for where money should be sent. In part, these accounts were controlled by the defendants. Typical wire amounts ranged from $10,000 to more than $100,000 per wire

The funds were not used for the purposes claimed by the perpetrators of the romance scams. Instead, the defendants conducted transactions designed to conceal, such as withdrawing cash, transferring funds to other accounts and purchasing assets and sending the assets overseas.

“According to the indictment, the defendants laundered the funds from a scheme to seduce victims throughout the United States using dating websites like Match.com and then defrauding them of millions of dollars,” U.S. Attorney Benjamin C. Glassman said

It is alleged that the individuals commonly used some the fraud proceeds to purchase salvaged vehicles sold online. The cars were commonly exported to Ghana.

Fictitious reasons for investment requests included gold, diamond, oil and gas pipeline opportunities in Africa. Websites used involve Match.com, ChristianMingle.com, BabyBoomerPeopleMeet.com, PlentyofFish.com, OurTime.com, EHarmony.com and Facebook. At least 26 victims have been identified thus far.

In one example, a victim believed she was in a serious relationship with a person named “Frank Wilberg” whom she met on Match.com. She believed they planned to marry and paid $3,000 to reserve a wedding site, and had purchased a wedding gown and shoes.

Wilberg” told the victim he owned a consulting firm that tested gold for purity and needed money to buy gold and gold contracts. He said he expected to profit $6 million and would repay her with the profits. The victim wired money to accounts controlled by Amoah, Bonsu, Msuthu, and Appiagyei, and did not receive any money back.

In furtherance of the scheme, the co-conspirators allegedly created several companies, some of which were shell companies, to help attempt to hide the true nature of their proceeds

 

Bitcoin laundering suspect caught in US, Russia extradition spat

The two countries are fighting over where the Russian national should have his day in court.

By  for Zero Day

http://www.zdnet.com/article/bitcoin-launderer-suspect-caught-in-us-russia-extradition-spat/

Alexander Vinnik is a popular man, with both the United States and Russia fighting over which country has the right to charge the suspected Bitcoin laundering mastermind.

Vinnik, a 38-year-old Russian national, is at the heart of the fight as the suspected leader of a Bitcoin laundering scheme.

In July, Vinnik was arrested by US law enforcement for allegedly being involved in BTC-e, a cryptocurrency exchange platform which “washed” funds without taking customer information, allowing for laundering to take place.

According to US prosecutors, Vinnik owned a number of accounts on the platform and used them to launder cash — and may have also been involved in laundering Bitcoin received from the “hack” of now-defunct exchange platform Mt. Gox, as well as Tradehill, another dead exchange.

In total, the Bitcoin laundering scheme is believed to have laundered roughly $4 billion.

Mt. Gox was once a thriving Bitcoin exchange, but after its sudden collapse in 2014, investors lost roughly $375 million. Former CEO Mark Karpeles originally blamed the closure on unknown cyberattackers, but Japanese law enforcement is charging him with embezzlement.

It is believed that Vinnik not only funneled proceeds from Mt. Gox but has also been involved in identity theft and drug trafficking schemes.

US law enforcement wants to charge Vinnik on American soil with operating an unlicensed money service business, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions.

If convicted, Vinnik could face up to 55 years behind bars.

The Russian national is currently being held in Greece, and a local court in Thessaloniki ruled on Wednesday that the United States is permitted to extradite him to face these charges.

However, the Russian government is not impressed with the Greek court’s decision.

On Friday, the Russian Ministry of Foreign Affairs said in a statement that the verdict was “unjust and a violation of international law.”

The ministry believes that as Vinnik is a Russian national, he should be prosecuted in his home country and this should overrule any other extradition requests. The Russian Prosecutor General’s Office requested an extradition order to Russia, but it appears this request has been ignored by the Greek authorities.

“Based on legal precedent, the Russian request should take priority as Mr. Vinnik is a citizen of Russia,” the ministry said. “The verdict is even more surprising in the context of the atmosphere of friendly relations between Russia and Greece.”

Vinnik has denied the charges but has agreed to be sent back to Russia, according to the Reuters news agency.

However, Vinnik’s legal team have appealed the ruling, and now the Russian national’s case will be considered by the Supreme Civil and Criminal Court of Greece, before being submitted to the Greek Minister of Justice for approval.

“We hope the Greek authorities will consider the Russian Prosecutor General’s Office request, and Russia’s reasoning, and act in strict compliance with international law,” the ministry says.

ZDNet has reached out to the US Department of Justice (DoJ) and Greek Ministry of Foreign Affairs and will update if we hear back.

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