Paxful Inc. co-founder and former CTO Artur Schaback recently pleaded guilty to conspiracy charges related to the failure to maintain an effective anti-money laundering (AML) program. This negligence, as stated by the Department of Justice, turned Paxful into a hub for various criminal activities such as money laundering, sanctions violations, fraud, romance scams, extortion schemes, and prostitution. Schaback’s actions allowed these criminal activities to proliferate unchecked, ultimately 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 is set to be sentenced on November 4. Additionally, he will be resigning from Paxful’s Board of Directors. The sentence will be determined by a federal district court judge after considering the US Sentencing Guidelines and other statutory factors. Schaback operated Paxful, an online peer-to-peer virtual currency platform, between July 2015 and June 2019. During this time, he permitted customers to trade without sufficient know-your-customer (KYC) information, marketed Paxful as a platform that did not require KYC, and presented fake AML policies to third parties. Shockingly, 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 only resuming limited functions in May. Former CEO Youssef even warned users to avoid the platform during the shutdown due to a spate of scams. In an effort to stabilize operations and explore strategic alternatives, Paxful appointed Roshan Dharia as interim CEO in May 2023.
Schaback’s guilty plea and the subsequent revelations about Paxful’s operations paint a concerning picture of the inner workings of the company. The lack of an effective AML program and the involvement of co-founders in legal disputes have tarnished the reputation of Paxful and raised questions about its commitment to combating financial crimes. As the saga continues to unfold, it remains to be seen how Paxful will move forward and regain the trust of its users amidst these challenges.
Leave a Reply