Artur Schaback, one of the co-founders of Paxful Inc., recently pleaded guilty to conspiracy charges related to the failure to maintain an effective anti-money laundering (AML) program. The Department of Justice stated that Schaback’s negligence led to Paxful becoming a hub for various criminal activities, including money laundering, sanctions violations, fraud, romance scams, extortion schemes, and prostitution. This negligence allowed criminal activities to thrive unchecked, posing a threat to 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 Nov. 4. In addition to potential jail time, Schaback will also resign from Paxful’s Board of Directors. A federal district court judge will determine the final sentence, taking into account various factors, including the US Sentencing Guidelines.
Court documents reveal that Schaback operated Paxful as an online peer-to-peer virtual currency platform between July 2015 and June 2019. During this period, he allowed customers to trade virtual currency 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. Moreover, despite being aware of suspicious and criminal activities by Paxful users, Schaback failed to file a single suspicious activity report, further complicating the situation.
The investigation into Paxful also uncovered deeper conflicts within the organization. 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 internal 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 steer clear of the platform due to a surge in scams.
In light of the legal troubles and operational challenges faced by Paxful, the company appointed Roshan Dharia as interim CEO in May 2023. Dharia’s main responsibilities include stabilizing operations and exploring strategic alternatives to navigate the company through these turbulent times. The appointment of new leadership aims to rebuild trust among users and stakeholders and to establish a more robust compliance framework to prevent future regulatory breaches.
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