Paxful Holdings Inc. Legal Settlement
Paxful Holdings Inc., the operator of a peer-to-peer Bitcoin trading platform that ceased operations in 2023, has reached an agreement to admit guilt regarding several federal allegations. This includes the obligation to pay a total of $7.5 million in penalties to the U.S. government.
This financial reckoning consists of a $4 million criminal fine imposed by the Department of Justice (DOJ) and an additional $3.5 million civil penalty announced by the Financial Crimes Enforcement Network (FinCEN) earlier this week.
Facilitation of Illegal Activities
From 2017 to 2019, Paxful facilitated around $3 billion in cryptocurrency transactions, garnering over $29 million in revenue while being complicit in illegal activities, according to the DOJ’s findings. The platform allowed users to exchange Bitcoin and other digital currencies for fiat money, prepaid cards, and gift cards.
Acting Assistant Attorney General Matthew R. Galeotti criticized Paxful for profiting from moving cryptocurrency to benefit those engaged in unlawful acts such as fraud, extortion, and money laundering. He stated, “Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers, and purveyors of prostitution.”
Furthermore, the DOJ highlighted the company’s marketing strategy, which attracted criminal users by emphasizing its minimal anti-money laundering protocols and its choice to circumvent customer verification.
Connection to Backpage and Sanctioned Countries
Among the most alarming revelations is Paxful’s processing of financial transactions for Backpage, a platform notorious for promoting illegal sex work, which was shut down by authorities in 2018. Between 2015 and 2022, nearly $17 million in Bitcoin transferred from Paxful to Backpage and similar outlets reportedly resulted in at least $2.7 million in profit for the company. Reports suggest that Paxful’s founders viewed this “Backpage Effect” as a significant contributor to their business expansion.
The DOJ investigation also revealed that Paxful acted with disregard for legal frameworks by facilitating transactions associated with countries under U.S. sanctions, such as Iran, North Korea, and Venezuela, with over $500 million flagged as suspicious activity. The company failed to submit necessary suspicious activity reports and misrepresented its anti-money laundering practices to regulatory bodies even while being aware of the illicit activities on its platform.
Admission of Guilt and Future Proceedings
Ultimately, Paxful has admitted guilt to three conspiracy charges, which include violating the Travel Act regarding illegal prostitution, operating without a money transmitting license, and breaching Bank Secrecy Act regulations. Although the calculated penalty based on sentencing guidelines reached $112.5 million, the DOJ concluded that Paxful could only afford the reduced fine of $4 million due to its willingness to cooperate with investigators and implement corrective actions, including dismissing principal management tied to the infractions.
The sentencing hearing is set for February 10, 2026. Meanwhile, in a related matter, Artur Schaback, co-founder and former CTO of Paxful, pleaded guilty in July 2024 to charges stemming from this same scheme.
