Paxful Holdings has agreed to a $4 million criminal settlement after federal prosecutors said the parent company of the now-defunct bitcoin marketplace allowed its platform to become a conduit for unlawful transactions tied to crimes ranging from illegal prostitution to distribution of child sexual abuse material. The agreement, filed Monday in California federal court, concludes claims that Paxful ignored anti-money laundering laws while operating its peer-to-peer crypto exchange.

Federal prosecutors charged the company with three conspiracy counts in October, accusing Paxful of willfully failing to maintain an effective anti–money laundering program, running an unlicensed money-transmitting business, and violating the Travel Act.

FinCEN Adds $3.5M Civil Penalty in Parallel Case

On Tuesday, the U.S. Treasury’s Financial Crimes Enforcement Network announced a separate $3.5 million civil fine against Paxful Inc. and Paxful USA. In that consent order, Paxful admitted to flouting the Bank Secrecy Act by failing to register as a money services business, neglecting to implement AML controls, and filing inadequate suspicious activity reports.

FinCEN said Paxful facilitated transactions tied to ransomware operations, darknet marketplaces, terrorist financing, unregistered MSBs, elderly fraud schemes, stolen funds, and other illicit proceeds.

Paxful’s Founders, Backpage Ties, and Lax Compliance

According to the plea deal signed Oct. 16, Paxful Inc. was co-founded in 2015 by Mohamed Azab Youssef and Artur Schaback, who created Paxful Holdings four years later as a parent entity. Prosecutors said customers used the exchange to shuttle proceeds from a range of criminal schemes, including fraud, prostitution, and child exploitation.

The government alleged Paxful allowed users to open accounts with minimal identifying information and marketed itself as a platform that didn’t require traditional Know Your Customer screening. A dedicated compliance officer wasn’t appointed until late 2018, and employees did not receive AML or KYC training until mid-2019.

Paxful also misrepresented to other companies that it had a robust AML program and enhanced due diligence procedures, prosecutors said.

Investigators accused Youssef, Schaback, and colleagues of coordinating with employees at Backpage.com, the now-defunct site infamous for commercial sex ads, after Backpage lost credit-card processing capabilities. Paxful allegedly promoted itself as a workaround that would allow Backpage customers to keep buying sex-ad listings using cryptocurrency.

In the agreement, prosecutors highlighted internal boasts about what Youssef called the “Backpage Effect”—Paxful’s rapid business growth linked to its partnership with the illicit advertising site.

Millions in Bitcoin Routed Through Paxful Accounts

A court filing shows Paxful’s representative, Manfred Bekeris, appeared before U.S. Magistrate Judge Chi Soo Kim on Monday, waived indictment, and entered a not-guilty plea, with a change-of-plea hearing set for Tuesday. As of Tuesday evening, the docket did not show the hearing result.

Schaback, Paxful’s former chief technology officer, pled guilty in early 2023 to conspiring to operate without required AML safeguards. His sentencing is scheduled for Jan. 6, 2026.

From January 2017 to September 2019, Paxful facilitated more than 26 million trades totaling nearly $3 billion, earning over $29.7 million in revenue. Prosecutors say the company gained at least $29.7 million from unlicensed money-transmitting activities alone.

Between December 2015 and September 2016, Paxful routed nearly $15 million in Bitcoin from its wallets to Backpage’s accounts. After Backpage was shut down, Paxful allegedly supported a successor site, helping funnel another $2 million in Bitcoin from 2018 through 2022, while tracking referral traffic from Paxful to the replacement platform.

Cooperation, Remediation Lead to Reduced Penalty

The plea agreement notes that Paxful Holdings cooperated extensively with investigators, accepted responsibility, and undertook sweeping remediation efforts—including hiring an independent auditor, replacing its compliance unit, freezing suspect transactions automatically, strengthening AML/KYC policies, halting U.S. operations, and removing all management tied to the misconduct.

Prosecutors initially calculated a criminal fine of $112.5 million, reflecting a 25% discount based on cooperation and lack of prior violations. But given Paxful’s financial condition, the government determined it could pay $4 million, which became the final penalty.

Representatives for both sides did not immediately respond to requests for comment.

Legal Teams

The U.S. government is represented by Kevin Gerard Mosley, Caylee E. Campbell, and Katherine Nielsen of the DOJ, along with Matthew Thuesen from the Eastern District of California.

Paxful Holdings is represented by
Eugene Ingoglia (Esseks Ingoglia) and Patrick T. Hein (Allen Overy Shearman Sterling US LLP).