Paxful Holdings Inc., a peer-to-peer virtual currency trading platform, must pay a $4 million criminal penalty after pleading guilty to federal charges tied to illegal financial activity, according to a Department of Justice press release. The sentencing followed charges that included conspiracy to promote illegal prostitution, violations of the Bank Secrecy Act, and knowingly transmitting funds derived from criminal offenses.
Authorities said the platform enabled illicit transactions over several years and marketed itself as a space with limited compliance controls. Prosecutors described the case as a significant enforcement action against a crypto company that failed to implement anti-money laundering safeguards.
“Paxful profited from moving money for criminals that it attracted by touting its lack of anti-money laundering controls and failure to comply with applicable money-laundering laws, all while knowing that these criminals were engaged in fraud, extortion, prostitution and commercial sex trafficking,” said Assistant Attorney General A. Tysen Duva of the Justice Department’s Criminal Division.
Virtual Asset Trading Platform Sentenced for Violating the Travel Act and Other Federal Criminal Charges https://t.co/Orm3CQMqgP
— Criminal Division (@DOJCrimDiv) February 11, 2026
Scale of transactions and criminal activity
Court documents state that Paxful operated a peer-to-peer marketplace where users traded virtual currency for cash, gift cards, and prepaid instruments. Between Jan. 1, 2017, and Sept. 2, 2019, the platform facilitated more than 26.7 million trades worth nearly $3 billion and collected over $29.7 million in revenue.
Prosecutors said Paxful knew customers transmitted funds tied to fraud schemes, prostitution networks, romance scams, and extortion. Authorities also linked the platform to payments connected to hacking operations and distribution of child sexual abuse material.
“This sentence holds the company accountable for knowingly allowing its platform to facilitate serious criminal conduct,” said U.S. Attorney Eric Grant for the Eastern District of California. “By putting profit over compliance, the company enabled money laundering and other crimes. This sentence sends a clear message: companies that turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law.”
Backpage connection and internal awareness
Investigators identified transactions connected to Backpage, a website previously used for illegal prostitution and sex trafficking advertisements. Prosecutors said Paxful processed bitcoin transfers linked to Backpage and a similar platform.
Between December 2015 and December 2022, nearly $17 million worth of bitcoin moved from Paxful wallets to those sites. Authorities said Paxful earned at least $2.7 million from those transactions.
Court filings state that company founders referred to this growth internally as the “Backpage Effect.” Prosecutors cited the term as evidence of awareness regarding the source of certain funds and the nature of user activity.
Compliance failures and misleading policies
According to the plea agreement, Paxful and its founders marketed the platform as one that did not require know-your-customer information. Customers opened accounts and traded without sufficient identity verification. Authorities said Paxful presented anti-money laundering policies to third parties that were not implemented or enforced.
The company failed to file suspicious activity reports despite knowledge of criminal behavior among users. Federal prosecutors said those actions allowed the platform to function as a vehicle for fraud, prostitution, extortion schemes, and other illegal activity.
“This sentencing underscores IRS Criminal Investigation’s (IRS-CI) unwavering commitment to holding accountable those who exploit financial systems to facilitate criminal activity,” said Special Agent in Charge Linda Nguyen of the IRS-CI Oakland Field Office. “Paxful’s deliberate disregard for anti-money laundering requirements and its role in promoting illegal prostitution and other criminal schemes enabled the movement of illicit funds at scale.”
Penalty calculation and financial constraints
The Justice Department said Paxful agreed that a $112.5 million criminal penalty matched the severity of the case. Authorities set the final penalty at $4 million after an independent review concluded the company lacked the financial ability to pay more.
The resolution also reflected cooperation with investigators, including the production of internal information and remedial steps taken during the inquiry. Paxful did not make a timely voluntary disclosure of wrongdoing, according to the department.
The guilty plea formed part of a coordinated resolution with the Financial Crimes Enforcement Network.
Technical compliance failures in peer-to-peer crypto markets
Peer-to-peer exchanges operate without centralized custody. Users negotiate trades directly. Platforms act as escrow intermediaries or listing venues. This structure complicates compliance obligations under U.S. law.
Money transmitting businesses must identify users, monitor transactions, and file suspicious activity reports. Peer-to-peer marketplaces face enforcement risk when user onboarding lacks identity checks or when monitoring tools fail to detect illicit patterns. Gift cards, prepaid cards, and cash trades add complexity because transaction sources remain difficult to verify.
Paxful’s model relied on direct trades between users. The company allowed accounts without sufficient verification and promoted minimal controls. These decisions created gaps in monitoring transaction origins and flows. Authorities said the platform became a vehicle for fraud schemes, extortion, prostitution networks, and hacking-related transfers.
Comparison with earlier enforcement actions
The $4 million penalty stands below fines imposed in other crypto compliance cases. BitMEX paid $100 million after failing to maintain effective anti-money laundering and know-your-customer programs. KuCoin faced a $297 million penalty for similar compliance failures.
Those precedents involved exchanges with stronger financial positions and continued operations. Paxful ceased operations and lacked the resources to satisfy a larger sanction. Enforcement outcomes often reflect financial capacity as well as the scale of misconduct.
The Paxful case highlights a recurring enforcement pattern. Authorities target platforms that function as financial intermediaries without compliance controls. Investigations focus on identity verification, transaction monitoring, and reporting obligations rather than market volatility or token activity.
Leadership cases and investigation details
On July 8, 2024, co-founder and former chief technology officer Artur Schaback pleaded guilty to conspiracy to fail to maintain an effective anti-money laundering program connected to the same conduct. Federal authorities continue to investigate aspects of the case.
HSI and IRS-CI led the investigation. Prosecutors included attorneys from the Criminal Division’s Money Laundering, Narcotics and Forfeiture Section and the U.S. Attorney’s Office for the Eastern District of California.
The Justice Department described the case as an example of enforcement against financial institutions and digital platforms whose actions threaten the integrity of the financial system.
Wider compliance pressure in crypto markets
The Paxful case illustrates the legal risk tied to compliance failures within digital asset platforms. Federal authorities tied the charges to the platform’s role in enabling the movement of illicit proceeds across multiple criminal schemes.
Prosecutors framed the sentencing as part of broader efforts to prevent the misuse of cryptocurrency infrastructure and protect victims affected by fraud, trafficking, and financial crime.
Gunel Ismayilova
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