February 7, 2014

State authorities in Florida on Thursday announced criminal charges targeting three men who allegedly ran illegal businesses moving large amounts of cash in and out of the Bitcoin virtual currency. Experts say this is likely the first case in which Bitcoin vendors have been prosecuted under state anti-money laundering laws, and that prosecutions like these could shut down one of the last remaining avenues for purchasing Bitcoins anonymously.

michaelhackfeedbackWorking in conjunction with the Miami Beach Police Department and the Miami-Dade State Attorney’s office, undercover officers and agents from the U.S. Secret Service’s Miami Electronic Crimes Task Force contacted several individuals who were facilitating high-dollar transactions via localbitcoins.com, a site that helps match buyers and sellers of the virtual currency so that transactions can be completed face-to-face.

One of those contacted was a localbitcoins.com user nicknamed “Michelhack.” According to this user’s profile, Michelhack has at least 100 confirmed trades in the past six months involving more than 150 Bitcoins (more than $110,000 in today’s value), and a 99 percent positive “feedback” score on the marketplace. The undercover agent and Michelhack allegedly arranged a face-to-face meeting and exchanged a single Bitcoin for $1,000, a price that investigators say included an almost 17 percent conversion fee.

According to court documents, the agent told Michelhack that he wanted to use the Bitcoins to purchase stolen credit cards online. After that trust-building transaction, Michelhack allegedly agreed to handle a much larger deal: Converting $30,000 in cash into Bitcoins.

Investigators had little trouble tying that Michelhack identity to 30-year-old Michell Abner Espinoza of Miami Beach. Espinoza was arrested yesterday when he met with undercover investigators to finalize the transaction. Espinoza is charged with felony violations of Florida’s law against unlicensed money transmitters — which prohibits “currency or payment instruments exceeding $300 but less than $20,000 in any 12-month period” — and Florida’s anti-money laundering statutes, which prohibit the trade or business in currency of more than $10,000.

Police also conducted a search warrant on his residence with an order to seize computer systems and digital media. Also arrested Thursday and charged with violating both Florida laws is Pascal Reid, 29, a Canadian citizen who was living in Miramar, Fla. Allegedly operating as proy33 on localbitcoins.com, Reid was arrested while meeting with an undercover agent to finalize a deal to sell $30,000 worth of Bitcoins.

Documents obtained from the Florida state court system show that investigators believe Reid had 403 Bitcoins in his on-phone Bitcoin wallet alone — which at the time was the equivalent of approximately USD $316,000. Those same documents show that the undercover agent told Reid he wanted to use the Bitcoins to buy credit cards stolen in the Target breach.

Nicholas Weaver, a researcher at the International Computer Science Institute (ICSI) and at the University of California, Berkeley and keen follower of Bitcoin-related news, said he is unaware of another case in which state law has been used against a Bitcoin vendor. According to Weaver, the Florida case is significant because localbitcoins.com is among the last remaining places that Americans can use to purchase Bitcoins anonymously.

“The biggest problem that Bitcoin faces is actually self-imposed, because it’s always hard to buy Bitcoins,” Weaver said. “The reason is that Bitcoin transactions are irreversible, and therefore any purchase of Bitcoins must be made with something irreversible — namely cash. And that means you either have to wait several days for the wire transfer or bank transfer to go through, or if you want to buy them quickly you pay with cash through a site like localbitcoins.com.”

One very popular method of quickly purchasing Bitcoins — BitInstant — was shuttered last year. Last month, BitInstant CEO Charlie Shrem was arrested for money laundering, following allegations that he helped a man in Florida convert more than a million dollars in Bitcoins for use on the online drug bazaar Silk Road.

It’s still unclear how the defendants Espinoza and Reid were able to obtain so many Bitcoins for sale, although a review of Michelhack’s profile suggests little more than arbitrage — that is, buying Bitcoins for $700 apiece and selling them for a couple hundred dollars more.

Weaver said he anticipates that more states will soon seek to crack down on high-dollar Bitcoin sellers on localbitcoins.com. “I’d expect many more state cases like this one because it will act to strangle the lifeblood of the online dark markets,” such as Silk Road, Weaver said. “If you want a significant amount of anonymous Bitcoins, right now this community is about the only mechanism still available.”

News of the Florida actions comes on the heels of the arraignment of Ross Ulbricht — the alleged onetime owner of the Silk Road. Ulbricht was scheduled to be arraigned in New York today.

The court documents in this case also offer a great example of the traceability of Bitcoin transactions — a potential danger for both those seeking anonymous payments and for law enforcement officials posing as criminals as part of an undercover investigation. The ICSI’s Weaver noted that, by examining the times and transactions in the criminal complaint, it appears that this is the Bitcoin wallet associated with the undercover officer.

131 thoughts on “Florida Targets High-Dollar Bitcoin Exchangers

  1. XWzGjtin0


    We are interested in selling bitcoin to American citizens, we’d like to know what it would cost to operate this totally legally?

    1. David Perry

      It’s going to vary, you will need a money transmitter license in each state you plan to operate in and the cost varies from state to state. If you’re going to operate within the entire U.S. you will need a license in every state, which comes at fairly tremendous cost.

      1. XWzGjtin0

        In this case then this country should not complain and expect any effort from our side. Let it die slowly but surely.

        1. fhqwhgads

          Indeed. If Bitcoin can’t play by the rules, it’ll be dead soon enough.

      2. Allen

        Just ask Paypal how they do it. They are not licensed in all the states, nor are they a bank. But hey it works for them with no government oversight.


          1. harley

            It’s the same for Australia – Paypal is fully regulated by the same organisation that regulates the banks.

            ‘ The PayPal service is provided by PayPal Australia Pty Limited (ABN 93 111 195 389) which holds Australian Financial Services Licence number 304962. Any information provided is general advice only and does not take into account your objectives, financial situation or needs. Please consider the Combined Financial Services Guide and Product Disclosure Statement available at http://www.paypal.com.au before acquiring or using the service.’

        1. InfoSec Pro

          Allen, your statement “with no government oversight” is belied by the fact that they have licenses in all fifty states. Each license is government oversight.

  2. Haroun Kola

    It looks like the “law” enforcers are very adept at pretending to be criminals. Perhaps they aren’t pretending.

    1. Priv8

      Pretending to be criminals? It’s likely these sellers were oblivious to money transmissions laws and just thought these guys were another customer.

      I know little of money transmission laws in my state, I’d likely be caught up in the same situation as them if I had that volume of Bitcoin, and I like to think I’m not a criminal, maybe just not up to speed on state and federal laws.

      1. InfoSec Pro

        If you are doing business, especially with the public, you need to know the laws that apply to the business, or you deserve to get busted for criminal stupidity.

  3. .....

    “Money Laundering” is yet another made-up “crime” fabricated by law enforcement to justify their existence and gargantuan budgets.

    See also: drug laws, vice laws, etc.

    This guy first sold a bitcoin to a willing undercover officer. Where is the victim of this “crime”? I’ll grant you that ideally, both sellers should have walked away when the undercover mentioned wanting $30K in bitcoin to buy stolen CCs. That is just bizarre behavior that reeks of a sting operation. Real CC thieves don’t randomly tell strangers about their plans. Nonetheless, even if they’d sold the undercover $30K in bitcoins, still not a crime, still no victim. If the buyer had then used their new bitcoins to buy stolen CC’s and use them, *there’s* your crime.

    As usual, law enforcement literally facilitates nearly as much crime as they claim to prevent.

    P.S. Brian, where are the court documents in this case? I’m mildly curious to learn how exactly they found these people’s identities? Or if they only found them out after their arrests?

    1. InfoSec Pro

      How about murder for hire schemes? Kidnapping for ransom? Those are just “made up laws” too, aren’t they?

      So AML and KYC (know your customer) were laws created to make it difficult for the proceeds of such criminal enterprises to enter the banking system and be used for legitimate purposes. If you don’t like those laws figure out some way to make them unnecessary, by eliminating the criminal behavior that they seek to interdict. I suggest that you could use the Mexican cartels as a good test case, get them to stop terrorizing anyone who gets in the way of their money stream and you’ll have a better argument that law enforcement is not needed.

      1. .....

        Murder-for-hire and/or kidnapping have actual victims. Of course those are real crimes. Selling bitcoins (or drugs, or sex, etc) of one’s own volition to a willing buyer with cash should not be a crime, as there is no victim, no matter if the transaction is for $5 or $50,000.

        The AML/KYC laws, the $10K reporting requirement, the additional fake crime of “structuring” — all of this is out-of-control government run amok. I reiterate… if this guy had sold his $30K of bitcoins to a random person (not law enforcement), and that random person then used those bitcoins to commit CC fraud, then by all means prosecute the BUYER for CC fraud.

        If a hardware store owner sells a hammer to a random person, who then uses that hammer to kill someone, do we charge the store owner with facilitating a murder? Of course not.

        1. doug

          Beyond IRS or FinCEN cash or SAR reporting if you buy a car with anything the dealership has to check your ID against a national database by the OFAC which blacklists people not allowed to do financial transactions much like the No Fly List except that the OFAC list is public and anyone can look up names on it. Usually this is done automatically by consumer credit reporting companies as a service. Car dealerships often run credit even for cash buyers and if people bitch claim it is required by the Patriot Act. It isn’t. At least directly but who’s gonna argue?

      2. öyvinds

        AML and KYC (know your customer) laws make it difficult for the proceeds of any enterprises, including legal ones, to enter the banking system. Period. These laws are not required, they are merely the another symptom of fascism run amok.

        1. InfoSec Pro

          I don’t understand the statement that AML& KYC make it difficult for proceeds of legitimate enterprise o enter the system. I know the bank that I worked for when I was working with their AML project had no difficulty opening business accounts and accepting deposits. So I’ve gotta call bs on that statement.

          1. sean scappaticci

            Of course your bank has no problems with these regulations, because they have the millions of dollars to cover the liscensing. Those license fees are so high to create a barrier for your average individual to enter the market and compete. Textbook oligopoly.

      3. Carl Hopkinson

        I’d much rather spend my time finding ways to eliminate this fascist
        stranglehold this government is putting around everyones’ neck who
        is not in The Club (which, of course, is immune from any law, especially
        those pesky laws restricting government overreach as specified in
        The Constitution of the United States)….We do still live in the United
        States of America, don’t we????

        1. Carl Hopkinson

          Oops…there I go again…mentioning The Constitution. I guess that is
          sure to put me on the “domestic terrorist” list.

          1. saucymugwump

            @CarlHopkinson “The Constitution. I guess that is sure to put me on the ‘domestic terrorist’ list”

            Before posting more ignorant blather, try actually reading the document. From the aforementioned Constitution, Article I, Section 8:

            “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

            To borrow Money on the credit of the United States;

            To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

            To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

            To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

            To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;”

            www DOT archives DOT gov SLASH exhibits SLASH charters SLASH constitution_transcript DOT html

    2. saucymugwump

      “Money Laundering” is yet another made-up ‘crime’ fabricated by law enforcement”

      So when are you moving to that great anarchist, libertarian paradise: Somalia?

    3. Bruce

      Um… You do know that law enforcement doesn’t create the laws, right?
      They’re created by Congress, at the behest of citizens like me, who understand you need to take a systems thinking approach to fighting crime.

    4. John

      Let’s distinguish between two types of laws here.

      There are laws in place to better enable the detection of money laundering, such as currency transaction reporting requirements. While it can be criminal to evade those laws, conduct isn’t criminalized simply by triggering a reporting requirement.

      An analogy would be to FAA regulations imposed on various entities to report safety issues or aircraft incidents meeting certain threshold criteria.

      Then there are laws that actually criminalize certain conduct. 18 USC 1956, defining and criminalizing money laundering, is a good example. The criminalized conduct does not lack for victims, as the money in such transactions must either be intended for or derived from certain specified unlawful activities.

      In this case, it sounds like the law enforcement agents informed the dealer that they were purchasing Bitcoins to enable the procurement of stolen credit card numbers.

      The dealer therefore had knowledge that the financial transaction in which he was engaged would promote and was intended to promote a specified unlawful activity. When the dealer then attempted to complete the transaction with this knowledge, he became guilty of money laundering. See 18 USC 1956(a)(3).

      Though I’m sure there are a number of other charges pending as well.

      I don’t see how any of this is government run amok.

      1. voksalna

        If he bought credit cards with the bitcoins that would be a crime. If he sold credit cards and got bitcoins that would be a crime. If he sold bitcoins because they were his and are just bits of data that have no actual ‘standard’ behind them or backing and are not at all fiat currency, then your argument makes zero point. Actually your argument makes zero point after my second ‘that would be a crime’. Of course if he did not report the earnings in a year when he had to pay taxes, that may be a different crime (tax evasion) but that does not appear to be what they are doing (and I am not even frankly of the opinion that you can evade taxes on the sale of bitcoins since they have no real value in and of themselves and at any minute the value can go from 1000 USD to .10 USD. Maybe if they add a way to pay taxes in bitcoins on bitcoins that may make something taxworthy but that won’t happen.

  4. mc

    BitInstant was not functional for several months before Shrem’s arrest. It can’t be ‘very popular’ if it’s not functional.

    Former BitInstant user here.

  5. .....

    If I walk into a car dealership with $30,000 in either cash or check to buy a new car, and the salesman agrees to trade his car for my money, would that be money laundering on the car salesman’s part?

    That’s basically what happened here, just substitute “bitcoins” for “car”.

    1. BrianKrebs Post author

      Actually, if you do that, the dealership *may* accept the money, or they may not. In either case, dealerships are not immune to reporting requirements; they would be required by the US Patriot Act and probably state statutes to report a large cash (not check) transaction of $10,000 or more.

      1. Carl Hopkinson

        Wrong. It is ILLEGAL for anyone NOT to accept cash to settle a
        debt…”…that is why it states on the bills “legal tender for all debts
        public and private”.

        1. InfoSec Pro

          Then why is it legal for airlines to not accept cash for in-flight beverage service? Why is it legal for retail businesses to refuse to accept large denomination bills? Technically you have no debt to the seller until the sale is completed so that doesn’t matter. This is still a free country, your pinion to the contrary notwithstanding. The seller can refuse to sell to you for any non-discriminatory reason they chose (“no shirt no shoes no service”). They can even legally say he cash price is one figure and the finance price is another. You can’t have it both ways, either the government can enforce laws governing money, like you want about cash acceptance, or they can’t, like you want about AML.

        2. brian krebs

          Carl, nobody is saying they won’t take it. The point is they have an obligation to report it, and to keep a record of the fact that you presented such a large sum of money.

          No offense, but it’s clear that a tremendous number of people commenting in this thread and in the long Reddit thread (5x as many comments) have little knowledge or understanding of the law in this country when it comes to this stuff. You can disagree with the law of the land as much as you want, but those who ignore it willfully or out of ignorance do so at their own peril.

          1. saucymugwump

            The current situation is due to the convergence of a number of factors:
            – Russians who went through the “we pretend to work and the state pretends to pay us” phase, the drunken debauchery of the Yeltsin era, and the current Tzar 2.0 era. They’ve seen their currency drop like a stone because of incompetent and corrupt government. Now they have come to the logical conclusion that Darwinian survival is the best way forward.
            – The current and previous American generations who honestly believe that if something is digitally possible, it is legal. They often think of themselves as anarchists, when the best example of anarchy today, Somalia, has proven to be a dangerous place to live and therefore unpopular with the anarchist set. Like Russians, they think that stealing from a bank via the Internet is completely different than doing it in person with a gun and a false mustache; many are finding their accommodations for the next twenty years to be less than satisfactory.
            – Chinese who, with some justification, are still rather angry over the way Japanese fascists treated them during the first half of the 20th Century, as well as how the West, especially Britain, dominated them for centuries (think Opium Wars).
            – Tea Party members who believe cherished fairy tales, e.g. the USPS is funded by Congress (it’s not; it’s funded via postage sales except for overseas voting and handicapped people), that the Constitution says stuff that is not to be found anywhere in the actual document, and that tax cuts create jobs.

            Don’t you think Twitter is a bit of a metaphor for the downfall of the U.S. with its limit of 140 characters? Even an average paragraph in a history book far exceeds 140 characters.

          2. voksalna

            Brian, when you file taxes in a few months, will you file the bitcoins as earnings you get as donations? At what value would you file them as? The day you earned them? The day you file your taxes? What if the value goes up by a factor of ten between month of March if you are filing early and month of April when is the deadline? If it does, does this not mean you are a tax evader? Will IRS bill you? Won’t any answer you give be a lie?

        3. PostScript

          This is incorrect, Carl, as has been pointed out by Brian and others. Even were your statement correct, it does not apply in this instance – trading money for bitcoins is a transaction, it doesn’t involve one party refusing to accept payment on a debt. The same at a car dealership.

          Regardless, a business or individual has the right to refuse service to someone within extremely broad guidelines. The limiting factor in how often this occurs is generally the policies in place at that specific business, not any legal requirement that they must sell their goods under all circumstances.

        4. Lorentz

          The law states debts, not purchases. Anyone can refuse to accept cash for a purchase not yet transacted. However, owing a debt, whether a mortgage, a meal at a resturant after you’ve eaten but not yet eaten, or prepump gas, they must accept the currency. Most places, car dealerships as well, require you pay first. Car dealers accept a loan for vehicles, being paid in full usually, prior to driving off the lot, that debt is to whomever granted that loan.

        5. KFritz

          In 2005, or thereabouts, a major car rental business, at which I’d previously paid cash on occasion, stopped accepting cash payment. Too many armed robberies. They’re still very much in business. Conclusion: there’s no law that demands cash be accepted.

        6. Paul Robinson

          @carl hopkinson “Wrong. It is ILLEGAL for anyone NOT to accept cash to settle a debt…”…that is why it states on the bills “legal tender for all debts public and private”.

          No, you are wrong. It is not illegal to refuse to accept cash to settle a debt. Property rental agencies do it all the time when the rental office says they do not accept cash and you must pay rent due by check or money order. Check the treasury’s own website, it will say the same thing. It’s just a means of saying that it is a government issued fiat note, not a private one. It’s an old phrase from when private banks also issued their own currency.

          Refusing to accept U.S. dollars for a debt does not extinguish the debt nor is it illegal to refuse to accept them in payment for a debt.

      2. saucymugwump

        Brian is correct here. You cannot go into a car dealer, pay cash, and drive out with the car without the purchase being recorded:
        – The Patriot Act added regulations for cash transactions exceeding $10,000. If the dealership honestly believed the money was drug / terrorist / mafia money, they would refuse the sale to prevent being caught up in the Patriot Act (see www DOT niada DOT com SLASH PDFs SLASH Publications SLASH USAPatriotAct DOT pdf).
        – If we are talking about a new car purchase, the dealership is required by law to take your name and address for the warranty.
        – For all cars, the dealership is required to take your name and address for state registration.

        You can, however, buy a car from a private party for cash, but you will be lying to the seller (he also fills out registration paperwork) and you be unable to obtain a license or insurance for it. You will be guilty of at least three misdemeanors and perhaps perjury.

        1. saucymugwump

          In my last paragraph:
          – Change “buy a car from a private party for cash” to “buy a car anonymously from a private party for cash.”
          – Change “and you be unable to obtain a license” to “and you will be unable to obtain a license.”

        2. Paul Robinson

          @sauctmugwump “You can, however, buy a car from a private party for cash, but you will be lying to the seller (he also fills out registration paperwork) and you be unable to obtain a license or insurance for it. You will be guilty of at least three misdemeanors and perhaps perjury.”

          Wrong. I can guess you’ve never bought a used car, and I’ve probably bought at least a half dozen. The seller puts all the information and only the seller can be charged for anything and only for lying about what the odometer reading is when they sell it. You can buy a used car anonymously if you wanted to, from a private party, for cash, and all the seller does is sign the title and remove their plates, allowing you or your agent to then take the title to the Department of Motor Vehicles / Department of Public Safety / Motor Vehicle Administration in your state and then you or your agent can register the vehicle where the state will issue a new title and new plates. And you can even register it for someone else; otherwise corporations could never register vehicles because they are fictional people. All the state is going to care about is the transfer tax is paid, the registration is paid, the vehicle is insured and (if required) the inspection and emissions pass. You don’t have to tell the seller anything except “here’s your money, sign the title.”

  6. Disgusted

    My next car purchase am withdrawing cash and heading straight to a dealership. What a fucked up orwellian system. Land of the free. The government behaves as if people have such a huge need to hide crap from them. Not so. So

  7. mmortal03

    “The biggest problem that Bitcoin faces is actually self-imposed, because it’s always hard to buy Bitcoins,” Weaver said. “The reason is that Bitcoin transactions are irreversible, and therefore any purchase of Bitcoins must be made with something irreversible — namely cash. And that means you either have to wait several days for the wire transfer or bank transfer to go through, or if you want to buy them quickly you pay with cash through a site like localbitcoins.com.”

    Or, you set up ACH transfers with coinbase.com, get things confirmed, and then you get your bitcoins immediately on each transaction, no need to wait several days.

    1. Carl Hopkinson

      I have dealt recently with Coinbase and what you say is NOT true.
      After purchase of Bitcoins, it takes several days for them to be delivered
      to your account….it is NOT immediate by a long shot.

      1. mmortal03

        It is instant once you get verified. It takes a month initially, I believe. I wouldn’t lie to people, I use it every week.

      2. Mike

        Even CoinBase isn’t properly registered in every state even though they have ’31 million’ in investor money.

  8. TheOreganoRouter.onion

    Not much from the main stream media about this case in the state of Florida. I think it’s still endless news analysis about Beiber or some other B.S. story that’s not relevant.

    Anyway, another good article

  9. FreankToolip

    Jsut one more reason to ALWAYS mask that IP address and encrypt EVERTHING.


    1. Vee

      …Yeah good luck with that- especially when you’re competing Tor which is both free and open source.

  10. Carl Hopkinson

    The real crime here from da gubermint’s perspective is that the
    bitcoin exchanger did not pay to be in the elite club of money changers
    and was thus cast out of the Temple of Mamon. Only da gubermint and
    their minions can print money out of thin air and buy things that people
    worked hard to produce. In my mind, that is a crime of unbridled theft
    which is far greater than hiding the parties of a transaction…which should
    be private anyway. As far as the argument that keeping detailed records
    of private transactions prevents crimes….maybe it prevents some crimes
    but visits on us the people the much greater crime of all-powerful
    government intruding itself into every aspect of our lives from which they engineer profits for themselves and to protect those profits engineer-in tyranny (soft at first (propaganda) and then hard (tanks)
    as the propaganda is seen for what it is).

    1. voksalna

      Continue to be brave, sir. All of these comments I am reading about the law says this the law says that, but the laws of the United States are a living breathing thing not only in creation and changing of laws but in interpretation.

      Anybody who is saying ‘this is the way the law is’ needs to realise they are apologists for living in an Orwellian nightmare when they are technically supposed to have representation which includes the not only right but RESPONSIBILITY to challenge unjust laws instead of just sitting back and either complaining or agreeing because they do not want to be a target or agreeing because it is easier than disagreeing or agreeing because they think ‘that is just the way it is’. It’s pretty hard to be willing to stand up to anything when you know you are being watched and targeted if you disagree — so any number of agreements and disagreements will always be skewed save for the brave and those who do not know enough to care.

  11. Jairus Otieno

    Congress passed laws requiring that all transactions over $10,000 be reported as part of the drugs laws passed in the nineties. There’s no over reach here – the Government is justified in enforcing the law especially when the seller has an amount three times the statutory limit .
    My concern is that virtual currencies are being used to aid cyber criminals evade detection as in the case of the Target hackers.

  12. Fred

    Any new currency is very likely to be unstable, many are useful and even necessary but most are Ponzi schemes of one sort or another. From 1690, when Massachusetts Bay Colony printed money, down to the Civil War, when the Federal Government imposed the Greenback, the US had more of these than any other country. Frauds made fortunes, while the innocent lost their shits. Moneymakers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiters by Ben Tarnoff is one of many amusing histories. (I do not know Mr Tarnoff etc..)

  13. S

    No wonder that America is such a shit hole .It full of criminals and homeless people .Yes you got me Right its Full of criminals.

    America got the biggest prison population in the world .May i ask you Why ?

    United States 716 prisoners per 100 000 population .More that any county in the world .

        1. S

          The United States has less than 5 percent of the world’s population. But it has almost a quarter of the world’s prisoners.
          Indeed, the United States leads the world in producing prisoners, a reflection of a relatively recent and now entirely distinctive American approach to crime and punishment. Americans are locked up for crimes — from writing bad checks to using drugs — that would rarely produce prison sentences in other countries. And in particular they are kept incarcerated far longer than prisoners in other nations.
          Criminologists and legal scholars in other industrialized nations say they are mystified and appalled by the number and length of American prison sentences.
          The United States has, for instance, 2.3 million criminals behind bars, more than any other nation .
          China, which is four times more populous than the United States, is a distant second, with 1.6 million people in prison.

          It can only mean one thing America is full of would be Criminals .

          1. Infosec Pro

            Blame the Brits, they started the trend by using Oglethorpe’s colony to dump ne’er-do-wells instead of putting them in debtors prisons. After the Revolution they had to use Australia, with much higher shipping costs. Anyway, since the business model of outsourcing prison management to corporations and their private prisons there is a lot of economic incentive to throw miscreants in jail. Another driver for the divisive politics of our era.

            1. saucymugwump

              @InfosecPro “Blame the Brits, they started the trend”

              Britain also created the world’s first true concentration camps during the Second Boer War.

              And the previous poster is comparing apples with oranges by comparing rates of imprisonment. There is absolutely no comparison between the relatively humane prisons of the U.S. and the bleep-holes of China and Russia, not to mention North Korea.

              Though I agree that some drugs should be legalized and treated like alcohol — Colorado is the model — which means no driving or operating machinery under the influence.

              1. voksalna

                No comparison at all? You’ve been to prison in any or all of these places?

                By the way I have yet to see any country permit anything this disgraceful: hxxp://en.wikipedia.org/wiki/Kids_for_cash_scandal

                Or did you forget the US ‘leads the world’ in privatised incarceration? I won’t bother to address the other facts — they can be found everywhere, from prison conditions (the real ones not what you are told to believe), to percentages (something like 1/10 of all people have spent time in jail in US before they die, something like 1 in 4 black men will by middle age, but you don’t need me for statistics — numerous studies and books exist on this). You clearly have not also read about what is fed to these people or how they are treated or the abuses of power in places that encourage abuses of power; while other countries may SEEM more strict, nowhere is there more bullying or cruelty that I know if, in any modernised country.

                You need to realise that no other country sees ‘prisons’ as a ‘growth industry’ or a ‘profit center’. NO other country. Do I need to discuss the financial kickbacks involved too?

                1. voksalna

                  Sorry, let me correct that, “no other country that the US would not bomb or invade and hypocritically call inhumane, unfree, or immoral and then destroying their economy and putting their people in their own ideas of prison, economic or literal”. Better.

          2. Not Happie

            “Criminologists and legal scholars in other industrialized nations say they are mystified and appalled by the number and length of American prison sentences.”

            They are right to be appalled, but the reasons for the high ratio per capita shouldn’t be a mystery. It is two-fold: One, attempts to control minority populations who no longer legally have to submit to being treated abusively. And two, because private prison lobbyists are making sure that people who cannot afford pay for legal protection(lawyers and fines)end up behind bars, which makes the prison owners money.

            America has a high prison population, for sure. In some counties, being homeless, or unable to pay parking tickets will get you locked up.

            1. voksalna

              Some places in the US are adding insults to injuries by then charging the inmates per day to be inmates (and more than the actual cost). Profit industry. You also can not take a nap in a park at night in that country. Vagrancy laws!

  14. Chas Voice

    Isn’t it comforting to know govt watchdogs are on top of it and find your regular banks are honest and within the law?

  15. flakesobran

    While I sort of agree with the arrest, sort of because while the arrest is legal, I also know enough about the legalities of forfeiture laws with regards to money laundering to be suspicious of this kind of arrest. (Tewsbury Hotel anyone)

    Also as someone who has on occasion sold a bitcoin or two in person, mostly to people who want to experiment with the currency and want to know what the fuss is about, I have a lot of sympathy for the guy. I can’t imagine what I would do if someone came up to me and asked to buy $30,000 worth, considering the biggest volume I’ve ever sold was $200.

    I suspect that legally considering the fact that even the IRS is having a hard time deciding what Bitcoin is, that until some sort of actual regulations regarding cryptocurrency are in place, Michelhack could technically argue that no money transfer licences was required, because Bitcoins aren’t actually money.

    1. Mike

      FinCen already added that to the laws that they do. Not by saying BITCOIN, but other means. So, he did break the law….and that argument won’t hold over in court anymore.

  16. Carl Mullan

    Great article Brian, more local arrests are coming no doubt.
    I was at a Meetup here in Portland this week and everyone was using the Bitcoin ATM with no problem (or licenses). Of course that will continue until someone gets arrested at the Meetup!
    I think that the BTC local market in America will eventually mirror the licensed money transmitter market. Of the estimated 200,000 or 220,000 operating money transmitters in the US barely 35,000 have properly registered. Once in awhile, when a money transmitter is doing something bad, we’ll read about the arrest, but for the most part the small local guys will never go away. I talk about this and other important BTC regulatory items this in a recent intereiw for DGC.

    1. CommonSense

      How is this illegal? Scanning a QR code in person is the equivalent of wiring money ala Western Union?

      The fact that the cop told him what he was going to do with the coins seems like a definite overreach. What are they going to do next, ban coin mining, because it can be done anonymously? What software will be banned after that? FTP? Encryption?

  17. Vee

    I honestly don’t think Bitcoin, or any of the other virtual e-coins would survive at all if they weren’t such a go-to for money laundering. And even with their more legit uses, that just isn’t enough for it to be kept going.

    Soon all this trendiness of digital currency will die off and not even the most desperate cam girl will accept them.

  18. CoinFlip

    More states need to follow in the footsteps of Florida.

    These fed and state laws are to protect our country, bottom line.

  19. spyderman

    “The Revenue Act of 1936 seemed to adhere to the purchasing power theory…the act was designed, among other things, to force corporations to distribute more of their profits and therefore increase the purchasing power of stockholders.” Economics

    Bitcoin holders? You could lose purchasing power. Banks can increase or decrease the quantity of the currency and increase or decrease prosperity and depression. A stock market boom can be traced back to the banks. You can trace that back to? Somebody in an exchange? It goes bust and who are you gong to call? Ghostbusters?

  20. spyderman

    Back before paper money, people traded with buckskins. Game the system all you want. It cost about 4 cents to make a $1 bill. What does a bitcoin cost to make? It costs that to make a $100 bill too. If you want a better bargain go for the $100’s.

  21. Keith Johnson

    Mr. Krebs,
    Are the feds just targeting anonymous transactions using Bitcoin or is this part of a larger effort to do away with this alternative currency altogether?
    We know there were recent hearings in DC called “Beyond Silk Road…”
    What’s their ultimate goal?

  22. Carl Mullan

    The gov. investigators follow the trails to those involved with stolen credit cards. If you are buying Bitcoin or another currency and tell people you will use it to buy stolen credit cards (dumps) then you just made the top of the gov’s list to investigate/arrest.

  23. Jacob Potter

    It is all about money and forfeiture. The government confiscated 24 million dollars from Silk road. They peruse the Internet looking for large caches of Bitcoins and go after those people. If they have to concoct a law to enable them to seize that persons cache then so be it. From the article all these guys did was exchange dollars for Bitcoin. The government immediately seized their computers and Bitcoin certificates. Looks like the government got a $400,000 haul on this one.

    1. voksalna

      Forgive me if this is stupid but if the transaction was for 40,000$ USD how can they have any right to seize what they consider 400,000$ USD if they were not in conversion or being co nverted and thus had nothing to do with this so-called crime that is not even a crime? Putting aside the fact that they are basically doing this to expand prosecutorial abilities and power for a minute, there is no way in the world they should have the right to seize more than the 40,000$ worth of bitcoins that the ‘investigator’ (right) “bought”. I’m talking about this case, not SilkRoad, which is more complicated and goes off-topic.

  24. D

    If I was the seller, my first rule would be, I do NOT want to know your intentions or anything about you. You want Bitcoins, you have cash, lets leave at that. The fact he sold to people who “pretended” to be criminals makes this guy a moron. I see nothing wrong with people wanting to invest their cash aka dead presidents into BTC. Sellers should want nothing more than the cash; not the buyers life background or if they are criminals. FFS this dude was asking to get arrested.

  25. KKy

    The Brits claim all sorts of first that they are not entitled too.

    The first concentration camps were built during the Civil War – both sides have good claims to being first.

    1. saucymugwump

      @KKy “The first concentration camps were built during the Civil War”

      That is incorrect for the reason that the Civil War camps held only military personnel. By definition, concentration camps hold civilians as well as military personnel.

      The only other true contender would be Spanish General Valeriano Weyler’s camps during the Spanish-American War who created reconcentration camps (not my terminology).

      I consider Britain’s Lord Kitchener to be the true father of concentration camps for two reasons. First, he moved civilians into camps after burning their homes. Second, women / children who had husbands / fathers in the fight were denied meat and other foods in their rations.

      I wrote about this in “Crimes Against Humanity Trials for North Korea: opening remarks.”

      1. KKy

        The why did the Federal Government hang Confederate Officer?

        The of course the US Army rounded up tens of thousands of The First Nations into hell wholes where they where they froze or staved to death, where they were given blankets and cloths officer knew were contaminated by small pox.

        1. saucymugwump

          “why did the Federal Government hang Confederate Officer”

          I have no idea what you are talking about. You will need to include names or other data. But even so, that involved the military, not civilians.

          “the US Army rounded up tens of thousands of The First Nations”

          This was probably genocide, though a good case could be made for these being the first concentration camps. The Trail of Tears is a great example of the cruel U.S. attitude toward Native Americans.

          The problem is that Native Americans were killed by just about everyone. As you mentioned, there are documented cases of settlers (British, I believe) who sold blankets to Native Americans with the full knowledge that the blankets were contaminated with smallpox. I think the book “Plagues and Peoples” touched on how many Native Americans died due to their vulnerability to European diseases.

          The killings started with the very first settlers. Pilgrims and others killed some Native Americans and took others as slaves to be sold in Europe.

  26. Essej

    At work I received an email through our Outlook server, purporting to be from “Verizon Wireless [account-update@vtext.com]”

    The subject line was “Account expired”

    The body of the message was:


    “You have to update your login info. View attachment and continue. Thank you! MESSAGE-ID-1HDSA-DHAS871G-DAHS671-AJ12D”

    There were two attachments, named as follows:

    login.html (25KB) and ATT00729.ATT (78 B)

    The header included the following (I have redacted information about the recipient):

    Received: from mail.red-abacus.com ( []) by [redacted]

    I looked at the html file using Microsoft Notes text editor, but did not try to run it with a browser. The text seemed to be all about Paypal. Would be happy to send the html file if anyone is interested. I could not figure a safe way to open the ATT file which contained only 28 bytes.

    Online, I found some fraud tips about vtext.com and text messages, but nothing much about vtext.com and emails.

    Probably this does not belong in this thread but at least it appears to concerns a verizon wireless service.

    I do not believe I have used vtext.com. What would happen if I opened the html file with a browser.

    1. saucymugwump

      Forget about the email headers as they can be forged. For email messages, always place your mouse cursor over the links before clicking on them (look at the bottom left of your screen for the URL, assuming Windows). A genuine email will have something like http://www.verizon.com/customer-service.html, while a malware site will have a domain you do not recognize.

      I would not open the file. Reputable companies almost never send emails with “You have to update your login info.”

  27. saucymugwump

    “On the Mt. Gox platform the currency plunged to as low as $500 early on Monday, down more than 27 percent from Friday’s final price of $692.

    Mt. Gox said withdrawals were on hold indefinitely after it ‘has detected unusual activity on its bitcoin wallets and performed investigations during the past weeks. This confirmed the presence of transactions which need to be examined more closely.’ Mt. Gox said a ‘bug in the bitcoin software’ could allow transaction details to be altered.”

    Bitcoin plunges after marketplace indefinitely halts withdrawals

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