FBI Bitcoin

The FBI wrote on its blog May 3 about a ticket selling hub that led to the uncovering of a Bitcoin laundering scheme. Charges were brought this March, and the FBI chose to recount this unique, and successful, investigation. 

“The beginning of the end of an Ohio man’s venture into the murky world of cryptocurrencies can be traced back to the moment investigators linked the 29-year-old to a ticket-fraud scheme nearly 2,000 miles away in California,” they wrote on their website.

Daniel Mercede, from Chagrin Falls, used stolen credit card information to buy concert tickets and other events from a ticket seller in California. He then sold them through another ticket vendor, oftentimes for less than he paid, to profit from his ill gotten gains. 

Mr. Mercede’s $420,000 in proceeds from his actions beginning 2014 were thanks to the stolen information of over 40 victims. With their identities, he applied for more than $1.5 million in loans.

Things got hairy for Mr. Mercede when the victims sought the funds back. An investigation led to Mercede. The tickets had been delivered to his home address or to his parents.

“A lot of the material that we got out of his apartment led me to believe there was something much, much greater going on here than a simple fraud,” according to Detective Sergeant Andy Capwill of the Chagrin Falls Police Department.

The Chagrin Falls Police Department found thousands of pages of evidence of money transfers, dozens of checking accounts, and a digital currency trading. “I realized I was going to need some help here,” said Capwill, who promptly asked for the FBI’s assistance. The Detective Sergeant had never heard of Bitcoin prior to the investigation.

Mercede had been acting as an unlicensed money transmitter alongside his ticket selling fraud. He made large bitcoin purchases from legitimate exchanges in Europe and China and resold them to customers locally.

His business, which he called Cryptocoin Capital Management, advertised itself as U.S.-based – one of its perks. 

“A lot of the time, people who want bitcoin want it now, so they will go through more peer-to-peer transactions,” said Special FBI Agent Gary Sukowatey. 

An investigator on the case, Sukowatey added: “He was buying larger quantities and waiting whatever period was necessary to wait, then he would sell it to people that wanted bitcoin right away.”

Sans a Money transmitters license, such operations are illegal in the amounts Mr. Mercede did them. In order to process such transactions, a business must register with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network or FinCEN.

“You’ve got to do it the right way,” said Special Agent Milan Kosanovich, who specializes in complex financial crimes and investigated the case with Sukowatey and Capwill. “It’s perfectly fine to operate as a money exchanger for bitcoin. However, those exchangers, like other financial institutions in the U.S., have specific rules to follow to ensure compliance with anti-money laundering requirements.”

CoinDesk reported that Mercede mostly purchased from exchanges like Bitstamp and Lake BTC, and sold over-the-counter (OTC) to regional customers.

“Demand is really high with low prices and all the sellers that [were] holders before are actually returning buyers again right now,” he said at the time.

He claimed CCM returns averaged between 8%-15% per day thanks to his ability to buy off Chinese exchanges and selling regionally, as well as vice-versa.

“I can get some crazy returns right now,” said Mercede, who spoke of a trade that September in which he bought 20 BTC at $375 and resold the bitcoins at $560 to a regional customer within hours.

CCM regularly executed trades for up to 50 BTC per trade, Mercede told Coin Desk. He also said he was considering registering with the US Securities & Exchange Commission (SEC) to add more products and services. He also told Coin Desk he wanted to…raise more cash.

Mercede wired for daily purchases of $10,000 and $40,000 in bitcoin. The strictest Bitcoin processors do no more than $150 per day per customer. Beginning one month before the Coin Desk article, Mercede “converted or transmitted” $1.4 million.

He was sentenced on March 21 to over six years in prison.

“It’s easier for people not to do it and hope they don’t get charged with it,” said agent Sukowatey. “But as we were able to prove in this case, you can be charged criminally for not being registered.”

Capwill appreciated the learning experience. He had not known about Bitcoin before the investigation. “It was a lot of information being shared back and forth between the agencies, which was really helpful,” he said. “It’s always nice to know there’s somebody out there on the other end of the phone that can help you.”

It’s important to remember in this crime, there were indeed victims. Prosecutors drove this point home in the trial of Mercede, who was 29 when he faced the charges.

“Mr. Mercede was motivated solely by greed,” Acting U.S. Attorney David A. Sierleja said. “He has shown himself to be a serial scammer and identity thief who is a clear economic danger to the community. Prison is the proper place for him.”

“Mercede left a wake of financial damage with the numerous unlawful schemes he engaged in,” said FBI Special Agent in Charge Stephen D. Anthony. “The FBI will continue to work with our law enforcement partners to ensure fraudsters serve their due time behind bars instead of on lavish vacations at the expense of others.”

“Daniel Mercede perpetrated a complex scheme involving identity theft and the illegal use of an unlicensed bitcoin exchange service that was driven by insatiable greed and a blatant disregard for the tremendous damage inflicted on innocent victims,” said Frank S. Turner II, Acting Special Agent in Charge, IRS Criminal Investigation, Cincinnati Field Office. “Be assured that IRS Criminal Investigation, together with our law enforcement partners and the U.S. Attorney’s Office, will hold those who engage in similar behavior fully accountable.”

“I would like to acknowledge the hard and diligent work of Detective Sergeant Andy Capwill,” said Chagrin Falls Police Chief Amber Dacek. “He really dug in to this case and gathered a good deal of the initial financial information that ultimately led to this prosecution. I am very pleased with the collaborative effort that went in to obtaining this conviction.”

Featured image from Shutterstock.