A federal grand jury has charged one man with operating an unlicensed money transmitting business and two others with money laundering and related charges in the first bitcoin-related case before the Western District of New York, according to the U.S. Attorney’s Office and the Western District of New York.
The grand jury has charged Richard Petix of Rochester, N.Y. with operating an unlicensed money transmitting business and making false statements. The grand jury also charged Zhe Wang, 20, and Kevin Szura, 20, both of Queens, N.Y., with money laundering, conspiracy to distribute controlled substances, conducting a transaction in criminally derived property and money laundering conspiracy.
Petix faces five years on each charge while the other two men face up to 20 years in prison, according to U.S. Attorney William J. Hochul, Jr.
“This case demonstrates the ever-growing ways in which the virtual world is intersecting with, and being exploited by, real life crime and criminals,” said Hochul. “Those involved in such illicit activities should know that law enforcement is prepared to track them into the deep and dark portions of the web in order to bring criminals to justice.”
J. Michael Kennedy, acting special agent in charge of Homeland Security Investigations (HIS), said it is important to dismantle the fraudulent financial operations of transnational criminal organizations since such groups can succeed as long as they can funnel illicit proceeds without detection.
He said HSI will continue to target illegally-functioning, new alternatives to traditional financial institutions that intentionally allow individuals and businesses to further their criminal schemes.
Wei Xiang, the Assistant U.S. Attorney handling the cases, said the indictment and a previously-filed criminal complaint against Petix indicate he lied to law enforcement agents and federal probation officers about his ownership and use of a smartphone and a laptop computer.
The defendant is on supervised release for a 2009 federal child pornography conviction and must advise probation of any computers he uses.
If suspicious activity is suspected, Petix has to permit law enforcement officials to examine any computer. He told his probation officer on Oct. 20, 2015 he did not use the Internet or any computers.
But on Dec. 3, 2015, Petix conducted a bitcoin sale with an undercover federal agent. He transferred 37 bitcoins worth approximately $13,000 to the agent using his laptop computer and a smartphone. When confronted by federal probation officers, he said the smartphone and laptop did not belong to him.
Petix has been charged with operating a bitcoin exchange business unlawfully that sold about $200,000 in bitcoins from August 2014 to December 2015.
The indictment of Wang and Szura and a previously-filed criminal complaint said the two conspired to buy about $74,000 in bitcoins between March 2015 and March 7, 2016. The pair used proceeds from drug sales to buy the bitcoins, then bought bulk quantities of drugs from the dark web for further distribution using the bitcoins.
Szura and Wang mainly dealt with Xanax bars, which contain alprazolam, a controlled substance, which they allegedly imported from Canada. The pair also conspired to distribute mollies (MDMA).
Wang was among four individuals arrested by the Erie County Sheriff’s Office on state-controlled substance charges in October 2015, according to the complaint. Police seized approximately 2,500 bars of Xanax while executing a search warrant at 72 Winspear Ave. in Buffalo.
When federal agents arrested them on March 8, 2016, Wang and Szura were attempting to purchase about $8,000 in bitcoins to acquire more Xanax. The pair had more than $30,000 in their possession. Szura also brought Xanax pills for an undercover agent to sample.
Petix was scheduled to be arraigned before U.S. Magistrate Judge Hugh B. Scott on March 15, 2016 at 10 a.m.
Szura and Wang were arraigned before U.S. Magistrate Judge Michael J. Roemer on March 10, 2016.
The indictments are the result of an investigation by Immigration and Customs Enforcement, Homeland Security Investigations, under James C. Spero, the special agent in charge, and the U.S. Postal Inspection Service, under the direction of Inspector in Charge Shelly Binkowski.
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