New York federal prosecutors arrested two Florida men Tuesdaywho allegedly ran a phony company and controlled a New Jerseyfederal credit union to operate an unlicensed Internet Bitcoin exchange scheme for the purpose of laundering money forcriminals.

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Since late 2013, Anthony R. Murgio, 31, of Tampa and YuriLebedev, 37, of Jacksonville, operated Coin.mx, a Bitcoin exchangeservice, which violated federal anti-moneylaundering laws. Through Coin.mx, Murgio and Lebedev enabledtheir customers to exchange cash for Bitcoins, charging a fee fortheir service.

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Federal prosecutors alleged that the two men exchanged cash forpeople whom they believed might be engaging in criminalactivity.

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In late 2014, Murgio obtained “beneficial control” of a smallNew Jersey federal credit union, which was processing more than $30million a month, to process ACH transactions, according to courtdocuments.

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Murgio managed his control over the credit union by making apayment to a senior executive and installing individuals close tohim, including Lebedev, on the credit union’s board ofdirectors.

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In emails between Murgio and the senior credit union executive,who was not identified, the executive admitted to Murgio thatnotwithstanding the executive’s titular role, “I’m going to sayit…..it’s your credit union….I believe how I’ve operated from dayone is it’s your credit union.”

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In an email to Lebedev, Murgio described the New Jerseycooperative as a “small credit union 107 members no full timeemployees.” Murgio also invited Lebedev to become an advisorymember on the board for which he would be paid $5,000.

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Lebedev responded, “I am most definitely in! and “I won’tdisappoint you[.]”

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Federal prosecutors did not name the credit union.

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Court documents also show the executive was becoming worriedabout the “tap dancing” he and others were doing to avoid raisingconcern among federal regulators about the payment process activitythat Murgio and others were conducting through the cooperative.

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“We can’t certify that all the people we let [pass] moneythrough this credit union…..weren’t doing something illegally withthe money,” the executive wrote in an email to Murgio.

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The executive also acknowledged that the credit union had notperformed appropriate Bank Secrecy Act procedures and, as a result,the credit union’s account may have been used for money launderingand other crimes.

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Although the NCUA learned the credit union was processing morethan $30 million a month in ACH transactions, court documents donot say when it forced the New Jersey cooperative to stopprocessing the ACH transactions. The NCUA also required the creditunion to remove the new board members.

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However, Murgio found other ways to process payments for Coin.mx– primarily through an overseas payments processor.

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Murgio and Lebedev also allegedly exchanged cash for Bitcoinsfor victims of “ransomware” attacks. Criminals use ransomware knownas Cryptowall to electronically block access to a victim’s computersystem until ransom money, typically in Bitcoins, is paid tothem.

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From October 2013 to January 2015, Coin.mx exchanged at least$1.8 million for Bitcoins on behalf of tens of thousands ofcustomers. In addition, in the course of the scheme, Murgio alsotransferred hundreds of thousands of dollars to bank accounts inCyprus, Hong Kong and Eastern Europe, and received hundreds ofthousands of dollars from bank accounts in Cyprus and the BritishVirgin Islands, federal prosecutors alleged.

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What’s more, Murgio and Lebedev managed to evade detection oftheir scheme by operating through a phony front-company called theCollectables Club, which also maintained a corresponding fakewebsite.

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Federal prosecutors alleged the Florida men ran the bogusbusiness to trick two major financial institutions to open bankaccounts under the Collectables Club.

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Murgio and Lebedev convinced bank officials to believe that theBitcoin exchange was simply a members-only association ofindividuals who discussed, bought and sold collectable items, suchas sports memorabilia, and that the accounts would be used todeposit membership dues and service fees.

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However, according to court documents, the bank accounts wereused to operate Coin.mx. From September 2013 to mid-2014, Murgioand Lebedev exchanged more than $1 million for Bitcoins on behalfof Coin.mx customers.

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The Collectables Club account records show thousands of incomingdeposits in varying amounts from individuals, some of whom in wiretransfer instructions noted that their payment was for Bitcoins.Additionally, the bank records also showed numerous payments weremade to entities that sell Bitcoins in exchange for U.S. dollarsand other currency.

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The banks were not identified in court documents.

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Murgio and Lebedev were each charged with one count ofconspiracy to operate an unlicensed money transmitting business,and one count of operating an unlicensed money transmittingbusiness, each of which carries a maximum sentence of five years inprison.

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In addition, Murgio was also charged with one count of moneylaundering, which carries a maximum sentence of 20 years in prisonand one count of willful failure to file a suspicious activityreport, which carries a maximum sentence of five years in prison,federal prosecutors said.

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