Crypto Exchange Head Gets No More Jail in $700 Million Scam

(Bloomberg) — The Russian founder of cryptocurrency exchange Bitzlato was sentenced to 18 months in prison in the U.S. for running an unlicensed money-transfer business that concealed more than $700 million worth of illegal gambling and drug-trafficking proceeds.

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Anatoly Legkodymov, who has been in federal custody since his arrest in January 2023, was sentenced to prison on Thursday by U.S. District Judge Eric Vitaliano in Brooklyn, New York. Legkodymov, who pleaded guilty in December, admitted that he knew for years that Bitzlato was being used as a conduit for transactions connected to the dark web, including the notorious drug marketplace Hydra Market, which was shut down by authorities in 2022.

Prosecutors from Brooklyn U.S. Attorney Breon Peace’s office argued that Legkodymov, who owns and controls Bitzlato, deserves a minimum of four years in prison for “creating a clearinghouse for dirty money.” Legkodymov continued to allow the exchange to operate despite being repeatedly warned that it had become “a haven for criminals, drug dealers, ransomware extortionists” on the dark web.

But at the sentencing hearing, the judge called the Metropolitan Detention Centre, where Legkodymov is being held, “a terrible place” and this was a factor in the decision against a longer sentence. There have been two murders of inmates at the detention centre in the past five weeks.

Vitaliano acknowledged that Legkodymov was “aware of the illegal nature of what he was doing” and that he had processed hundreds of millions of dollars in illicit funds for criminals. But the judge also called him “an entrepreneur and a visionary” and said Vitaliano had “led an admirable life” before his arrest.

Ledkodymov, who had lived in Russia and Shenzhen and moved to Pennsylvania at the time of his arrest, agreed to waive his claim to $23 million in cryptocurrencies seized by French authorities as part of his plea.

The case was part of a broader effort by the U.S. Department of Justice to combat the criminal use of cryptocurrencies and recover the proceeds of those crimes through the National Cryptocurrency Enforcement Team. Last year, Binance Holdings Ltd. and Chief Executive Officer Changpeng Zhao pleaded guilty to money laundering and violating U.S. sanctions as part of a broad U.S. settlement that allowed the cryptocurrency exchange to continue operating.

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In announcing Ledkodymov’s sentence, Vitaliano said Zhao received only a four-month sentence because he had pleaded guilty.

The case is US v. Legkodymov, 23-cr-496, U.S. District Court, Eastern District of New York (Brooklyn).

(Updated with judge’s comments in fifth paragraph.)

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