According to the allegations contained in the criminal complaints unsealed today in Manhattan federal court1:

Since at least late 2013, MURGIO, LEBEDEV, and their co-conspirators have knowingly operated Coin.mx, a Bitcoin exchange service, in violation of federal anti-money laundering (“AML”) laws and regulations, including those requiring money services businesses like Coin.mx to meet registration and reporting requirements set forth by the United States Treasury Department. Through Coin.mx, MURGIO, LEBEDEV, and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service. In doing so, they knowingly exchanged cash for people whom they believed may be engaging in criminal activity. MURGIO and his co-conspirators have also knowingly exchanged cash for Bitcoins for victims of “ransomware” attacks, that is, cyberattacks in which criminals (here, distributors of the ransomware known as “Cryptowall”) electronically block access to a victim’s computer system until a sum of “ransom” money, typically in Bitcoins, is paid to them. In doing so, MURGIO, and his co-conspirators knowingly enabled the criminals responsible for those attacks to receive the proceeds of their crimes, yet, in violation of federal anti-money laundering laws, MURGIO never filed any suspicious activity reports regarding any of the transactions.

In total, between approximately October 2013 and January 2015, Coin.mx exchanged at least $1.8 million for Bitcoins on behalf of tens of thousands of customers. In addition, in the course of the scheme, MURGIO transferred hundreds of thousands of dollars to bank accounts in Cyprus, Hong Kong, and Eastern Europe, and received hundreds of thousands of dollars from bank accounts in Cyprus and the British Virgin Islands, in furtherance of the operations of his unlawful business.

MURGIO, LEBEDEV, and their co-conspirators engaged in substantial efforts to evade detection of their scheme by operating through a phony front-company, “Collectables Club,” and maintaining a corresponding phony “Collectables Club” website. In doing so, they sought to trick the major financial institutions through which they operated into believing that their unlawful Bitcoin exchange business was simply a members-only association of individuals who discussed, bought, and sold collectable items, such as sports memorabilia.

More recently, in an effort to evade potential scrutiny from these institutions and others, MURGIO obtained beneficial control of a New Jersey-based federal credit union (the “Credit Union”) which served primarily low-income local residents. MURGIO then installed LEBEDEV and others on the Credit Union’s Board of Directors, and transferred Coin.mx’s banking operations to the Credit Union, which MURGIO, LEBEDEV and other co-conspirators operated, at least until early 2015, as a captive bank for their unlawful business. At that time, after discovering that substantial payment processing activity was being conducted through the Credit Union, the National Credit Union Administration forced the Credit Union to cease engaging in such activity, and MURGIO thereafter found new, overseas payment processing channels for his unlawful business.

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MURGIO, 31, of Tampa, Florida, and LEBEDEV, 37, of Jacksonville, Florida, are each charged with one count of conspiracy to operate an unlicensed money transmitting business, and one count of operating an unlicensed money transmitting business, each of which carries a maximum sentence of five years in prison. MURGIO is also charged with one count of money laundering, which carries a maximum sentence of 20 years in prison and one count of willful failure to file a suspicious activity report, which carries a maximum sentence of five years in prison.The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and the Secret Service. He also thanked the National Credit Union Administration for their assistance with the investigation.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Nicole Friedlander, Sarah Lai, and Eun Young Choi are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

The charges contained in the criminal complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

1 As the introductory phrase signifies, the entirety of the text of the complaints, and the description of the complaints set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants manipulated trading in U.S. securities from overseas, using fake identities to funnel millions of dollars in unlawful proceeds through a web of international shell companies. Using false and misleading spam e-mails sent to millions of people, these defendants allegedly directed their pump-and-dump scheme from their computers halfway around the world.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “Crimes, such as the ones alleged herein, are multinational and complex in nature. The defendants are alleged to have profited in the millions of dollars and defrauded innocent investors for their own gain. The FBI is committed to working with our partners, both foreign and domestic, to ensure the integrity of our markets and protect our communities from fraud and deception, regardless of the scheme, means, or medium.”

USSS Special Agent in Charge Robert J. Sica said: “This case highlights the Secret Service’s investigative skills and our commitment to collaborate with our partners in detecting and dismantling highly sophisticated transnational criminal enterprises targeting the United States. These crimes can have a detrimental impact to our nation’s critical financial infrastructure. The Secret Service, in conjunction with its many law enforcement partners across the United States and around the world, is committed to deploying cutting edge investigative practices and technology in order to bring these offenders to justice.”

In a separate action, the United States Securities and Exchange Commission (“SEC”) announced civil charges against SHALON, AARON and ORENSTEIN.

According to the allegations contained in the indictment unsealed today in Manhattan federal court:1

Since 2011, SHALON, AARON, ORENSTEIN, and their co-conspirators have orchestrated multi-million dollar stock manipulation—or “pump and dump”—schemes to manipulate the price and trading volume of numerous publicly traded microcap stocks (“penny stocks”) in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices. In furtherance of the conspiracy, SHALON and AARON partnered with “promoters” who identified the companies whose stock would be targeted for manipulation. In doing so, AARON acted as the scheme’s “front-man,” using the alias “Mike Shields” (including false identification and a Social Security Number belonging to another person) to communicate with the promoters and others at SHALON’s direction. In some instances, at the time SHALON and AARON partnered with the promoters, the targeted companies were already publicly traded, and in other instances, SHALON and AARON worked with the promoters to cause the companies to become publicly traded in furtherance of the scheme. In either case, upon partnering with the promoters, SHALON, AARON and the promoters agreed upon the compensation SHALON and AARON would receive for their role in the scheme, which typically amounted to either hundreds of thousands of dollars, or to shares in the targeted stock that SHALON and AARON typically sold for hundreds of thousands or millions of dollars in profits in the course of the scheme.

Also in furtherance of the conspiracy, the promoters—along with, at certain times, SHALON and AARON—acquired control over all or substantially all of the free-trading shares of the targeted stock, that is, shares that the owner could trade without restriction on a national stock exchange or in the over-the-counter market. At certain times, in furtherance of the scheme, when they acquired such free-trading shares, SHALON and AARON held the shares in brokerage accounts in the United States, which were opened in the names of shell companies (the “Brokerage Accounts”) and managed in part at SHALON’s direction by ORENSTEIN under aliases that ORENSTEIN supported with false and fraudulent passports and other false personal identification information.

As a further part of the scheme to defraud, after members of the conspiracy acquired control of a substantial portion of the free-trading shares of the targeted stock, SHALON, AARON, and their co-conspirators artificially inflated the stock’s price and trading volume through two fraudulent and deceptive means. First, certain members of the conspiracy typically executed pre-arranged manipulative trades to cause the stock’s price to rise small amounts on successive days. Second, in connection with that trading, SHALON and AARON began disseminating materially misleading, unsolicited (“spam”) e-mails—e-mailing up to millions of recipients per day—that falsely touted the stock in order to trick others into buying it. As orchestrated by SHALON and AARON, these e-mails contained materially false and fraudulent statements including, for example, (i) that the stock’s recent trading activity reflected legitimate demand for the stock (when in fact, and as AARON and SHALON well knew, the trading activity was caused in whole or in part by the manipulative trading of their co-conspirators) and (ii) that the e-mails were being distributed and financed by certain third parties when, in fact, and as AARON and SHALON well knew, the e-mails were being distributed and financed by SHALON, AARON, and their co-conspirators, who controlled all or nearly all of the free-trading shares of the stock.

After causing the stock’s price and trading volume to increase artificially during the days or weeks of the e-mail promotional campaign, members of the conspiracy (including, when they owned shares, SHALON and AARON) began dumping, or selling, their shares in a coordinated fashion, often resulting in huge profits to members of the conspiracy. SHALON and AARON alone earned millions of dollars in illicit profits this way, selling shares of manipulated stocks from the Brokerage Accounts in coordination with their e-mail promotional campaigns and co-conspirators. The co-conspirators’ massive coordinated sales typically placed downward pressure on the stock’s price and caused its trading volume to plummet, exposing unsuspecting investors to significant losses. SHALON and AARON then laundered their criminal proceeds overseas, directing millions of dollars of their criminal profits to a shell company bank account in Cyprus for further distribution in part to another Cyprus-based shell company account owned and controlled by AARON, and to other overseas shell company accounts beneficially owned and controlled by SHALON and other members of the conspiracy.

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The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

SHALON, 31, of Savyon, Israel, and ORENSTEIN, 40, of Bat Hefer, Israel, are Israeli nationals, and were arrested earlier today at their residences. AARON, 31, a U.S. citizen who resides in Moscow, Russia, and Tel Aviv, Israel, remains at large.

Mr. Bharara praised the investigative work of the FBI, the USSS, and expressed his sincere gratitude to the Israel Police and the Israel Ministry of Justice for their support and assistance with the investigation. He also thanked the SEC.

The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Nicole Friedlander, Sarah Lai, and Eun Young Choi are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

1As the introductory phrase signifies, the entirety of the text of the indictment and the description of the indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.