Seven Stories about Miners and Crypto Dealers that were Sent to Jail
This article is about people that were sent to jail for crimes with crypto in different countries, from China and Japan to the US and Sweden. Everyone knows the story of the Japanese crypto exchange Mt. Gox and its CEO Mark Karpelès. Mt. Gox was once the biggest Bitcoin exchange in the world, but in 2014 it became insolvent after losing 850,000 BTC. Its CEO Mark Karpelès, Bitcoin’s Biggest Villain, as he is sometimes called, was charged with embezzlement and data manipulation and spent several months in jail. This text is not about Bitcoin’s Biggest Villains. We’ll focus on more ordinary people whose mistakes (and sometimes, something more serious than mistakes) cost them freedom for several months or years. 3.5 Years in Jail for Stealing Train Power in China China, which is now not so friendly to crypto traders and miners, does not tolerate even small violations and punishes for them severely. This September, a local named Xu Xinghua was sentenced to 3.5 years in jail for stealing electricity from one of the factories at Kouquan Railway. He needed the power to fuel his BTC operations: he had 50 Bitcoin miners and 3 electric fans. Xinghua was also fined $14,500 and ordered to cover the cost of electricity charges. His mining equipment was confiscated. According to local media, China wants miners to make an “orderly exit” from the country. $9 million of Fine for Crypto Ponzi Scheme The US authorities take a milder approach. In 2014 – 2015, four companies owned by Josh Garza sold investors the rights and access to cryptocurrency mining operations. Investors were also given rights to a portion of the profits from the mining operations. The operations seemed legal, although Garza gave guarantees that should have raised red flags: for example, he promised to prop the price of the cryptocurrency. As a result, investors lost $9 million. Garza was sentenced to 21 months in prison, followed by six months of house arrest, and was ordered to pay the investors restitution of $9.18 million. Lifetime Ban from Finance for Defrauding Investors In 2017, crypto trader Joseph Kim (Arizona) lost on BTC operations more than $1 million – it was bad luck. He tried to rectify those trades and went into debt, which increased his loss. It was the money of his firm and clients, mostly funds. Trading losses do happen, but then Kim did something strange: he illegally transferred some money from the accounts of his firms to his personal accounts and informed investors that he had left the firm to set up his own trading business. The result is a $1.1 million fine from the US Commodities and Futures Trading Commission (CFTC), 15 months in jail for cryptocurrency fraud and a lifetime ban form finance. A Geek and a Mackerel Case Charlie Shrem is a geek who launched BitInstant to make the purchasing of bitcoin faster and more accessible. BitInstant targeted consumers who wanted to buy about $300-500 of bitcoin and charged them a small fee for every transaction. Although there was no other advertising than grapevine, the business grew at the rate of 1.5x per month. At one point its turnover was $1 million a day. The popularity of BitInstant business can be proved by the fact that its seed funding was led by the Winklevoss twins. However, in 2013 it lost its license due to regulation enhancement, and Shrem had to shut BitInstant down. Several months later, when Shrem was returning to New York from a conference in Amsterdam, he was arrested in the JFK airport. It turned out that he facilitated transactions to a re-seller, Robert Faiella, whose customers were using the Silk Road. Shrem did not deny it, and in 2014 he (aged 26) and Faiella were sent to prison. For the record, US prisoners are not allowed to possess cash, and smoking is prohibited in prisons (and the cigarette pack is no longer ‘the gold standard’). The prison economy ran on bartering mackerels. Fish differed depending on the size and expiry date, and one day the guard provoked ‘hyperinflation’ when the confiscated a large number of mackerel and left them for any prisoner to take. It would be a good idea to digitize the prison economy and put it on the blockchain, Shrem thought: then prisoners would have a real-time record of all transactions and the guards will not have the power over the value of the mackerel. Japan Gives Jail Sentence for Using Remote Mining Tool A 24-year-old unemployed in the city of Amagasaki was sentenced to a year in prison for using a remote crypto mining tool. His name is not disclosed, but according to the local media, this is the first case of mining abuse in Japan. The tool in question is called Coinhive, and the man was using it to mine cryptocurrency on other people’s computers without their consent. Coinhive was used in an online game cheat tool, instead of one installed on a website. The police have arrested three more people who are suspected of the same violations. Seven Years in Jail for Crypto Exchange Bombing Attempt Michael Salonen, 43, who lives in Stockholm, in 2017 used to send threats to lawmakers. His letters contained a white power, which was inoffensive. One of such letters was received by the Prime Minister of Sweden, Stefan Lofven. Then Salonen went even further. In August 2017 he sent two packages to the London crypto exchange Cryptopay. The packages were addressed to the Cryptopay’s employees and contained two pipe bomb devices. Fortunately, they did not explode, and the UK police managed to link the case to Salonen using DNA samples. Salonen was convicted to seven years in prison. A Year and a Day in Jail for Selling too Much Bitcoins to Federal Agents Eldon Stone Ross, 24 (Pennsylvania) was used to making bitcoin-to-cash and cash-to-bitcoin transactions. His biography was not crystal clear: in 2014 he was convicted of trafficking heroin, but he was not afraid of being robbed by strangers when trading bitcoin. But now he is going to prison for selling $1.5 million in bitcoin to undercover federal agents. Ross got into trouble with bitcoin because he ignores several rules: he did not ask for any identifying information from the agents, he was not licensed and he did not report transactions to the regulator. (All transactions over $10,000 in cash should be reported to the US Treasury Department). Ross was sentenced to spending a year and a day in federal prison.