Paxful Holdings Inc., a peer-to-peer virtual asset exchange that is no longer operational and has been processing withdrawals for the past few months, has been ordered to pay a $4 million criminal fine. The sentencing, handed down on February 10, 2026, follows the company’s admission of guilt to multiple federal charges, including schemes to advance unlawful prostitution, breach anti-money laundering rules, and handle funds tied to criminal enterprises.
Federal authorities highlighted how Paxful deliberately positioned itself as a haven for shady dealings by ignoring essential compliance measures.
Assistant Attorney General A. Tysen Duva of the Justice Department’s Criminal Division emphasized that the platform “profited from funneling money for offenders it lured in by advertising its absence of anti-money laundering safeguards and non-adherence to relevant financial laws.”
Duva noted that such operations fuel a range of crimes, from fraud and blackmail to human trafficking and sex work exploitation, making them a top enforcement target.
U.S. Attorney Eric Grant for the Eastern District of California echoed this sentiment, stating that the penalty serves as accountability for Paxful’s choice to prioritize earnings over legal obligations.
“By ignoring red flags, the firm aided money laundering and other offenses,” Grant said.
“This outcome warns all digital asset operators that overlooking criminal use of their services will lead to severe repercussions.”
Special Agent in Charge Linda Nguyen of the IRS Criminal Investigation’s Oakland Field Office added that the case demonstrates the agency’s resolve to target entities that abuse financial networks for illegal purposes.
Paxful’s intentional neglect of money laundering prevention allowed large-scale movement of tainted funds, she explained, reinforcing that compliance must trump profits.
Court records reveal that Paxful, originally Paxful Inc. before becoming Paxful Holdings, ran an online marketplace where users swapped virtual currencies for cash, gift cards, and other assets.
Between early 2017 and late 2019, it processed over 26.7 million transactions valued at nearly $3 billion, generating about $29.7 million in fees.
Officials allege the company was aware that many of these involved proceeds from scams, extortion, and prohibited sex services.
A key aspect of the case involves Paxful’s ties to Backpage, a notorious online ad site shut down for promoting illegal prostitution, including content involving minors.
Paxful’s leaders reportedly celebrated the “Backpage Effect” for boosting their growth.
From 2015 to 2022, the platform transferred around $17 million in bitcoin to Backpage and a similar site, pocketing at least $2.7 million in gains.
From mid-2015 to mid-2019, Paxful promoted itself as KYC-free, permitting anonymous accounts and trades without proper user verification.
It also shared misleading anti-money laundering policies with outsiders while failing to enforce them or report suspicious activities, despite evidence of user involvement in fraud, romance cons, and sex trafficking.
Consequently, the exchange became a conduit for laundering money from various crimes, including hacks by foreign adversaries and the spread of child exploitation materials.
Paxful’s plea covered violations of the Travel Act through interstate promotion of illegal sex work, running an unregistered money transmission business that supported crimes, and flouting Bank Secrecy Act requirements for robust anti-money laundering systems.
The Justice Department’s agreement factored in the gravity of the misconduct, which included handling millions in dirty money.
While Paxful didn’t initially self-report, it later cooperated by sharing data, updating investigators, and implementing fixes, earning some leniency.
Although guidelines suggested a $112.5 million fine, an assessment of the company’s finances capped it at $4 million.
This resolution aligns with efforts by the Financial Crimes Enforcement Network (FinCEN).
Separately, co-founder and ex-CTO Artur Schaback admitted guilt in July 2024 to related anti-money laundering lapses.
The investigation, led by Homeland Security Investigations and IRS-CI, is being prosecuted by specialists from the Criminal Division’s Money Laundering and Asset Recovery Section and the Eastern District of California’s U.S. Attorney’s Office.
This development underscores growing scrutiny on crypto firms amid concerns over their role in facilitating illicit finance.
As regulators tighten the reins, platforms like Paxful face mounting pressure to adopt stringent controls or risk shutdowns and penalties.