Bitcoin Scam Ends in Jail as Immigrant's American Dream Fades
(Bloomberg) -- A Florida software engineer who came to the U.S. from Ukraine as a teenager seeking the American dream was sentenced to 16 months in prison for his role in building an illegal bitcoin exchange -- one that allegedly laundered money for a global hacking ring.
Yuri Lebedev, 39, was the technology guru behind Coin.mx, which tricked banks into processing bitcoin transactions by disguising them as restaurant-delivery charges and online purchases of collectible items. Lebedev was convicted in March of conspiracy and fraud following a monthlong trial in Manhattan.
U.S. District Judge Alison J. Nathan on Friday said Lebedev had abused his “impressive technology skills” to trick financial institutions, making them “unwilling participants in the scheme.”
Coin.mx was allegedly set up for use by a group of hackers who targeted financial and publishing firms including JPMorgan Chase & Co. and Dow Jones & Co. in a series of attacks in 2014. Lebedev wasn’t accused of money laundering or involved in the hacking, but his role in operating the exchange was critical, prosecutors said.
Lebedev, wearing a black suit, stood before sentencing to say he regretted getting involved with Coin.mx. All he wanted to do, he said, was create “cutting edge technology” and build something “that would make me exceptional.”
“I got carried away,” Lebedev said, adding he realizes now “there are no shortcuts.”
Nathan gave Lebedev considerably less time than the maximum of 10 years recommended by U.S. sentencing guidelines, finding he was neither a leader nor a mastermind, and noting he had no criminal history.
"He did what he was told to do," Nathan said.
The man giving the orders was Coin.mx’s operator, Anthony Murgio, who was sentenced to 5 1/2 years in June. He pleaded guilty in January and said he ran Coin.mx for the hacking scheme’s main Israeli architect, Gery Shalon, the self-described founder of a criminal enterprise that stunned Wall Street.
Prosecutors said the unregistered exchange sold bitcoins that were used in illegal online transactions and as payment in ransomware attacks. Lebedev’s role was to set up an array of servers that Coin.mx used to process its transactions, a critical element of the scheme that required constant attention to avoid detection by the banks, the U.S. said.
To help dodge regulators, Lebedev also conspired with his boss to bribe a New Jersey pastor to let them take over a credit union that was run out of a church, and use it to help legitimize the exchange’s operations. The scam eventually ruined the business, which is liquidating.
It’s all a far cry from Lebedev’s goal of creating a better life for himself in the U.S., according to court papers. Born in Russia and raised in Ukraine, he was abandoned by his alcoholic father when he was 8 and raised by his scientist mother. After winning awards in biology, math and physics, he was selected to move to the U.S. as an exchange student at age 16.
"America has been given a genius from the Ukraine," his math teacher said at the time, according to defense filings.
"Yuri, with his mother’s support, made the brave decision to move to the United States -- without having a single relative or acquaintance in America -- in order to improve his life," his lawyer said.
Lebedev moved in with a host family in Georgia, according to court papers. After high school he double-majored in physics and computer science at Valdosta State University, and obtained post-graduate degrees including a Masters of Science and Physics from Florida State University, court papers show. He met his wife at college. They have three children.
Lebedev’s attorney, Eric Creizman, cited the wide-ranging nature of the scheme to portray his client as a husband and doting father who got caught up in something too big for him to recognize. In court papers, he described Lebedev as an "unlikely criminal defendant."
But prosecutors used the idyllic life Lebedev had built against him in seeking a tough sentence, saying he wasn’t like criminals who needed money or had other such motivation to break the law.
"He basically could have ridden out the script for his life," Assistant U.S. Attorney Won S. Shin said at the sentencing. People in Lebedev’s position "are even more culpable."
Family and friends sent letters to the court supporting Lebedev, all of which described him as a man devoted to hard work and to his children. His host family said Lebedev tutored their child in math, while a college pal relayed how Lebedev washed dishes to avoid using a credit card for living expenses.
Shalon’s global network allegedly stole information on more than 100 million customers of banks and publishing firms and generated hundreds of millions of dollars in illicit proceeds from pump-and-dump stock scams and online gambling.
Murgio operated the exchange with Lebedev from about 2013 to 2015 through a front company, the Collectables Club Private Member Association, which lists Murgio’s West Palm Beach address, court papers show. At Murgio’s sentencing hearing, he wept and said he’d "screwed up badly."
The case is U.S. v. Murgio, 15-cr-00769, U.S. District Court, Southern District of New York (Manhattan).