Operator of illegal bitcoin exchange in the United States goes to jail
Daniel Mercede was buying large quantities of bitcoin from legitimate foreign exchanges and then reselling the bitcoin himself at a premium, without having the necessary license.
“I can get some crazy returns right now” was amid the promises that Daniel Mercede, of Chagrin Falls, used to give about his bitcoin business Cryptocoin Capital Management. The company, located in the United States, was operating without the necessary license that any US money transmitting business should have: these are issued by the U.S. Department of the Treasury.
Detective Sergeant Andy Capwill of the Chagrin Falls Police Department and special agents from the FBI’s Cleveland Field Office conducted an investigation into the business, prompted by another fraudulent scheme in which Mercede was implicated – using stolen credit card information to buy tickets to concerts and other events from a California-based ticket seller. The new investigation found Mercede was buying large quantities of bitcoin from legitimate foreign exchanges and was afterwards reselling the bitcoin himself at a premium.
Cryptocoin Capital Management had two advantages on the surface – its US location and that it did not require the same long waiting period for bitcoin trading as the legitimate exchanges.
“A lot of the time, people who want bitcoin want it now, so they will go through more peer-to-peer transactions,” explained FBI Special Agent Gary Sukowatey. “He (Mercede – Ed.) was buying larger quantities and waiting whatever period was necessary to wait, then he would sell it to people that wanted bitcoin right away.” The problem is that these transactions are illegal if the business does not have a license.
In September 2014, Mercede claimed he might secure average returns of 8 to 15% per day by buying off Chinese exchanges and then selling locally. According to Court records, he wired funds to make daily purchases of $10,000 and $40,000 in bitcoin. Over six months starting in August 2014, Mercede illegally converted or transmitted $1.4 million.
Mr Mercede will spend more than six years in prison as a result of his illegal activities. The case represents one of the first convictions for what is seen as a spreading type of crime—operating an unlicensed money transmitting business.
The FBI agents noted that trading in virtual currencies like bitcoin is perfectly legal—with the proper registration, licensing, and compliance with record-keeping requirements. Lack of registration, as the case with Mercede shows, may lead to criminal charges.