Nixa Man Pleads Guilty to Illegal Bitcoin Exchange
SPRINGFIELD, Mo. – Tom Larson, Acting United States Attorney for the Western District of Missouri, announced that a Nixa, Mo., man pleaded guilty in federal court today to conducting an illegal money transmitting business by exchanging bitcoin for cash without a license.
Jason R. Klein, 37, of Nixa, waived his right to a grand jury and pleaded guilty before U.S. Magistrate Judge David P. Rush to a federal information that charges him with conducting an unlicensed and unregistered money transmitting business.
Klein was the founder of two technology-based companies: Logic Forte and Datality Networks. Logic Forte purportedly provided consulting and computer programming assistance for the restaurant industry. Datality Networks purportedly provided Internet housing and network consulting.
Klein is the president of the Association of Information Technology Professionals (“AITP”) – Southwest Missouri. AITP is a professional association focused on technology education for business professionals. AITP’s southwest Missouri chapter has approximately 230 members and is the largest chapter in the United States.
By pleading guilty today, Klein admitted that he represented himself on the Internet to be a bitcoin exchanger. However, Klein was not a licensed money transmitter with the state of Missouri or with the Financial Crimes Enforcement Network, as required by federal and state law.
An undercover federal agent responded to an online advertisement posted by Klein. Klein told the undercover agent that his rate included a 10 percent commission “for an in-person $1,000 cash exchange.”
Between Feb. 6, 2015, and July 27, 2016, Klein, acting with another, met with two undercover federal agents on numerous occasions to exchange bitcoin for cash. Today’s plea agreement cites five separate transactions in which money (ranging from $1,000 to $15,000) was exchanged in person for an electronic transfer of bitcoin. Each of the transactions included a fee that Klein or another person charged the undercover agents, for a total of $2,122 in fees.
Under federal statutes, Klein is subject to a sentence of up to five years in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
Bitcoin Background
Bitcoin are not illegal in and of themselves and have legitimate uses. Bitcoin are a decentralized form of electronic currency, existing entirely on the Internet and not in any physical form. The currency is not issued by any government, bank, or company, but rather is generated and controlled automatically through computer software operating on a “peer-to-peer” network. Bitcoin transactions are processed collectively by the software-enabled computers composing the network.
To acquire bitcoin in the first instance, a user typically must purchase them from a bitcoin “exchanger.” In return for a commission, bitcoin exchangers accept payments of currency in some conventional form, including cash, and exchange the money for a corresponding number of bitcoin, based on a fluctuating exchange rate. Exchangers also accept payments of bitcoin and exchange the bitcoin back for conventional currency, again, charging a commission for the service.
Once a user acquires bitcoin from an exchanger, the bitcoin are kept in a “wallet” associated with a bitcoin “address,” designated by a complex string of letters and numbers. The “address” is analogous to the account number for a bank account, while the “wallet” is analogous to a bank safe where the money in the account is physically stored. Once a bitcoin user funds his wallet, the user can then use bitcoin in the wallet to conduct financial transactions over the Internet by transferring bitcoin from his bitcoin address to the bitcoin address of another user.
This case is being prosecuted by Assistant U.S. Attorney Casey Clark. It was investigated by IRS-Criminal Investigation.