RiskTech Forum

New York state sees first crypto money laundering conviction

Posted: 26 April 2019  |  Source: Manhattan DA

Manhattan District Attorney Cyrus R. Vance, Jr., today announced the guilty pleas of CALLAWAY CRAIN, 35, and MARK SANCHEZ, 35, for running a steroid and controlled substance business that laundered millions of dollars in cryptocurrency and Western Union payments. The defendants sold their products, which they manufactured, marketed, and shipped, on a website they controlled called “NextDayGear,” and on the dark web. The defendants sold injectable steroids and oral steroids, in addition to medications to counteract the effect of steroid use, including Xanax, Valium, and Viagra. Between 2013 and 2018, the defendants shipped more than 10,000 packages across the U.S., generating more than $2.8 million in revenue through cryptocurrency and Western Union payments, which they laundered and converted to cash. Today, CRAIN and SANCHEZ pleaded guilty to Money Laundering in the 2nd Degree and Criminal Sale of a Controlled Substance in the 5th Degree, with promised sentences of 2 ½ to 7 ½ years in prison. They are expected to be sentenced on July 12, 2019.

This was the first conviction for money laundering involving cryptocurrency by New York State prosecutors. Last week, the Office indicted a dark web operation that sold and shipped hundreds of thousands of counterfeit Xanax tablets and other controlled substances, and laundered $2.3 million in cryptocurrency by using preloaded debit cards and withdrawing cash at ATMs in Manhattan and New Jersey.

“These defendants raked in crypto and cash worth millions on their full-service website that sold prescription-free counterfeit steroids and other controlled substances to customers in all fifty states,” said District Attorney Vance. “Online drug sellers who do business in New York should take note: whether you’re operating in plain sight or in hidden corners of the dark web, my Office has the skills and resources to follow the money, shut down your business, and hold you accountable.”

According to court documents, and as admitted in the defendants’ guilty pleas, beginning in 2013, CRAIN and SANCHEZ operated and managed a series of websites named “NextDayGear” that sold anabolic steroids, such as testosterone, nandrolone, and stanozolol, as well as controlled substances and pharmaceuticals that can be used to counteract the negative effects of steroid use, including Xanax, Valium, and Viagra.

The defendants purchased steroids, precursor chemicals, and other controlled substances wholesale from China and other countries. After obtaining the chemicals and substances, they mixed, pressed, and packaged them, often under brand names they created; advertised and sold them online; and shipped them to customers in all 50 states and sixteen countries. Their customers included a college football player, an NFL football player, a professional volleyball player, fitness trainers, police officers, members of the armed services deployed overseas, body builders, drug dealers, doctors, lawyers, and a high school athletic coach.

From 2013 through 2015, the defendants operated their criminal enterprise from a series of Manhattan apartments, before moving the operation to Dallas, Texas, in 2016. Search warrants executed in Dallas, conducted after multiple undercover purchases, revealed a manufacturing laboratory and distribution workspace operated by the defendants, including an air filtration hood, autoclave sterilizer, pill press, scale, empty vials, labels, packaging materials, pill counter, sealer, computer, label printer, and a storage area and refrigerator filled with pre-packaged steroids, controlled substances and pharmaceuticals.     

Between March 2013 and January 2018, the defendants shipped more than 10,000 packages, paid shipping costs of over $32,000 and generated at least $2.8 million in revenue. Typically, customers paid in the form of bitcoin, which the defendants laundered through one or more intermediary cryptocurrency “wallets” in order to obscure the source of the funds. The defendants then converted the bitcoin into U.S. currency using a cryptocurrency exchange service, before depositing the cash into their bank accounts. Customers also made payments through Western Union. Those payments were laundered through the use of false identities, or through international wire transfers from foreign based receivers.

Assistant D.A. Adam Maltz and Assistant D.A. James Hanley handled the prosecution of the case under the supervision of Assistant D.A.s Michael Ohm, Deputy Chief of the Rackets Bureau; Judy Salwen, Principal Deputy Chief of the Rackets Bureau; Jodie Kane, Chief of the Rackets Bureau, and Executive Assistant D.A. Michael Sachs, Chief of the Investigation Division.  Senior Rackets Investigator Jeremiah Breen, Rackets Investigator Brian Conway, Supervising Rackets Investigator Max Adler, Assistant Chief Investigator Michael Wigdor, Chief Investigator Walter Alexander Financial Analyst Michael Kelly, Blockchain and Cryptocurrency Investigative Analyst Oliver Van Zant, Investigative Analyst Jake Diamond and former Investigative Analysts Miye D’Oench and Rebecca Goldberg, and Supervising Computer Forensic Analyst Douglas Daus, assisted in the investigation. 

District Attorney Vance thanked the Dallas Police Department, the Dallas County District Attorney’s Office, Western Union, Coinbase, and Postal Inspector Lauren Fetch of the United States Postal Inspection Service for their assistance in the investigation.