Digital currency firm co-founder gets 10 years in prison in U.S. case

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A co-founder of Liberty Reserve, which operated a widely-used digital currency, was sentenced to ten years in prison on Friday after agreeing to help authorities prosecute his ex-partner for helping cyber criminals launder hundreds of millions of dollars.

Vladamir Kats, 44, was sentenced by U.S. District Judge Denise Cote in Manhattan, a week after she imposed a 20-year prison term on Arthur Budovsky, Liberty Reserve’s other co-founder, for conspiring to commit money laundering.

Kats, who has been in custody since his arrest in May 2013, was also ordered to forfeit $6.5 million. He pleaded guilty later in 2013 to money laundering and operating an unlicensed money transmitting business.

Before being sentenced, Kats said he was remorseful. His lawyer, Christopher Flood, asked for a sentence of time served.

Cote, however, said Kats’ “enormous criminal activity” called for a longer sentence.

Liberty Reserve operated a widely used digital currency, processing more than $8 billion in transactions while helping launder proceeds from Ponzi schemes, credit card trafficking, identity thefts and computer hacking, prosecutors said.

The company was shuttered in May 2013 as Kats and Budovsky were arrested amid U.S. efforts to crack down on the use of digital currencies including bitcoin to evade law enforcement.

Beyond Kats and Budovsky, three other people pleaded guilty, including Azzedine El Amine, a Costa Rican citizen and former Liberty Reserver manager, who is scheduled to be sentenced later on Friday.

Kats and Budovsky, who met as teenagers working as camp counselors in Brooklyn, previously were convicted in 2006 on New York state charges for operating an earlier digital currency exchange as an unlicensed money transmitting business.

In 2005, they launched Liberty Reserve, which later relocated to Costa Rica. In 2008, Budovsky pushed Kats out of Liberty Reserve, complaining he had not done enough, prosecutors said.

With Liberty Reserve, users would buy and redeem its digital currency, LR, through third-party exchangers who in turn bought and sold LR in bulk from Liberty Reserve.

Users did not have to validate their identities, prosecutors said, allowing an undercover Secret Service agent to create an account for a “Joe Bogus.”

After his arrest, Kats turned government cooperator, assisting the investigation, agreeing to testify against Budovsky had he gone to trial, and admitting to other conduct, including possessing child pornography, prosecutors said.

The case is U.S. v. Kats et al, U.S. District Court, Southern District of New York, No. 13-00368.

(Reporting by Nate Raymond in New York; Editing by Bernard Orr)