Crypto Exchange Bitzlato in Hot Water as Co-founder Pleads Guilty

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December 7, 2023 09:02 EST

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Anatoly Legkodymov, also known as “Gandalf” and “Tolik,” a Russian national and co-founder of the Hong Kong-based crypto exchange Bitzlato, has pleaded guilty in a US federal court in New York to charges related to operating an unlicensed money transmitting business.

Legkodymov admitted to overseeing Bitzlato Ltd., a crypto exchange that served as a conduit for dark market transactions and a haven for ransomware criminals, the US Attorney’s Office for the Eastern District of New York said in a press release from Wednesday.

“The defendant may have thought he was operating from a safe haven overseas for his ‘No Questions Asked’ clearinghouse, but this prosecution and conviction demonstrate otherwise.” – U.S. Attorney Peace

— US Attorney EDNY (@EDNYnews) December 6, 2023

According to the prosecutor, Bitzlato’s lax controls over illicit money transactions attracted criminal elements seeking to exploit its lenient procedures.

Legkodymov agreed to dissolve Bitzlato as part of his plea agreement, releasing any claim to approximately $23 million in seized assets.

The guilty plea was made before US District Judge Eric N. Vitaliano.

Bitzlato’s limited KYC controls

The charges highlight Bitzlato’s role in facilitating illegal activities, with the exchange marketing itself as a haven requiring minimal user identification.

Bitzlato allegedly became a hub for criminal proceeds, particularly in dealings with Hydra Market, the largest and longest-running darknet market for narcotics and illicit services.

The US Attorney’s Office further said that Legkodymov’s deficient know-your-customer (KYC) procedures allowed users to submit information belonging to “straw man” registrants openly.

Darknet marketplace Hydra Market

According to Wednesday’s announcement, users of Hydra Market, a Russian online marketplace for illegal goods, exchanged over $700 million worth of crypto with Bitzlato until the darknet market’s shutdown in April 2022.

The US Department of Justice (DOJ) has previously claimed that Hydra back in 2021 accounted for as much as 80% of global darknet market-related crypto transactions.

In a comment, Deputy Attorney General Lisa O. Monaco said that the DOJ, together with its partners, is “dismantling and disrupting the cryptocrime ecosystem using all tools available.”

The guilty plea follows the earlier takedown of Bitzlato’s infrastructure and the seizure of its digital assets in January.

Legkodymov, a 40-year-old Russian national who resides in Shenzhen, China, was arrested in Miami in January this year.

The investigation was a joint effort by the US Attorney’s Office for the Eastern District of New York and the National Cryptocurrency Enforcement Team (NCET).