In 2014, the U.S. Securities and Exchange Commission (SEC) charged ShapeShift founder Erik Voorhees with offering unregistered securities. He was forced to settle the charges, paying a fine and disgorgement on the millions of dollars he had illegally made from the offering. Later, in 2018, the Wall Street Journal published an investigation into digital asset intermediaries and was able to identify $90,000,000 of suspected criminal proceeds flowing through the businesses in a two-year period. ShapeShift was the largest recipient of these funds with a U.S. presence.
This story is too familiar. The lure of an under-regulated industry filled with naïve investors and the promise of privacy is bound to attract criminals. Until regulation does catch up (and it is catching up), one would have hoped that the loudest voices in the community would be those looking to self-regulate and keep the industry from being a haven for criminals, but that hasn’t been the case, as our crypto crime cartel series has shown.
Instead, the digital asset revolution has been hijacked by some of the most prominent figures from the early days of Bitcoin. As a result, many critical infrastructure entities—cryptocurrency exchanges, for example—are being used to steal investments from customers, laundering criminal cash and enable the transfer of money between drug dealers, pedophiles and human traffickers. We have seen that this is both plain profit-seeking and an ideological push against regulation and transparency.
ShapeShift another nexus of Crypto Crime Cartel
ShapeShift is merely another example of this. A digital asset exchange, it enjoyed early popularity for allowing users to exchange coins under conditions of near-total anonymity. Though they have been forced to rein this in in recent years, it wasn’t before earning a tidy sum in fees from criminals looking to take advantage of the lack of oversight. This can be seen from The Wall Street Journal’s investigation talked about above in which Shapeshift was shown to be funneling millions of criminal funds through its platform.
ShapeShift was also one of the exchanges influenced into delisting BSV when Roger Ver was attempting to crush all who didn’t agree with his vision for Bitcoin, a marked departure from the original white paper. As an asset, BSV is useless to ShapeShift and the rest of the anti-regulation network of exchanges, because it is difficult to use regulation-friendly BSV as a means of participating in and concealing criminal activity. There are no fees to be earned on criminal transactions using BSV, because by and large, there aren’t any.
And yet again, Voorhees and ShapeShift have shown themselves not to be an isolated incident of criminal enablement and anarchist domineering, but one which flows directly from the attitudes and actions of the rest of the crypto cartel. By now, you should have already guessed that ShapeShift and Voorhees are closely tied to others within the digital asset sphere who have offended (and continue to offend) in the same way as Shapeshift.
For instance, ShapeShift is yet another exchange found to be facilitating criminal money laundering that received early-stage investment from noted anarchist Roger Ver. Ver, you will remember, makes no secret of his view of digital assets as a means to obscure transactions and stay out of view of law enforcement and regulators. He contributed $525,000 in seed-stage funding to ShapeShift in 2014.
The there’s Charlie Shrem. Shrem the founder of early exchange BitInstant, another project backed by Ver, with Voorhees appointed as a key figure within the company: he served as the platform’s PR man and director of marketing. Shrem was arrested by the DEA and IRS in 2014 for conspiracy to launder $1,000,000 worth of BTC to and from the drug marketplace the Silk Road.
Shrem knew about the vast numbers of users using BitInstant to acquire and avail themselves of illicit BTC: the indictment focuses on an case in which one BitInstant customer, who was reselling BTCs with and to Silk Road users, was initially banned from the platform for violating the then-$1,000 deposit limit on BitInstant, but was then privately advised by Shrem to respect the limit and use another e-mail address (one that hadn’t already been banned by BitInstant) to continue using the platform. Shrem pleaded guilty to a reduced charge of aiding and abetting unlicensed money transmission, was convicted, had to pay $950,000 and was sentenced to two years in prison.
Another co-investor in ShapeShift is Barry Silbert, founder and CEO of the Digital Currency Croup. Silbert was the subject of SEC action in 2016 for using his name to pump scam coin BIT and using manipulative practices to that end. He’s been accused of doing the same thing with Ethereum Classic (ETC), which he and his company promoted as a legitimate alternative to Ethereum. ETC was another poorly supported coin attempting to profit off the success of other offerings, and yet it was for a time listed on a number of this tight network of criminal exchanges, including ShapeShift. Here, you can see just how one hand washes the other in the crypto crime cartel.
And if there was any doubt whether ShapeShift’s criminal activity is a symptom of the perverse ideology of its founders and benefactors, Erik Voorhees himself sees any attempt to hold him or his company accountable as an attack on his ideology. In response to the Wall Street Journal’s investigation, Voorhees called the report a means of pushing ‘an anti-crypto, pro-bank surveillance agenda.’ If you view a reputable news outlet reporting on the criminal activity of money launderers and drug traffickers on your website as an agenda which sits in opposition to your own, then perhaps it is time to reconsider your philosophy.
Where does this leave ShapeShift employees?
So, keeping in mind that Voorhees is already responsible for significant levels of pollution within the ocean of digital assets, he is now contributing to and actively pushing the same agenda which led to Kraken and others delisting BSV without reason or warning. Employees and users of ShapeShift might argue that the laundering they have been accused of happened years ago and in any case, ShapeShift isn’t responsible for everything that takes place on its platform. And yet, via Voorhees and his friend Roger Ver, ShapeShift is connected to a large network of criminals and exchanges who have been—often repeatedly—found to be openly facilitating the criminal activity on their platform while making a concerted effort to ensure no regulation or technology can emerge which prevents that very abuse.
In fact, according to a widely-reported but now-deleted ShapeShift blog post reporting on the various law enforcement requests it had received up to that point, those requests rose 175% in the last six months of 2018—the period at the end of the Wall Street Journal’s investigation. Most of those request came from the U.S., namely the FBI and the SEC.
Unsurprisingly, the blog post is no longer available and ShapeShift provided no more updates on this topic, but judging by the rise in law enforcement interest in the likes of ShapeShift, one can assume that the trend continued.
There is a rising wave of indictments and litigation finally bringing these exchanges—and their employees—to justice. Law enforcement’s understanding of these criminal business models have expanded greatly since Voorhees was last put in cuffs. This is a bad omen not just for Voorhees: law enforcement has resorted to going through every criminal enabler in the crypto cartel supply chain, all the way down to the non-executive employees who are knowingly enabling their bosses’ criminal profiteering. RICO statues apply to everyone in the organization whether they are in on the illicit behavior, or not.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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