In the Western District of Louisiana—on April 20, 2016—a father and son pleaded guilty to conspiring to operate an unlicensed money servicing business. The son pleaded guilty to an additional charge of conspiracy to distribute. After the courts denied their motion to withdraw their admissions of guilt, U.S. District Judge S. Maurice Hicks Jr. sentenced the two to 46 months in prison and 106 months in prison, respectively.
The father, Randall B. Lord, and his son, Michael A. Lord, sold Bitcoin without a money servicing license. According to court documents, the duo bought significant quantities of the cryptocurrency on Coinbase. Coinbase is a notoriously aggressive Bitcoin exchange. They sold on Localbitcoins.com (LBC), a currency exchange with a much more relaxed environment.
They functioned similarly to many LBC traders; basically Bitcoin drop-shipping:
“Defendants operated their bitcoin business through a website called localbitcoins.com, on which they posted advertisements for bitcoin exchange services. Persons who engaged Defendants’ services would transfer money to [the] Defendants by some traditional means, such as cash or wire transfer. Then, [the] Defendants would purchase bitcoins from Coinbase, another online bitcoin broker, and transfer the bitcoins back to the buyer after subtracting their commission operating an illegal bitcoin scheme.”
In 2014, Coinbase gathered that the father and son used the Coinbase account for this exact purpose. We are not told which defendant held the account. But the father, in 1999, refused to give his Social Security number to the Board of Chiropractic Examiners for a Chiropractor license renewal. And Coinbase requires identity verification of customers. Thus, one can assume with reasonable certainty that the son owned the account. Court documents showed that Coinbase sent the account owner—realistically both defendants—a notice that “they were required to register with the Federal Crimes Enforcement Network, a division of the Department of the Treasury.”
The Lords told Coinbase that they had appropriately registered even though they did not register until later that year. By the time they registered with FinCEN, the two made $2.5 million with the Coinbase account.
In early 2015, they soon began selling Schedule IV substances, among others, on Agora marketplace and in person. In March, the Department of Homeland Security intercepted a package from China that contained roughly one kilogram of a synthetic cannabinoid called 5F-AB-PINACA. Law enforcement conducted a controlled delivery at the recipient’s address—the home of Al Hasnat Langhari—a former customer of the Lord’s Bitcoin exchange business.
After Langhari landed in police custody, he explained his relationship with the Lords and specifically Michael A. Lord. He told the investigators that Michael sold Alprazolam on Agora, a long-give darknet marketplace. He further conveyed that the son intended to make his own Xanax pills with a pill press. Agents confirmed this later on as they seized packages containing components that belonged to a pill press. Court documents mentioned that agents found some pieces of a pill press at the site of one of the father’s former businesses.
They pleaded guilty to their respective crimes. Later, they filed a motion to withdraw their guilty pleas from April 2016. The government agreed with some justification from the motion wherein they said that the “government concedes that defendants were not required to obtain an MSB license from the State of Louisiana to operate such a business.” Regardless, District Judge S. Maurice Hicks Jr. denied the motion on the grounds that the concession was not fatal to the charge at hand.
“This investigation represents cutting edge criminal activity,” Jerome R. McDuffie, Special Agent in Charge for the New Orleans Field Office of IRS – Criminal Investigation. “The ‘dark web’ was used to facilitate monetary transactions in a drug distribution network. Cybercrime is an emerging area of criminal activity, and we want the criminals who hide behind logon names and internet aliases to know that IRS Special Agents will follow the money in whatever form, whether it be digital or paper currency. We will follow the trail right back to their doorstep and will work diligently to hold the responsible individuals accountable.”