Crypto traders go to jail for OTC trading

Mark Alexander Hopkins, also known as “Doctor Bitcoin” or by his Twitter name Rizzn, has said he will serve up to 15 months in a US federal prison. The reason: He ran a business where he exchanged US dollars for Bitcoin for his customers “Over the Counter” (OTC). He tweeted this to his followers on his way to prison.

The absurdity of this is that its crypto service is actually registered with FinCen, the US financial crime regulator, and therefore should be legitimate.

in a Twitter thread Hopkins lays out his case and explains how he believes he fell victim to the US legal system and inconsistent crypto regulation.

At the wrong time, in the wrong market

Mark Hopkins ran a business as an over-the-counter (OTC) Bitcoin trader. Say the wallet-to-wallet over-the-counter crypto business. OTC trading related to crypto whales should be familiar to many in the crypto space. For larger transactions, these often use individual traders instead of crypto exchanges where they can exchange Bitcoin and fiat currencies. This avoids price fluctuations in the market. But: OTC trading is also used by criminals. Due to the rather lax “Know Your Customer” (KYC) procedure, they can trade crypto with cash supposedly anonymously.

Thus also in the case of Mark Hopkins. Not himself, but one of his clients allegedly traded stolen funds from a scam without his knowledge. However, it was all revealed and investigators quickly landed on Hopkins, who they assumed was an accessory. On October 23, 2020, the FBI raided the trader’s house and confiscated his tech devices such as cell phones and laptops.

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Just a misunderstanding?

When he said he had no way of knowing he had done business with a fraudster, Hopkins initially suspected a misunderstanding. He is said to be cooperative and answered the agents’ questions transparently to provide clarification. In his eyes, he had done nothing wrong, which is why he expected a quick dismissal.

That changed when he was summoned for further questioning by the FBI. Authorities here reportedly said they could name him and his wife as complicit in the fraud, which could see both of them face up to 35 years in prison. In June 2021, to protect his wife, he agreed to plead guilty to operating an unregistered crypto trading business and negligently aiding and abetting a fraud. And that even though he was, to the best of his knowledge, actually running a registered business.

Unclear regulation

Hopkins actually started his bitcoin trading business with FinCen, the state agency for the investigation and prevention of financial crimes, reported and allegedly even have it checked by a lawyer for compliance.

According to FinCen, however, as an operator of a money trading business in the United States, Hopkins would also have had to obtain a license at the state level to qualify for the implementation of KYC. The problem: Under current law in his state of Texas, this is not awarded for a simple crypto peer-2-peer transaction. So he apparently fell victim to a loophole in the system. Hopkins even accused the Justice Department of knowingly leaving the law open to gain access to small traders like him.

For Hopkins, it’s all evidence of “the state’s overall war on privacy.” He also feels like a dealer “got caught with weed while the rest of the nation is moving forward with legalization.” At the end of his thread, he called for the introduction of clear laws around blockchain.

In any case, it remains questionable whether anyone who comes into contact with funds from criminal activities on the blockchain can really be prosecuted. Ever since the Tornado Cash saga, the US has seemed to agree. According to the latest sanctions, however, the numerous addresses of celebrities who involuntarily received money from the mixing service should also have been prosecuted.

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