State of Florida v. Espinoza and State of Florida v. Reid: First Florida State Prosecutions in Bitcoin Money Laundering Cases

March 26, 2014 by David S. Seltzer

Big breaking Florida cybercrime news: On February 6th, police arrested two South Florida men, 30-year-old Michel Espinoza and 29-year-old Pascal Reid, for allegedly engaging in a money laundering scheme using the new online currency, Bitcoin. Both men are being held in jails in Miami-Dade County.

Florida State Attorney, Katherine Fernandez Rundle, told the media “the use of Bitcoins in the transactions is a new technological flourish on a very old crime… [these] arrests may be the first state prosecutions involving the use of bitcons in money laundering operations.”

Bitcoin -- Promising Currency with a Sullied Reputation

In October 2013, authorities arrested Ross William Ulbricht, the operator of the Silk Road website, which international dealers used to purchase and sell narcotics and other illegal goods. Prosecutors in New York say that there is “voluminous” evidence linking the 29-year-old Ulbricht to an astonishing array of crimes, including narcotics trafficking, money laundering conspiracy, operating a criminal business, hacking, and commissioning six murders for hire to shield his business. If convicted, Ulbricht could face life behind bars.

How Reid and Espinoza Got Caught for Their (Alleged) Bitcoin Crimes

Undercover officers in Miami sought out individuals engaged in high volume Bitcoin activity to try to sniff out fraud. In December 2013 and January 2014, an officer involved in this operation teamed up with a secret service agent to purchase thousands of dollars’ worth of Bitcoins from Espinoza and Reid in different transactions. Both men had set up shop on a website called localBitcoins.com; they allegedly had amassed a small fortune in Bitcoins by engaging in arbitrage (i.e. selling Bitcoins for a profit and then repeating the process) as well as for allegedly engaging in money laundering activities and purchasing stolen credit cards.

Espinoza had gone under the online aegis MichelHack; Reid used the aegis Proy33. MichelHack had over 100 confirmed Bitcoin trades.

An agent arranged a meeting with MichelHack, face to face, and paid $1000 for a single Bitcoin (Basically, the coin’s value plus a 17% conversion fee). The agent said he told Espinoza that he planned to use the Bitcoin to buy stolen credit cards. After that transaction -- designed to build trust -- Espinoza agreed to a much bigger deal – buying $30,000 worth of Bitcoins. When he met with investigators to complete that transaction, authorities arrested him.

How will the cases of State of Florida v. Espinoza and State of Florida v. Reid turn out? Obviously, it’s way too early to say. But the results could have profound implications for cybercrime law in Florida and beyond. If you need help with your computer crime case, talk to the team here at Seltzer Law, PA at 1-888-THE-DEFENSE (888-843-3333) for a free, confidential consultation.