ALEXANDRIA, VA.—NCUA Friday placed the tiny Helping Other People Excel FCU of Jackson, N.J., into conservatorship.
The agency’s move follows the FBI charging two men with operating a Bitcoin exchange scheme that included obtaining “beneficial control” of a New Jersey-based low-income designated FCU. The New York Times reported that Helping Other People Excel FCU, designated as a low-income credit unions, had a relationship with Anthony Murgio and Yuri Lebedev, the two men charged in the scheme.
The FBI alleges that Murgio and Lebedev ran an unlicensed Internet Bitcoin exchange that they operated through a “phony front-company and, at times, a federal credit union that Murgio acquired for purposes of the scheme.” The FBI said Murgio installed Lebedev and others on the CU’s board of directors, and transferred the Bitcoin exchange service’s banking operations to the CU, “which Murgio, Lebedev and other co-conspirators operated, at least until early 2015, as a captive bank for their unlawful business.”
Pinnacle Federal Credit Union of Edison, N.J., will operate the $290,927 CU during the conservatorship under a management agreement with NCUA, the agency said.
In its release about the conservatorship, NCUA made no connection to the Bitcoin scheme, but the FBI noted that the agency was involved in the investigation, stating NCUA discovered that substantial payment processing activity was being conducted “through the Credit Union.”
The FBI said NCUA then “forced the Credit Union to cease engaging in such activity.”
In its release, NCUA cited safety and soundness issues as reasons for the conservatorship, and that normal member services will continue.
Call Report data shows the CU’s net income jumped dramatically in 2014 ($38,770), after the credit union struggled to make money in previous years—earning $468 in 2012, and losing $232 in 2013. Helping Other People Excel FCU lost $17,433 through June of this year.
“Other income” skyrocketed for the CU’s size in 2014, with the CU making $59,538 that year after making an average of about $1,700 annually in other income in the previous three years. Despite the net income loss through June of 2015, the CU had made $29,132.
In 2014 unsecured loans ($79,159) more than doubled from 2013 ($35,801) and remained at $71,229 through June of 2015.
Capital stood at 10.20% through June.
According to court documents, since at least late 2013, Murgio, Lebedev, and their co-conspirators operated Coin.mx, a Bitcoin exchange service, in violation of federal anti-money laundering laws and regulations, the FBI explained.
Through Coin.mx, Murgio, Lebedev, and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service the FBI said.
“In doing so, they knowingly exchanged cash for people whom they believed may be engaging in criminal activity. Murgio and his co-conspirators have also knowingly exchanged cash for Bitcoins for victims of ‘ransomware’ attacks . . . In doing so, Murgio and his co-conspirators knowingly enabled the criminals responsible for those attacks to receive the proceeds of their crimes.”
In total, between approximately October 2013 and January 2015, Coin.mx exchanged at least $1.8 million for Bitcoins on behalf of tens of thousands of customers, the FBI stated. In addition, in the course of the scheme, Murgio transferred hundreds of thousands of dollars to bank accounts in Cyprus, Hong Kong, and Eastern Europe, and received hundreds of thousands of dollars from bank accounts in Cyprus and the British Virgin Islands, in furtherance of the operations of his unlawful business.
Murgio, Lebedev, and their co-conspirators engaged in substantial efforts to evade detection of their scheme by operating through a phony front-company, “Collectables Club,” and maintaining a corresponding phony “Collectables Club” website, the FBI stated. “In doing so, they sought to trick the major financial institutions through which they operated into believing that their unlawful Bitcoin exchange business was simply a members-only association of individuals who discussed, bought, and sold collectable items, such as sports memorabilia.”