On May 2, Missouri-based tech entrepreneur Jason R. Klein pleaded guilty in federal court to charges of running an illegal money transmitting business by converting bitcoin into cash without a license using the popular peer-to-peer marketplace LocalBitcoins. For his actions, Klein could face up to five years in federal prison.

Instead of bringing the case in front of a grand jury, Klein decided to waive this right and pleaded guilty before the U.S. Magistrate Judge David P. Rush on charges of “conducting an unlicensed and unregistered money transmitting business.”

Klein was the former owner of tech companies Logic Forte and Datality Networks and was the president of the Association of Information Technology Professionals (AITP), which focuses on technology education for business professionals.

According to a release by Department of Justice, an undercover federal agent responded to an online advertisement posted on LocalBitcoins by Klein. Klein informed the undercover agent that his exchange rate included a 10 percent transaction fee for an in-person $1,000 cash exchange. Following this transaction, two further in-person cash transactions and several online transactions took place between Klein and undercover federal agents, which generated a total profit of $2,122 in fees for Klein.

“Under federal statutes, Klein is subject to a sentence of up to five years in federal prison without parole. […] A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office,” the release states.

By pleading guilty, Klein admitted to exchanging bitcoin for cash without being a licensed money transmitter in the state of Missouri as required by both federal and state law. This sets a scary precedent for market makers on peer-to-peer bitcoin exchanges such as LocalBitcoins. This could mean that anyone exchanging bitcoin for cash and taking a commission for the transaction may be breaking the law and could face prison sentences similar to that of Klein. 

Given that there is effectively no federal legal framework surrounding the use of digital currencies in the U.S., bitcoin users who are leveraging peer-to-peer exchanges to generate an income by exchanging of U.S. dollars into bitcoins for a fee will have to tread very carefully depending on what state they live in.

Lawmakers are taking a different approach to bitcoin from state to state without issuing clear legislation in most cases. This, in turn, leaves bitcoin peer-to-peer exchange market makers largely in the dark on whether they are doing something wrong or not until feds start knocking on their doors.

Source and More information: LocalBitcoins Seller Pleads Guilty to Running an Unlicensed Currency Exchange

Author: BTCManager.com