Paxful Holdings Inc. was sentenced on Wednesday, February 11, 2026, to a $4 million criminal penalty for Travel Act violations and failing to maintain an effective anti-money laundering (AML) program.
The DOJ reported the P2P platform knowingly facilitated illegal prostitution, sex trafficking, and various fraud schemes between 2015 and 2019. Despite federal guidelines suggesting a $112.5 million fine, the court capped the penalty at $4 million, citing the company’s inability to pay more.
Virtual Asset Trading Platform Sentenced for Violating the Travel Act and Other Federal Criminal Charges https://t.co/Orm3CQMqgP
— Criminal Division (@DOJCrimDiv) February 11, 2026
The sentencing follows a guilty plea where Paxful admitted to conspiring to promote illegal prostitution through interstate commerce. Prosecutors revealed that the company’s founders actively marketed the platform as a “no-KYC” (Know Your Customer) haven, intentionally ignoring the Bank Secrecy Act to attract more users.
The Backpage Effect and systemic misconduct
A significant portion of the DOJ’s case focused on Paxful’s relationship with a notorious website seized in 2018 for facilitating human trafficking. Internal records showed that Paxful founders celebrated what they called the “Backpage Effect,” acknowledging that the platform’s growth was heavily driven by processing payments for illicit services.
Between 2015 and 2022, approximately $17 million in Bitcoin was transferred from Paxful wallets to Backpage and similar entities, netting the platform at least $2.7 million in profit.
Contextualizing crypto compliance and legal fallout
This sentencing is part of a broader crackdown by US regulators on virtual asset service providers that bypass federal laws. In a parallel civil action in December 2025, the Financial Crimes Enforcement Network (FinCEN) assessed a $3.5 million penalty against Paxful for willful violations of the Bank Secrecy Act. These enforcement actions mirror previous high-profile cases where platforms prioritised growth over legal obligations, leading to significant litigation and eventual closure.
As previously reported by DeFi Planet, the industry has seen a rise in such enforcement actions to protect the integrity of the Web3 space. For example, a federal court in California has sentenced Daren Li, a 42-year-old dual citizen of China and St. Kitts and Nevis, to 20 years in prison for his role as the leader of a massive $73 million cryptocurrency money-laundering syndicate.
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