Paxful shuts down, blames ex-co-founders Youssef and Schaback

Peer-to-peer cryptocurrency exchange Paxful has announced that it is closing down its platform by November 1.  

The exchange said it is forced to shut down operations because it has not been able to outgrow the ‘impact of historic misconduct’ by its cofounders and former CEO and CTO, Ray Youssef and Artur Schaback. 

The details 

• Paxful, whose biggest market in 2021 was Nigeria, gave its users till November 1 to withdraw their funds into other accounts, after which the platform will become inaccessible. 
• In a press release shared on October 1, the exchange strongly blamed Youssef and Schaback for the company’s woes, which culminated in the eventual closure. 
• In addition, the firm said it has had to pay huge sums in operational costs and shoring up its legal compliance, expenses that are unsustainable for the company in the long run. 
• According to Paxful’s management, the exchange is shutting down not due to a lack of financial resources or insolvency issues, but instead to protect itself from future problems arising from unsustainable spending. 

Youssef’s POV

• Former CEO Youssef, in a press statement, responded to the accusations by Paxful, saying that he foretold Paxful’s current issues when he was leaving the company. 
• He said that the firm should have shut down in 2023 because regulations limit the chances of a P2P crypto exchange run out of the United States succeeding.  
• The company claims to have offered its services to more than 14 million users across 140 countries in the last ten years. 

Key quote 

• The press release reads: 

“This strategic choice [to shut down] follows the lasting impact of historic misconduct by former co-founders Ray Youssef and Artur Schaback prior to 2023, combined with unsustainable operational costs from extensive compliance remediation efforts.” 

• The firm added: 

“Paxful unequivocally condemns the past actions of its former co-founders, which are inconsistent with the company’s current values and ethical standards under new ownership.” 

• Youssef responded: 

“Paxful should have closed down when I left the company two years ago. I told the new management that p2p crypto doesn’t work when you are based in the U.S., but they preferred to serve Uncle Sam instead of doing what was right for their users...I built Paxful, and it was a big part of my life, but leaving the U.S. has proved to be the right decision.” 

Key context 

• After having been active for eight years, Paxful announced in 2023 that it was suspending its P2P marketplace, and it was unsure whether it would ever resume operations. 
• Youssef vaguely attributed the decision to some “key staff departures” and regulatory challenges.  
• In reality, however, he and cofounder Artur Schaback had a fallout, which culminated in the latter slamming Youssef with a lawsuit for wrongful termination. 
• Youssef stepped down as CEO shortly after, and amidst the unresolved conflict, the company was left in the hands of a custodian. 
• One month later, Paxful resumed operations, and Roshan Dharia was appointed as CEO. 

Legal struggles

• In 2024, Schaback pleaded guilty to conspiracy charges related to his failure to maintain an effective anti-money laundering (AML) program while working at Paxful. 
• Schaback admitted in court that he allowed Paxful’s users to trade without proper know-your-customer (KYC) checks from 2015 to 2019. 
• In addition, he marketed the exchange as a platform that did not require KYC and presented fake anti-money laundering (AML) policy documents to third parties. 
• Paxful also announced that he had resigned from the company’s board of directors the year before. The exchange was now stable and on 'a new path' different from the one trodden by Youssef and Schaback.