Miami man arrested in Bitcoin case challenging prosecution

A Miami man accused of dealing illegally in the virtual currency known as Bitcoin is asking a judge Friday to throw out the case.

Michell Espinoza’s argument: Bitcoin is not actual money under Florida law.

“Bitcoin is not backed by the United States government or any other government and it is not directly regulated by any specific federal or state regulatory agency,” his lawyers wrote in a motion asking a judge to dismiss the charges.

The unique prosecution — Espinoza, 32, is charged with illegally transferring money and money laundering after selling Bitcoins to an undercover detective — will be tested during a hearing on Friday afternoon in Miami-Dade circuit court.

Expected to testify on his behalf: Charles Evans, a Barry University economist who specializes in the virtual currency. “He was paid in Bitcoin,” Espinoza’s attorney, Rene Palomino, said of his hired expert.

The prosecution of Espinoza is being closely because it is believed to be the first money laundering case against someone for dealing in Bitcoins. As the currency has gained in popularity, law enforcement has struggled to figure out to it fits into illegal activities.

The controversial virtual currency allows users to spend money anonymously, and can be also be bought and sold on exchanges with U.S. dollars and other currencies. The currency has gained popularity with merchants selling legitimate goods and services — everything from restaurants to retail stores to law firms.

But authorities have raised concerns about the currency being used in the black market.

Most notoriously, Bitcoins were used to traffic drugs in the now-shuttered Silk Road network. In an unrelated South Florida case, a Miramar man got 10 years in prison after using Bitcoins to buy Chinese-made synthetic heroin from a Canadian prisoner.

In Espinoza’s case, prosecutors said that Espinoza — who used the moniker MichellHack — illegally sold undercover investigators $1,500 in Bitcoins. The officers found him through a Bitcoin exchange site, LocalBitcoins.com, and told him they were going to use the currency to purchase stolen credit card numbers.

The detectives met with Espinoza three times in person: on Lincoln Road, at an ice-cream shop and at a hotel room.

Espinoza was arrested along with another man, Pascal Reid, who pleaded guilty to acting as an unlicensed money broker and was sentenced to probation. Under the unusual plea deal, he agreed to teach law enforcement about Bitcoin.

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