(Adds details from court hearing, background on case)
By Nate Raymond
NEW YORK, May 6 (Reuters) - The co-founder of Liberty Reserve, the operator of what had been a widely-used digital currency, was sentenced to 20 years in prison on Friday for conspiring to help cyber criminals launder hundreds of millions of dollars using its services.
Arthur Budovsky, 42, was sentenced by U.S. District Judge Denise Cote in Manhattan, who said a substantial punishment was warranted for his role in running a money laundering operation that prosecutors said was of unprecedented scope.
“Sad to say, Mr. Budovsky used his enormous talents here in a way that led to widespread harm,” she said.
Budovsky, who pleaded guilty in January to conspiracy to commit money laundering, was also ordered to forfeit $122 million and fined $500,000. He said nothing in court as his lawyer, John Kaley, argued for less than 15 years in prison.
“Remorse has been exhibited here,” he said.
But Assistant U.S. Attorney Christian Everdell sought the maximum 20-year sentence given Budovsky’s role “at the helm of this sweeping enterprise.”
Liberty Reserve operated a widely used digital currency, processing more than $8 billion in financial transactions and earning Budovsky over $25 million, prosecutors said.
Much of its business came from criminals seeking to launder proceeds from Ponzi schemes, credit card trafficking, identity thefts and computer hacking, prosecutors said.
The company was shuttered in May 2013 as Budovsky was arrested amid U.S. efforts to crack down on the use of digital currencies including bitcoin to evade law enforcement and launder money.
Four other people pleaded guilty, including Liberty Reserve co-founder Vladimir Kats, who is set to be sentenced next week.
Budovsky and Kats, who met as teenagers working as camp counselors in Brooklyn, previously were convicted in 2006 on New York state charges for operating an earlier digital currency exchange as an unlicensed money transmitting business.
They launched Liberty Reserve in 2005, and after their arrests, moved it to Costa Rica, where Budovsky became a citizen.
Liberty Reserve users would buy and redeem its digital currency, LR, through third-party exchangers who in turn bought and sold LR in bulk from Liberty Reserve, authorities said.
Users did not have to validate their identities, prosecutors said, allowing an undercover Secret Service agent to establish an account for a “Joe Bogus” from “Completely Made Up City, New York, United States.”
Of $7.26 billion in transactions by Liberty Reserve’s top 500 accounts, $2.6 billion were for investment opportunities, mostly Ponzi schemes, prosecutors said.
The case is U.S. v. Kats et al, U.S. District Court, Southern District of New York, No. 13-00368. (Reporting by Nate Raymond in New York; Editing by Chris Reese and Andrew Hay)