Drug ring leader instructed distributors how to purchase bitcoin

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

As always, Rosario summaries are “NMR” and Palley summaries are “SDP".

[related id=1]US v. Hagan, Case No. 18–1430 (6th Cir. March 25, 2019)[NMR]

Link to decision

When you plead guilty to, or are convicted of a crime, you do not always know what sentence you’ll receive until after a sentencing hearing is held. At a sentencing hearing the judge in your case will determine what sentence is appropriate based on you past criminal history, the severity of your crime, as well as statements from the prosecution, the defense, and in some cases the victim. Depending on the jurisdiction, judges will consult sentencing guidelines, often with wide discretion to enhance or lessen your sentence. This case, U.S. v. Hagan, concerns an appeal of an enhanced sentence.

Nathaniel Hagan plead guilty to crimes arising out of his running a drug distribution ring that dominated the Lansing, Mich. ecstasy market. After he was arrested, Hagan cooperated with law enforcement to explain how his operation functioned. During the course of the investigation law enforcement learned that Hagan “had been distributing MDMA, LSD, DMT, mushrooms, and marijuana for approximately one year. He had at least seven customers, some of whom dealt the drugs Hagan sold them to others.” Hagan would use bitcoin to buy drugs on the dark web, he would sometimes manufacture drugs at his apartment, and he regularly coordinated the activity of his purchasers. At the sentencing hearing, the district court applied two enhancements to Hagan’s sentence. The first was a drug house enhancement, and the second was a leadership enhancement. Hagan filed this appeal contesting both of those enhancements. He lost that appeal.

With respect to the drug house enhancement the Court found that Hagan’s apartment was central to his drug enterprise, and that the enhancement was not applied in clear error by the lower court. For leadership enhancement, the Court looked at several factors to determine if Hagan “organized or led ‘criminal activity that involved five or more participants or was otherwise extensive.’” Hagan had the connections to Dark Web drug sources, and coordinated the activities of his customers in the following ways:

Hagan’s outsized role in the conspiracy is apparent from his many text messages with customers, in which he bragged about his unique ability to “move 20 grand of product,” R. 34, PID 267, informed some distributors how to launder money or buy Bitcoin, advised other distributors what prices to set for their own deals, and explained to others how he manufactured his product. (emphasis added)

Given these and other factors, the Court held that the leadership enhancement was appropriate in this case. It’s interesting that the Court specifically called out Hagan’s role in instructing his distributors on how to buy bitcoin. It seems the judge might have thought that teaching someone who is part of a criminal enterprise how to buy bitcoin is somehow akin to teaching them how to launder money. Will we see this as a factor in criminal cases in the future? Maybe. Maybe not. It depends.

The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part I of this week's analysis, Crypto Caselaw Minute, is above.