The ticket company in California discovered something was amiss when the victims’ banks and credit card companies sought their money back. The investigation led straight to Mercede, who had the tickets delivered to his home address or to his parents’ house. It appeared to be a straightforward fraud case—until investigators started digging.

“A lot of the material that we got out of his apartment led me to believe there was something much, much greater going on here than a simple fraud,” said Detective Sergeant Andy Capwill of the Chagrin Falls Police Department. What he found while sifting through thousands of pages of data was evidence of large money transfers, dozens of checking accounts, and what appeared to be a robust business trading in the digital currency and payment network known as bitcoin. “I realized I was going to need some help here,” said Capwill, who called the FBI.

In their joint investigation, Capwill and special agents from the FBI’s Cleveland Field Office discovered Mercede was buying large quantities of bitcoin from legitimate foreign exchanges and then reselling the bitcoin himself at a premium. The inherent appeal of his business, Cryptocoin Capital Management, was its location in the U.S.—not in Russia or China, where people are leery to send their money—and that it did not require the same lengthy waiting period as the more reputable exchanges.

“A lot of the time, people who want bitcoin want it now, so they will go through more peer-to-peer transactions,” said Special Agent Gary Sukowatey, one of the FBI investigators. “He was buying larger quantities and waiting whatever period was necessary to wait, then he would sell it to people that wanted bitcoin right away.” The problem, he said, is these transactions are illegal if you don't have a license.

Operating a money transmitting business requires registration through the U.S. Department of the Treasury, which has a bureau—the Financial Crimes Enforcement Network, or FinCEN—dedicated to collecting and analyzing information about financial transactions to combat money laundering, terrorist financing, and other financial crimes.