A mock bitcoin. REUTERS/Jim Urquhart/Files
Two men who operate Bitcoin exchange businesses have been
charged with money laundering for helping drug merchants
exchange $1 million in cash for Bitcoins, the digital currency,
US prosecutors say.
Federal prosecutors in New York announced charges against
Charlie Shrem and Robert Faiella, both operators of Bitcoin
exchange businesses, for attempting to sell $1 million in the
digital currency to users of the underground black market
website Silk Road, which was shut down by authorities in
According to the charging document, Shrem, 24, chief
executive officer of the exchange BitInstant.com, changed
cash into Bitcoins for Faiella, 52, who ran an underground
Bitcoin exchange through the username BTCKing on Silk Road's
website. The criminal complaint says that Shrem, in addition
to knowing that Faiella's business was funneling money into
Silk Road, also used Silk Road himself to buy drugs.
The US Attorney's office in Manhattan said in a statement
that authorities arrested Shrem on Sunday at New York's John
F. Kennedy International Airport. Faiella was arrested on
Monday at his home in Cape Coral, Florida.
The tech investors Cameron and Tyler Winklevoss invested $1.5
million in BitInstant last year. A spokeswoman for their
firm, Winklevoss Capital, did not immediately respond to a
request for comment.
The case against Shrem is likely to deal a blow to the
burgeoning community of Bitcoin businesses because Shrem is a
high-profile advocate for the technology. In addition to
running BitInstant, he is vice president of the main
Bitcoin-focused trade group, the Bitcoin Foundation,
according to the foundation's website and Shrem's LinkedIn
A spokeswoman for the foundation declined to immediately
comment on Shrem's arrest.
Shrem and Faiella were charged with conspiring to commit
money laundering and operating an unlicensed money
transmitting business. A spokeswoman for Preet Bharara, the
U.S. attorney for Manhattan, said there was no information
about legal representation available for either of the two
men, who are expected to appear in court in New York and
Shrem has a home address in the Brooklyn borough of New York.
According to the charges, Faiella, going by "BTCKing" online,
sold Bitcoins to Silk Road users and passed on purchase
orders he received from the site to Shrem, who filled them,
transferring funds to Faiella's account at another Bitcoin
exchange service based in Japan.
The Japan-based exchange business is not named. One of the
largest Bitcoin exchanges in the world, MtGox, is based in
The charging document says that Shrem, who also ran
BitInstant's compliance program for a little under two years,
failed to report suspicious activity to regulators "with
respect to numerous Bitcoin purchases" Faiella made from
Shrem's lawyer, Keith Miller at Perkins Coie in New York, was
not immediately available for comment
Bitcoin is a digital currency whose value fluctuates
according to demand by users. It is currently trading on
MtGox at a level of $985 per unit. Users can transfer
Bitcoins to each other over the internet and store the
currency in digital "wallets."