The US Department of Justice has arrested and charged Charlie Shrem, the 24-year-old co-founder and CEO of Bitcoin exchange BitInstant, with money laundering in connection with now-defunct online drug marketplace Silk Road. Another man, 52-year-old Robert M. Faiella of Cape Coral, Florida, was also arrested and charged. The pair are said to have knowingly sold more than $1 million worth of Bitcoin to Silk Road users, for the purposes of buying illegal drugs.
“As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark Web drug site, Silk Road,” Preet Bharara, U.S. Attorney for the Southern District of New York in Manhattan, said in a statement. “Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would co-opt new forms of currency for illicit purposes.”
DEA Acting Special-Agent-in-Charge James J. Hunt added: “Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way.”
According to the DoJ, Faiella (aka “BTCKing”) used BitInstant to buy Bitcoin for use on the Silk Road, where Bitcoin was the only accepted currency. Shrem, whom the Justice Department says “personally bought drugs on Silk Road,” allegedly knew of the site’s illicit purpose and “also knew Faiella was operating a Bitcoin exchange service for Silk Road users,” according to the DoJ.
The arrests of Shrem and Faiella come nearly four months after the FBI seized control of the Silk Road, arrested its alleged founder Ross William Ulbricht, and took control of millions of dollars worth of Bitcoin. Bharara is overseeing the cases against Ulbricht, Shrem, and Faiella.
Shrem serves as vice chairman of the Bitcoin Foundation and regularly speaks at Bitcoin conferences. He is also thought to have introduced Cameron and Tyler Winklevoss (of The Social Network fame) to Bitcoin. In May of last year, Winklevoss Capital led a $1.5 million investment round in BitInstant.
BitInstant, which has been shut down since late 2013, was hit with a class action lawsuit last August by users who claim the company misrepresented its service.
Shrem and Faiella each bear charges for conspiring to commit money laundering and for operating an unlicensed money transmitting business. Shrem has also been charged for not reporting alleged illegal activity by Faiella, which the DoJ says is a violation of the Bank Secrecy Act. Faiella faces up to 25 years in prison, while Shrem could serve as much as 30 years behind bars.
See the full indictment against Shrem and Faiella (via Forbes’s Andy Greenberg) below:
Greenberg (Usa vs Faiella-criminal Complaint)
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