High-profile Bitcoin exec arrested for alleged money laundering

nTrust CEO Pokes Holes in Bitcoin Hype

uncle-sam-bitcoinTwo bitcoin executives, including 24-year old Charlie Shrem, have been arrested and charged on allegations of money laundering and attempts of transactions of up to $1 million on Silk Road, an underground black market that was actually shut down last September because of its less-than-shady way of fostering drug transactions.

Federal prosecutors in New York announced the charges filed against Shrem, the CEO of bitcoin exchange BitInstant.com, and Robert Faiella, who allegedly ran his own underground bitcoin exchange on Silk Road under the  handle “BTCKing”.

The 24-year old Shrem is regarded as one of the biggest names in the industry after becoming one of the first to recognize the potential of bitcoin. He first bought Bitcoins while still in college and parlayed that with the establishment of BitInstant. The Winkelvoss twins, known mostly for their involvement in the founding of Facebook, even invested $1.5 million on the company last year.

All that is secondary news now that Shrem and Faiella are in deep trouble with US authorities after both were arrested in separate incidents. Authorities arrested Shrem at New York’s John F. Kennedy International Airport while Faiella was taken down at his home in Cape Coral, Florida.

According to the ciminal complaint filed in court, Faiella used his Silk Road account to sell bit coins to other users in exchange for cash with these bit coins eventually finding their way to drug dealers on Silk Road. For his part, Shrem sold Faiella the bitcoins the latter used in his own transactions and while Shrem knew where the bitcoins were being used for (drugs), he not only failed to report the suspicious activities to the proper authorities, but al personally bought drugs on the site, too.

“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,” Manhattan U.S. Attorney Preet Bharara said in a release.

“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 coopt new forms of currency for illicit purposes.”

Shrem’s story of being a college kid who took advantage of an opportunity with bitcoin is a good business story, but all that could be undermined by these recent developments, especially with Shrem’s stature as one of the most visible advocates of the digital currency. In addition to being the founder and CEO of BitInstant, Shrem is also the vice president of the main bitcoin-focused trade group, the Bitcoin Foundation.

Seeing him involved in such a high-profile arrest, especially with charges of conspiring to commit money laundering and operating an unlicensed money transmitting business, could be a huge blow not only to Shrem’s reputation in the industry, but the industry itself as a whole. It doesn’t exactly reflect too nicely if a business that’s growing in popularity over the world is tagged as a key part of a crime investigation involving drugs and money laundering.

The arrests, particularly the one involving Shrem, could also play a part in damaging the reputation of bitcoins, which despite its popularity, has struggled to gain mainstream acceptance in large part because its difficult to regulate largely due to the anonymity by which transactions can be made.