Charlie Shrem, CEO and compliance officer of the Bitcoin exchange company BitInstant.com, was arrested Monday for conspiracy to commit money laundering in the Silk Road drug case.
The U.S. government charged Schrem, 24, of "engaging in a scheme" to sell over $1 million in Bitcoins to users of Silk Road, an online black market where illegal drugs and guns were sold anonymously. The website was shut down in September 2013.
"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. 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," Manhattan U.S. attorney Preet Bharara said in a statement.
Shrem was arrested at the John F. Kennedy International Airport along with 52-year old Robert Faiella, who ran BTCKing, another Bitcoin exchange. Both the men have been charged with "one count of conspiracy to commit money laundering." This carries a sentence of maximum 20 years in prison.
Both have also been charged with "one count of operating an unlicensed money transmitting business," which carries a maximum sentence of five years in prison.
Additionally, Shrem has also been charged with "willfully failing to file any suspicious activity report" with regard to Faiella's illegal transactions, which is in violation of the Bank Secrecy Act.
"The charges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world. Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way. Drug law enforcement's job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye," DEA Acting Special-Agent-in-Charge James J. Hunt said in a statement.
Russell Rosenthal, the federal public defender for Faiella, declined to comment. Keith Miller, the attorney for Shrem, was not reachable for comment.
A detention hearing is scheduled for Wednesday, Jan. 29, to ascertain whether Faiella can be released on bond.
After the announcement of the arrests, the price of Bitcoin dropped and was down over 7 percent at $810 on Monday evening, Jan. 27.
