BitInstant CEO Charlie Shrem was arrested Monday in connection with a money-laundering scheme that involved the selling of $1 million in Bitcoins on Silk Road, the online black market for illegal drugs that helped propel the virtual currency into the spotlight.
Authorities arrested the 24-year-old Shrem, who created the Bitcoin exchange BitInstant in 2011 and serves as vice chairman of the Bitcoin Foundation, at John F. Kennedy International Airport in New York City. Backed by Cameron and Tyler Winklevoss, BitInstant has been offline since the summer.
"We are surprised and shocked by the news today. As a foundation, we take these allegations seriously and do not condone illegal activity," a Bitcoin Foundation representative said in a statement provided to Fast Company. We have also reached out to BitInstant to comment on the news.
The U.S. Attorney for the Southern District of New York Preet Bharara said Shrem conspired with Robert Faiella, a 52-year-old man from Cape Coral, Fla., who operated under the user name BTCKing, to sell $1 million in Bitcoins to Silk Road users. "Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way," said James Hunt, DEA acting special-agent-in-charge. The agency also said Shrem had personally used Silk Road to purchase drugs.
The two men are charged with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years, and one count of operating an unlicensed money transmitting business. Shrem, who also served as BitInstant's compliance officer, is charged with willful failure to file a suspicious activity report.