Bitcoin Entrepreneur Charlie Shrem Charged With Money Laundering

US authorities have charged Charlie Shrem, the vice chairman of the Bitcoin Foundation and co-founder of BitInstant, with operating an unlicensed money transmitting business, violating the Bank Secrecy Act and conspiring to commit money laundering through the now-defunct Silk Road marketplace.

Shrem was arrested at JFK airport in New York on Sunday, but was allowed to stay at his parents’ house in Brooklyn after paying a $1 million bail.

“At this point the allegations in the complaint are simply allegations, and Mr Shrem is presumed innocent,” the enterpreneur’s lawyer Keith Miller told Reuters.

The arrest has been blamed for a sudden ten percent drop in Bitcoin prices on Monday and the virtual currency was trading at $946 (£570) at the time of publication.

Bad day for Bitcoin

Shrem, a self-proclaimed ‘evangelist’ for the virtual currency, co-founded BitInstant, one of the first US-based websites that exchanged cash into Bitcoins. In 2012, the company was planning to release a debit card that would be certified by MasterCard, but also allow transactions in BTC.

MasterCard later denied that it was working with BitInstant, and despite assurances from Eric Vorhees that the card would be on the market as early as October 2012, the project never got off the ground. In May 2013, BitInstant attracted a $1.5 million investment in a financing round led by Winklevoss twins, however due to legal difficulties, the company stopped operations shortly thereafter.

US prosecutors claim that Shrem conspired with Robert Faiella, a 52-year Florida resident, to sell Bitcoins to the customers of the Silk Road, an illegal online marketplace that used to offer everything from drugs and weapons to malware, forged documents and stolen credit card details.

‘Bitcoin King’

According to the indictment, Faiella, who is charged alongside Shrem, purchased $1 million worth of bitcoins on BitInstant at a discount rate under the name “BTCKing” and resold them to people hoping to buy illegal wares on Silk Road.

The court says that Shrem wasn’t simply aware of this operation, but he was a frequent customer of the Silk Road himself. According to emails seen by the court, at one point Shrem banned Faiella from the website, later instructing him to use a different email address to continue transactions.

“When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws – including money laundering laws – and we expected nothing less,” the Winkelvoss twins told Forbes.

“Although BitInstant is not named in today’s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest. We were passive investors in BitInstant and will do everything we can to help law enforcement officials.”

It has long been thought that tracking ownership of Bitcoins is too complex, making them a perfect tool for criminal transactions. But an increasing number of court cases related to the virtual currency suggest that the authorities are finally up to speed in the matters of decentralised digital money.

“We will aggressively pursue those who would co-opt new forms of currency for illicit purposes,” said Preet Bharara, the US attorney for Manhattan.

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