Two Bitcoin exchange operators charged in money laundering scheme

A mock Bitcoin is displayed on a table in an illustration picture taken in Berlin January 7, 2014. Credit: Reuters
The exchanges are accused of helping drug merchants exchange cash for Bitcoins. Credit: Reuters

Two men who operate Bitcoin exchange businesses have been charged with money laundering for helping drug merchants exchange $1 million in cash for the digital currency, U.S. prosecutors said on Monday.

Federal prosecutors in New York announced charges against Charlie Shrem and Robert Faiella, both operators of Bitcoin exchange businesses, for attempting to sell $1 million in the digital currency to users of the underground black market website Silk Road, which was shut down by authorities in September.

According to the charging document, Shrem, 24, chief executive officer of the exchange BitInstant.com, changed cash into Bitcoins for Faiella, 52, who ran an underground Bitcoin exchange through the username BTCKing on Silk Road’s website. The criminal complaint says that Shrem, in addition to knowing that Faiella’s business was funneling money into Silk Road, also used Silk Road himself to buy drugs.

The U.S. Attorney’s Office in Manhattan said in a statement that authorities arrested Shrem on Sunday at New York’s John F. Kennedy International Airport. Faiella was arrested on Monday at his home in Cape Coral, Fla.

The tech investors Cameron and Tyler Winklevoss sank $1.5 million into BitInstant last year. A spokeswoman for their firm, Winklevoss Capital, did not immediately respond to a request for comment.

The case against Shrem is likely to deal a blow to the burgeoning community of Bitcoin businesses because Shrem is a high-profile advocate for the technology. In addition to running BitInstant, he is vice president of the main Bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation’s website and Shrem’s LinkedIn profile.

A spokeswoman for the foundation declined to immediately comment on Shrem’s arrest.

Shrem and Faiella were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. A spokeswoman for Preet Bharara, the U.S. attorney for Manhattan, said there was no information about legal representation available for either of the two men, who are expected to appear in court in New York and Florida. respectively.

Shrem has a home address in the Brooklyn borough of New York.

According to the charges, Faiella, going by “BTCKing” online, sold Bitcoins to Silk Road users and passed on purchase orders he received from the site to Shrem, who filled them, transferring funds to Faiella’s account at another Bitcoin exchange service based in Japan.

The Japan-based exchange business is not named. One of the largest Bitcoin exchanges in the world, MtGox, is based in Japan.

The charging document says that Shrem, who also ran BitInstant’s compliance program for a little under two years, failed to report suspicious activity to regulators “with respect to numerous Bitcoin purchases” Faiella made from BitInstant.

Shrem’s lawyer, Keith Miller at Perkins Coie in New York, was not immediately available for comment

Bitcoin is a digital currency whose value fluctuates according to demand by users. It is currently trading on MtGox at a level of $985 per unit. Users can transfer Bitcoins to each other over the Internet and store the currency in digital “wallets.”



News
Entertainment
Sports
Lifestyle
Local

Brooklyn man charged in roommate's stabbing death

A Brooklyn man accused of violently stabbing his roommate to death on Monday is in police custody and faces murder charges.

International

Dinosaurs could have survived asteroid strike

It turns out there is a good and a bad time for the planet to be hit by a meteor, and dinosaurs were just unlucky.…

National

OkCupid admits to Facebook-style experimenting on customers

By Sarah McBrideSAN FRANCISCO (Reuters) - OkCupid, a top U.S. matchmaking website, intentionally mismatched users to test its technology, the IAC/InterActive Corp service said on…

Local

MTA fares still increasing 4 percent in newly…

The agency said the 4 percent increases, previously announced in December, will remain steady even as the MTA deals with increasing labor costs.

Movies

Interview: Brendan Gleeson on the way 'Calvary' depicts…

Brendan Gleeson talks about how his new film "Calvary" began over drinks and how his character here is the opposite of the lead in "The Guard."

Movies

'Get on Up' producer Mick Jagger on the…

Mick Jagger, a producer on the James Brown biopic "Get on Up," talks about the time had to tell the singer some bad news and his favorite JB record.

Television

'Glee' star Lea Michele to appear on 'Sons…

"Glee" star Lea Michele has been confirmed as a guest star in the final season of "Sons of Anarchy."

Television

TV watch list, Monday, July 28: 'The Bachelorette'…

See Andi Dorfman make her big choice on tonight's 'Bachelorette' finale.

MLB

Angelo Cataldi: Ryan Howard deserves better from Phillies

Just last week, Ryan Howard endured the embarrassment of a benching that was inevitable, and yet still shocking.

NFL

Larry Donnell has inside track in Giants tight…

Little-known Larry Donnell of Grambling State currently has the inside track, as the second-year player has received the bulk of the first-team reps.

NFL

Computer to Jets: Start Michael Vick over Geno…

Jets general manager John Idzik says the choice of who starts between second-year quarterback Geno Smith and veteran Michael Vick will be a “Jets decision.”

MLB

Yankees looking to trade for Josh Willingham: Report

CBS Sports’ Jon Heyman reported Sunday the Yankees are interested in Twins outfielder Josh Willingham.

Travel

Glasgow: Hey, hey, the gangs aren't here

This European city has done a good job getting rid of its more violent residents and revitalizing with artists.

Education

Babson College tops list of best colleges for…

Money magazine has just released its inaugural list of "The Best Colleges for Your Money" -- and the answers have surprised many. Babson College, which…

Education

NYC teens learn how to develop apps during…

Through a program sponsored by CampInteractive, the high schoolers designed their own community-focused apps.

Tech

The Ministry of Silly Walks app is both…

Monty Python have dug into their back catalogue for cash-ins once more, but with the Ministry of Silly Walks app, they've made something that's fun too.