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Bitcoin CEOs charged in connection with online drug bust

The top executive of a New York City-based Bitcoin company and a Florida Bitcoin exchanger have been charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road.

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Rick Bowmer/AP/File
Bitcoin tokens in Sandy, Utah. US prosecutors say Monday, Jan. 27, 2014, that two men are charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, which lets users buy illegal drugs anonymously.

The top executive of a New York City-based聽Bitcoin聽company and a Florida聽Bitcoin聽exchanger have been charged with conspiring to commit money laundering by selling more than $1 million in聽Bitcoins聽to users of the black market website Silk Road, authorities said Monday.

Charlie Shrem, 24, the chief executive officer of BitInstant and vice chairman of a foundation that promotes the聽Bitcoin聽currency system, was arrested Sunday at New York's Kennedy Airport while Robert Faiella was arrested Monday at his Cape Coral, Fla., residence, prosecutors said in a news release. Federal prosecutors in New York said Shrem personally bought drugs on Silk Road and was fully aware that it was a website that let users buy illegal drugs anonymously, among other contraband.

Shrem's attorney did not immediately return a message seeking comment ahead of a court appearance scheduled for Monday. It wasn't immediately clear who would represent Faiella in court in Florida.

Authorities have said Silk Road's San Francisco operator generated more than $1 billion in illicit business from January 2011 through September on the website, which used聽Bitcoin, the tough-to-track digital currency, before it was shut down.

The website, which had nearly 1 million registered users by July, let users anonymously browse through nearly 13,000 listings under such categories as cannabis, psychedelics and stimulants.

It was shut down with the arrest of Ross William Ulbricht, who authorities say masterminded the operation while hiding behind the alias of "Dread Pirate Roberts," an apparent reference to a character in "The Princess Bride."

He was arrested in a branch of San Francisco's public library, where authorities said he was chatting online with a cooperating witness.

U.S. Attorney Preet Bharara said Faiella and Shrem conspired to sell more than $1 million in聽Bitcoins聽to criminals who wanted to sell narcotics on Silk Road between December 2011 and October.

"Truly innovative business models don't need to resort to old-fashioned law-breaking, and when聽Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act," Bharara said.

James J. Hunt, acting head of the Drug Enforcement Administration's New York office, said the defendants were "hiding behind their computers" as they earned substantial profits by facilitating anonymous drug sales.

According to prosecutors, Faiella operated under the name "BTCKing" as he ran an underground聽Bitcoin聽exchange on the Silk Road website, where聽Bitcoins聽were the only form of payment accepted.

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