Feeds

Vice squad cuffs vice chairman of Bitcoin Foundation in $1m money-laundering probe

Charlie Shrem swooped on by feds at JFK Airport

Top 5 reasons to deploy VMware with Tegile

The Bitcoin Foundation is shy a vice chairman today: US money-laundering investigators have arrested and charged Charlie Shrem, the 24-year-old CEO of one-time Bitcoin exchange BitInstant.

Also arrested and charged is Bitcoin trader Robert Faiella, 52, who operated as BTCKing on the underground e-bazaar Silk Road before it was shuttered by the FBI in October 2013. It's alleged the pair were involved in processing payments for illegal drugs in Bitcoins worth $1m (£600,000).

The Manhattan US Attorney said today Faiella, of Cape Coral, Florida, and Shrem, of New York, New York, are each charged with conspiring to commit money laundering and with operating an unlicensed money transmitting business.

In addition, Shrem has been charged with “willfully failing to file any suspicious activity report regarding Faiella’s illegal transactions ... in violation of the Bank Secrecy Act.”

As BitInstant's compliance officer – in addition to being its CEO and Bitcoin Foundation vice chairman – Shrem was responsible for reporting suspicious activity on the site. He was arrested at JFK Airport, while Faiella was arrested at his home in Florida.

BitInstant.com had backing to the tune of $1.5m from investors, and in 2012, the Bitcoin Foundation – set up to promote BTC as a legit currency – was chuffed to have brought BitInstant into its fold.

However, last year BitInstant was among a group of traders served with subpoenas by the New York Department of Financial Services in a wide-ranging investigation.

BitInstant's investors the Winklevoss twins – along with Google Ventures – were also asked to cooperate in the 2013 probe. There is no suggestion of any wrongdoing by BitInstant's investors. The exchange shut down in August last year.

The criminal complaint against Faiella today alleges he "sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site" between December 2011 and October 2013. It also alleges that Shrem “personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with Faiella, Shrem also knew that Faiella was operating a Bitcoin exchange service for Silk Road users.”

"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," said Manhattan US Attorney Preet Bharara, announcing the arrests in conjunction with the US Drug Enforcement Administration and the Internal Revenue Service.

"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."

The two accused men are due to appear before federal courts in Manhattan and Florida. ®

Intelligent flash storage arrays

More from The Register

next story
Ex-US Navy fighter pilot MIT prof: Drones beat humans - I should know
'Missy' Cummings on UAVs, smartcars and dying from boredom
Facebook, Apple: LADIES! Why not FREEZE your EGGS? It's on the company!
No biological clockwatching when you work in Silicon Valley
The 'fun-nification' of computer education – good idea?
Compulsory code schools, luvvies love it, but what about Maths and Physics?
Doctor Who's Flatline: Cool monsters, yes, but utterly limp subplots
We know what the Doctor does, stop going on about it already
'Cowardly, venomous trolls' threatened with TWO-YEAR sentences for menacing posts
UK government: 'Taking a stand against a baying cyber-mob'
Happiness economics is bollocks. Oh, UK.gov just adopted it? Er ...
Opportunity doesn't knock; it costs us instead
Sysadmin with EBOLA? Gartner's issued advice to debug your biz
Start hoarding cleaning supplies, analyst firm says, and assume your team will scatter
prev story

Whitepapers

Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Cloud and hybrid-cloud data protection for VMware
Learn how quick and easy it is to configure backups and perform restores for VMware environments.
Three 1TB solid state scorchers up for grabs
Big SSDs can be expensive but think big and think free because you could be the lucky winner of one of three 1TB Samsung SSD 840 EVO drives that we’re giving away worth over £300 apiece.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.