January 27, 2014, 2:34 pm
Two Executives of Bitcoin Businesses Are Arrested
By NATHANIEL POPPER
Gerard Til/Hollandse Hoogte/ReduxCharles Shrem is accused of using Bitinstant to convert money for people interested in buying narcotics.
One of the most prominent players in the Bitcoin universe, Charles Shrem, was arrested by federal prosecutors on Sunday and accused of helping grease the wheels for drug transactions on the now defunct online bazaar Silk Road.
Mr. Shrem was the founder and chief executive of a popular website, Bitinstant, where Bitcoins could be bought using dollars. The criminal charges unsealed on Monday by the United States attorney’s office in Manhattan claim that Mr. Shrem used his company to convert money anonymously for people interested in buying narcotics on the Silk Road site, and also personally bought drugs on the site. He was arrested at John F. Kennedy International Airport.
According to the complaint, the scheme was operated in cooperation with another man, Robert Faiella, known as BTCKing, who was arrested on Monday.
The complaint says that when a co-founder of Mr. Shrem’s company questioned the cooperation with Mr. Faiella, Mr. Shrem wrote back that “we make good profit from him.”
Bitinstant stopped operating last summer, but the site was viewed as a pioneer in the industry, and Mr. Shrem had recently said that he planned to restart it. The company won early backing from Winkelvoss Capital, which is run by the Winkelvoss brothers, who were early players in Facebook.
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In a statement, Winkelvoss Capital said, “We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of Bitcoins.”
Mr. Shrem has been an outspoken advocate for the virtual currency. He is the vice chairman of the Bitcoin Foundation, a nonprofit organization that educates the public on digital money. Mr. Shrem was still listed on Monday as a member of the foundation’s board.
“We are surprised and shocked by the news today,” a spokeswoman for the foundation, Jinyoung Englund, said. “As a foundation, we take these allegations seriously and do not condone illegal activity.”
The unsealing of the complaint comes just a day before the New York State Superintendent of Financial Services, Benjamin M. Lawsky, is set to hold hearings on the legality of Bitcoin.
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