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2 Bitcoin Operators Charged In SF Drug Website Bust

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The bitcoin website is shown on the computer of the proprietor of a shop selling vinyl records and that accepts bitcoins for payment on April 11, 2013 in Berlin, Germany. (Photo by Sean Gallup/Getty Images)

The bitcoin website is shown on the computer of the proprietor of a shop selling vinyl records and that accepts bitcoins for payment on April 11, 2013 in Berlin, Germany. (Photo by Sean Gallup/Getty Images)

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NEW YORK (AP) — 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, authorities said Monday.

Charlie Shrem, 24, the chief executive officer of BitInstant and vice chairman of a foundation that promotes the Bitcoin 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 was freed from custody Monday to stay with his parents over the objection of prosecutors. Federal magistrate Judge Henry Pitman Monday ordered electronic monitoring for Shrem. His lawyer said Shrem is presumed innocent and has spoken online about the need to obey the laws regarding virtual currency.

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 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 Bitcoins 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 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 Bitcoin exchange on the Silk Road website, where Bitcoins were the only form of payment accepted.

© Copyright 2014 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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