BitInstant CEO Charlie Shrem has been arrested for alleged money laundering

Posted Jan 27, 2014

Charlie Shrem is known for running a Bitcoin exchange called BitInstant. He was arrested for an alleged money laundering scheme with a user of Silk Road. Silk Road is an online black market of illegal drugs.

A federal criminal complaint was filed against Shrem with three counts, including one count operating an unlicensed money transmitting business, one count of money laundering conspiracy, and one count of willful failure to file suspicious activity. Robert Faiella (operates under the name “BTCKing”) was charged with one count of operating an unlicensed money transmitting business along with one count of money laundering conspiracy.

The charge alleges that Faiella took orders from Silk Road users that wanted to buy Bitcoin. Shrem supposedly filled the orders by transferring funds into an account that was controlled by Faiella. Shrem and Faiella allegedly sold around $1 million in Bitcoin to Silk Road users. The Silk Road users used the Bitcoin to buy dugs and other illegal products.

BitInstant received funding from Silicon Valley investors and the Winklevoss twins. BitInstant was hit with a class action lawsuit this past August for alleged misrepresentation of the speed of their services.

Here is a statement that the Winklevoss twins sent to TIME:

“When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws ? including money laundering laws ? and we expected nothing less.  Although BitInstant is not named in today?s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest.  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.”