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Feds Nab BitInstant CEO In Silk Road Bust, Charged With Laundering $1 Million In BTC

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The Silk Road is still claiming victims, today taking down BitInstant CEO Charlie Shrem and Robert M. Faiella, a BTC broker, known as BTCKing or BTC-KinG. Police arrested Shrem, 24, yesterday at JFK airport and Faiella, 54, in Cape Coral, Florida. According to a release, the pair are charged with “conspiring to commit money laundering and operating an unlicensed money transmitting business.”

The DEA, IRS, and Manhattan U.S. Attorney stated that the pair were instrumental in selling about $1 million worth of BTC to Silk Road users which, according to the complaint, was used to buy and sell drugs. “Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA Acting Special Agent in Charge James J. Hunt. From the release:

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From about December 2011 to October 2013, FAIELLA ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through a company based in New York, New York (the “Company”). The Company was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service. FAIELLA obtained Bitcoins with the Company’s assistance, and then sold the Bitcoins to Silk Road users at a markup.
SHREM is the Chief Executive Officer of the Company, and from about August 2011 until about July 2013, when the Company ceased operating, he was also its Compliance Officer, in charge of ensuring the Company’s compliance with federal and other anti-money laundering (“AML”) laws. SHREM is also the Vice Chairman of a foundation dedicated to promoting the Bitcoin virtual currency system.

Authorities also noted that Shrem bought drugs from the Silk Road and was aware of its use as an illicit marketplace. The authorities made it clear it was Shrem and Faiella’s interactions on the Silk Road that was most interesting to the DEA and IRS. However, there is no way to tell at this point what this means for the legitimate BTC markets and where BitInstant exists in the gray area between legal and illicit exchanges. Shrem’s site, BitInstant, is currently down.