CEO of Shut Bitcoin Exchange, BitInstant, Arrested on Money Laundering Charges

CEO of Shut Bitcoin Exchange, BitInstant, Arrested on Money Laundering ChargesCharles Shrem, CEO of the New York-based Bitcoin exchange BitInstant, has been arrested on money laundering charges and for operating an unlicensed money transmitting business, federal authorities said Monday.
Shrem, 24, allegedly conspired to sell $1 million in bitcoins to users of Silk Road, the notorious online black market. These users allegedly would then use the money to buy drugs and other illicit items, according to a statement Monday from Manhattan U.S. Attorney Preet Bharara.
Also arrested in the case was Robert Faiella, 52, a Silk Road user who operated under the name “BTCKing.” Faiella is charged with one count of operating an unlicensed money transmitting business and one count of money laundering conspiracy.
BitInstant.com is now offline. The exchange ceased operations in July.  It was recently the target of a class-action suit alleging misrepresentation of its services.
From about August 2011 until about July 2013, Shrem was not only the CEO of BitInstant, but also its Compliance Officer in charge of ensuring the exchange’s compliance with federal and other anti-money laundering laws. Shrem is also the vice chairman of the Bitcoin Foundation, which promotes the virtual currency system.
Shrem is listed as a speaker on the website for the bitcoin conference in Miami that ended Sunday.
The arrests come just as New York regulators are to hold a two-day hearing starting Tuesday on the future of bitcoin in the state.  The New York State Department of Financial Services  could end up requiring “BitLicenses” as a regulatory requirement tied to businesses dealing with virtual currencies.. That’s in addition to federal regulatory requirements related to anti-money laundering compliance under the Bank Secrecy Act.
In the federal criminal complaint made public Monday, the Southern District of New York charges Shrem with a total of three counts, including one count operating an unlicensed money transmitting business, one count of money laundering conspiracy and one count willful failure to file suspicious activity report.
Schrem was arrested Sunday at John F. Kennedy International Airport in New York, and is expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge Henry Pitman. Faiella was arrested Monday at his residence in Cape Coral, Florida, and is expected to be presented in federal court in the Middle District of Florida.
“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,” Bharara said.
Bharara goes on to emphasize that money laundering schemes are not unique to bitcoin transactions. But added that authorities will crackdown on those who take advantage of the virtual currency’s de-centralized and unregulated mechanisms.
“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. “We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”

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