In the News: Bitcoin CEO Arrested for Silk Road Drug Site

image credit: http://bitcoinmagazine.com/

Bitcoin is a peer-to-peer payment system and digital currency introduced back in 2009 as open source software. The system uses cryptography – a way to make the source of money and trade of services clandestine. As you can imagine, this made for some sketchy activities. As a result of its association with illicit activity, the FBI shut down the Silk Road, an online black market and seized 144,000 bitcoins. However, as compared to other governments around the world, the U.S. is considered to be Bitcoin-friendly.

Silk Road is an underground website and a veritable online black market. Online users can browse it anonymously and securely without potential monitoring. It was launched in February 2011 and is referred to as the “Amazon.com of illegal drugs” or the “eBay for drugs.” This week, the CEO of a bitcoin exchange and a bitcoin exchanger were both arrested for their alleged involvement with the Silk Road, according to the Manhattan U.S. Attorney.

Charlie Shrem, 24, was the CEO and vice chairman of the Bitcoin Foundation but, after his arrest, submitted his resignation. The foundation issues a statement saying it was “surprised and saddened to learn of these allegations.” Shrem ran BitInstant from 2011 to 2013. He has been charged with running a scheme that gave out over $1 million in bitcoins to users of Silk Road, which was shut down by the feds back in October.

An underground Bitcoin exchanger, going by “BTCKing,” is actually a Robert M. Faiella, 52, and is accused of running an underground bitcoin exchange on Silk Road from December 2011 to October 2013. He allegedly sold bitcoins to site users looking to buy drugs anonymously. Shrem was arrested at JFK Airport in New York on Sunday. Faiella was arrested at his home in Cape Coral, Florida on Monday.

Shrem was in charge of compliance at BitInstant and, according to the feds, was well aware of illegal activity because he “personally bought drugs on Silk Road.” Shrem and Faiella collaborated and Shrem was giving him discounts on high-volume transactions. Both Shrem and Faiella are charged with one count of conspiracy to commit money laundering – a charge that carries a maximum sentence of 20 years in prison, and one count of running an unlicensed money transmitting business, which would add another five years in prison.

Shrem faces another five years in prison if convicted of the willful failure to file a suspicious activity report.

DEA Acting Special-Agent-in-Charge James J. Hunt said in a statement, “Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way. Drug law enforcement’s job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye.”

Jon Matonis, Executive Director and Board Member of Bitcoin said “it has been mutually decided that Charlie Shrem resign from the Board of Directors, effective immediately. The Board accepted that resignation today.” Matonis made it a point to stress that “the indictment itself is not against Bitcoin or the community at large. Indeed, the complaint acknowledges, ‘Bitcoin are not inherently illegal and have known legitimate uses.’” If you or someone you love is struggling with substance abuse or addiction, please call toll-free 1-800-951-6135.