Monday, Jan. 27, 2014 | 10:18 a.m.
NEW YORK — The top executive of a Manhattan-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, which let users buy illegal drugs anonymously, 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 Manhattan said Shrem personally bought drugs on Silk Road and was fully aware that it was a drug-trafficking website.
It wasn't immediately clear who would represent Faiella and Shrem in court on Monday.
Authorities have said Silk Road's San Francisco operator generated more than $1 million in illicit business from January 2011 through September on the website, which used the tough-to-track digital currency called Bitcoin before it was shut down.
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.