The head of a prominent bitcoin exchange was arrested in New York over the weekend on money-laundering charges.
Charlie Shrem, CEO of BitInstant, was apprehended by federal law enforcement officials at John F. Kennedy International Airport on Sunday. Federal prosecutors allege that he helped facilitate bitcoin sales worth about $1 million to customers of Silk Road, an online marketplace that has been linked to the international narcotics trade, CNN notes.
The government also arrested Robert Faiella in Florida. Shrem and Faiella have been charged with operating an unlicensed money transmitting business and conspiracy to launder money.
Faiella is accused of exchanging cash for bitcoins on Silk Road since late 2011. The bitcoins traded by Faiella on Silk Road were obtained through BitInstant. The government claims that Shrem advised Faiella about how to avoid transactions that might trigger regulatory scrutiny. Federal prosecutors also allege that Shrem — who apparently never met Faiella in person — was aware of the true nature of Faiella’s bitcoin purchases and did not alert regulators.
Silk Road was the subject of a government probe that resulted in the website’s closure last year.
In 2012, BitInstant attracted a $1.5 million investment from the Winklevoss twins, who have become heavily invested in bitcoin. The bitcoin exchange operates in a variety of countries, including the U.S., Russia and Brazil. Customers can use BitInstant to purchase bit coins at 700,000 outlets around the world.