One of the most prominent players in the Bitcoin universe, Charles Shrem, was arrested on Sunday and accused of helping grease the wheels for drug transactions on the now defunct online bazaar Silk Road.
Mr. Shrem was the founder and chief executive of a popular website, Bitinstant, where Bitcoins could be bought using dollars. The criminal charges unsealed on Monday allege that Mr. Shrem used his company to convert money anonymously for people interested in buying narcotics on the Silk Road site, and also personally bought drugs on the site. He was arrested at John F. Kennedy Airport.
The scheme was allegedly operated in cooperation with another man, Robert Faiella, known as BTCKing, who was arrested on Monday.
The complaint says that when a co-founder of Mr. Shrem’s company questioned the cooperation with Mr. Faiella, Mr. Shrem wrote back that “we make good profit from him.â€
Bitinstant stopped operating last summer, but the site was viewed as a pioneer in the industry, and Mr. Shrem had recently said that he planned to restart it. The company won early backing from Winkelvoss Capital, which is run by the Winkelvoss brothers, who were early players in Facebook.
In a statement, Winkelvoss Capital said, “We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of Bitcoins.â€
Mr. Shrem has been an outspoken advocate for the virtual currency. He is the vice chairman of the Bitcoin Foundation, a non-profit that educates the public on digital money. Mr. Shrem was still listed on Monday as a member of the foundation’s board.
A spokeswoman for the foundation, Jinyoung Englund, said, “We are surprised and shocked by the news today. As a foundation, we take these allegations seriously and do not condone illegal activity.â€
The unsealing of the complaint comes just a day before the New York State Superintendent of Financial Services, Benjamin Lawsky, is set to hold hearings where the legality of Bitcoin is set to be discussed.
U.S. v. Robert M. Faiella and Charlie Shrem
