Bitcoin trader CEO Charlie Shrem arrested as part of Silk Road crackdown

28 Jan 2014

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Charlie Shrem, CEO of BitInstant

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In the US government’s continuing crackdown on those involved in Silk Road, known as ‘the eBay for drugs’, BitInstant’s CEO Charlie Shrem has been arrested for allegedly trading in bitcoin with the website.

Shrem is CEO of Bitcoin trader BitInstant and vice-chairman of the Bitcoin foundation. His arrest concerns his alleged involvement with the Silk Road, through the processing of more than US$1m in bitcoin payments by users since the site was launched in 2011.

Another man, Robert Fiaella, was also arrested for his alleged work as an underground bitcoin seller.

This is part of a continuing investigation into the illegal bazaar after the arrest of the site’s creator Ross Ulbricht, aka ‘Dread Pirate Roberts’, in October of last year.

Shrem was arrested at New York’s JFK airport last Sunday before boarding a flight and has been officially charged with money laundering and operating an unlicensed financial trading business.

Funded by Winklevoss twins

The Bitcoin trader is most well-known for its dealings with, and financial backing from, twin brothers Cameron and Tyler Winklevoss, who gained notoriety for their lawsuit over the ownership rights to Facebook.

The trading site received nearly US$1.5m in start-up funding from the twins and in response to Shrem’s arrest the twins released a statement saying: “When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws – including money laundering laws – and we expected nothing less. 

“Although BitInstant is not named in today’s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest. 

“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."

Meanwhile, Fiaella, a Silk Road user who operated under the name BTCKing, allegedly used BitInstant to trade bitcoins used on the Silk Road site yet Shrem failed to act or report the illegal activities that were being conducted through its service, according to the indictment posted on Forbes‘ website.

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Colm Gorey is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com