DOJ Finally Going After The Criminal Masterminds With Arrest Of 24 Year-Old Bitcoin Exchange Founder

Tyler Durden's picture

The US crackdown on Bitcoin has been long in coming, with ebbs and flows of enforcement as regulators have been unsure exactly how to proceed with dismantling the digital fiat alternative. This morning the ebb became a rising tide, after U.S. prosecutors announced charges against two men operating Bitcoin exchange businesses for attempting to sell $1 million worth of Bitcoin to users of the underground black market website Silk Road, which was shut down by authorities in September.

Reuters reports that the U.S. Attorney's office in Manhattan said in a statement that authorities arrested Charlie Schrem, chief executive officer of the exchange BitInstant.com, on Sunday and Robert Faiella, who ran an underground Bitcoin exchange called BTCKing, on Monday. The two were charged with conspiring to commit money laundering and operating an unlicensed money transmitting business. Schrem is also vice president of the main Bitcoin-focused trade group, the Bitcoin Foundation, according to the foundation's website and Schrem's LinkedIn profile.

Some details from the charge against the defendants:

Federal prosecutors charged Faiella, 52, and Shrem, 24, with engaging in a scheme to sell more than $1 million of Bitcoins to users of Silk Road. Each defendant was charged with conspiring to commit money laundering, which carries a maximum prison sentence of 20 years. They are additionally charged with operating an unlicensed money transmitting business, which has a max sentence of five years in prison.

 

The U.S. also charged Shrem with violating the Bank Secrecy Act by “willfully failing” to file suspicious activity reports on Faiella’s questionable transactions. This charge carries a maximum sentence of five years in prison.

 

In addition to the Manhattan U.S. Attorney, the charges were announced by the Drug Enforcement Agency and the criminal investigation division of the Internal Revenue Service.

 

“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.

 

Schrem was apprehended by authorities at JFK International Airport in New York on Sunday and is set to appear in federal court in Manhattan later on Monday. Faiella was arrested at his Cape Coral, Fla., home on Monday and is expected to appear in federal court in the Middle District of Florida.

 

The court documents allege Faiella operated an underground Bitcoin exchange on the Silk Road website between December 2011 and October 2013 that sold the crypto currency to users who wanted to buy illegal drugs on the site. After receiving orders, he filled them through a New York company designed to enable customers to exchange cash for Bitcoins anonymously, the U.S. alleges.

 

Shrem served as the New York Bitcoin company’s CEO during much of that timeframe and was “fully aware that Silk Road was a drug-trafficking website” and that Faiella was operating an exchange service for Silk Road users, the documents say.

 

Prosecutors say Shrem still did business with Faiella to maintain a “lucrative source” of revenue. He personally processed Faiella’s orders, gave him discounts on high-volume transactions, failed to file a single suspicious activity report and even helped Faiella “circumvent” the company’s anti-money laundering policies, the documents allege.

 

Bharara said the investigation remains ongoing.

As a reminder, BitInstant, which at the time "aimed to be the go-to site" to buy and sell bitcoins, received a $1.5 million investment by Winklevoss Capital in May 2013. From the TechCrunch profile of the startup:

BitInstant, which has a full-time staff of 16 led by CEO Charlie Shrem, has emerged as a key player in the nascent Bitcoin market: The company already processes approximately 30 percent of the money going into and out of Bitcoin, and last month alone facilitated 30,000 transactions, the Winklevosses said in a phone call this week. The funding is meant to allow the company to further scale up its staff and product as it angles to become the go-to site for Bitcoin transfers.

The US charge is not a ringing endorsement for the premise behind the Winklevi investment:

The Winklevosses say they were attracted to invest in BitInstant in large part because of its leadership. CEO Shrem is the vice chairman of the Bitcoin Foundation, and CIO Alex Waters previously worked with the core developers on the original Satoshi Bitcoin client. “Charlie has been in the space for a very long time, and he has an impeccable reputation among Bitcoiners. He knows everyone in the space and everyone in the space knows him,” Cameron Winklevoss said. “One of the most exciting things about people who are into Bitcoin is that they’re a really passionate community, and Charlie is a passionate entrepreneur. He would be in that category of someone who lives, breathes, and sleeps Bitcoin.”

Perhaps. However, in retrospect Charlie's biggest crime was not being CEO of JPM or, at worst, HSBC, where money laundering and other criminal activity is not only encouraged but rewarded with soaring bonuses. The good news is that one can once and for all confirm that when it comes to "Justice" in the US, some - those who deal with legacy status quo mandated and enforced ponzi scheme fiat - are far more equal than anyone who dares to think outside the Fed's printer.

Finally, here is a recent profile of 24 year old "criminal mastermind" Schrem via Bitcoin Examiner.


Meet Charlie Shrem. He’s 23 years old and the co-owner of Evr, one of the most famous gastro pubs in Manhatan. The name might sound familiar, since we talked about this pub before, when it became one of the first establishments to receive Bitcoin as a payment for drinks and food in New York City.

But why is Charlie Shrem different from other crypto-millionaires? Because he is now a BitAngel, member of an investment group created to invest in Bitcoin startups. We’ve also talked about this group before here.

Today, whenever someone pays at Evr with digital coin, Shrem gets a little bit richer, but he’s using his money to help others. Everything started in 2011, when Bitcoin became more famous, he bought thousands of Bitcoins for about $20 each. He invested almost everything he had in what could have been a dangerous game. However, since then, the digital coin value has skyrocketed.

130408074003-evr-bitcoin-bar-620xa

At Evr, with his business partner.

After his investment in the bar, he founded the exchange platform Bitinstant. “Infrastructure is what we need. We’ve got to build, build, build–financial software, exchanges, and different payment products”, says Charlie Shrem, who clearly followed his own advice and profited with it.

He might not have the same funds as big Silicon Valley investors, but he has turned into a Bitcoin angel anyway. “The early guys are the ones that run everything. In this space, how long you’ve been around matters”, explains the entrepreneur.

However, we would like to look at him and others and see some kind of Bitcoin ambassadors, the ones that are setting the example and showing how it’s possible to grow once you leave your fear behind and go deep into a new world like cryptocurrency. Because they show what Bitcoin is for real: an opportunity.

 

* * *

And now, please join us in a moment of solemn silence as we fondly recall the memory of all the HSBC bankers who were thrown in prison for aiding, abetting and profiting from laundering money with known global terrorists...

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fonestar's picture

Looks like the DOJ doesn't need to pursue these cases as best as I can see from the attitudes displayed on this blog.  The wimps have already scared themselves out of owning Bitcoin and admitted defeat to the money masters.  

All seeing eye anyone?

H H Henry P P P Paulson's picture

Bitcoin trades like any other company stock.  Why would an alternative currency's value be reflected by this news?  It shouldn't. 

mrdenis's picture

The Honorable Jon Corzine

............

max2205's picture

Round up the usual suspects...Casablanca

Pegasus Muse's picture


Another example of a capricious, selective, Gangster-Bankster perpetuating (in)justice system, otherwise known as a Protection Racket for the Status Quo Top 0.1%-ers. 

 

“It's a Criminal system, built by Criminals for Criminals. The business of America used to be business. Now the businesses of Amerika are war, theft, mass murder, and police state crackdown on anyone who objects.”  –-Chupacabra

redpill's picture

"It's a big fuckin' club, and you ain't in it."

-Mr. Carlin

Ratscam's picture

the brilliant Larry Summer

HoofHearted's picture

Phony star, are you going to help your BTC brothers by posting bail in BTC? Oh, wait...nevermind.

CheapBastard's picture

I'm glad they finally caught these two. They look very dangerous.

TruthInSunshine's picture

TOTALLY OFF TOPIC:

Yahoo is apparently going to buy some company called Tomfoolery for 16 billion USD.

http://portal.ransquawk.com/headlines/yahoo-yhoo-are-in-talks-to-buy-tom...

A few points.

1) I didn't realize Yahoo was solvent. What do they do?

2) I have no phukkin' idea what Tomfoolery does/is.

3) If you had ANY doubt that we are in dot.com bubble v2.0, doubt it no more.

BC6's picture

Every day now seems to be more like it will be the last day of the Ponzi.

BC6's picture

I hope he can get eyebrow cuts at Riker's.

eatthebanksters's picture

Not that the Guvmnt shouldn't go after these guys if they, in fact are breaking the law.  But why them and not Dimon, Blankfein...

Four chan's picture

the sec should be a sub set of the fbi. because right now they are nothing costing us billions.

GetZeeGold's picture

 

 

First they came for the Liberty silver dollars.....

http://libertydollararrest.blogspot.com/

 

I don't have a problem with bitcoins.....I'm not going to buy one.....but I don't have a problem with them.

TheHound73's picture

Something tells me this Shrem guy won't be dumb enough to have his bitcoin wallet stolen from him by the feds like the Silk Road guy.

Doesn't help too much from inside a prison sell, but hey, it's those small victories that count.

Boris Alatovkrap's picture

Bitcoin takedown, Phase 1... discredit participant and leadership.

fonestar's picture

These "Bitcoin Foundation" leaders are stooges.  Arrest the lot of them for all I care, we have no leaders or representation.  We ignore the status quo and do not offer explanations to congress members.

Exponere Mendaces's picture

@fonestar

Yeah, been saying for a while that the Bitcoin Foundation idiots were off their rocker to extend a hand to the government to be "partners". This is why Satoshi is anonymous.

The people who don't like what you're doing make damn sure they can use anything against you. Whether these charges were merely manufactured or he's deep in a hell of his own making - it just shows that you can't yell "OVER HERE, YOOHOO!" to the "Eye of Sauron" and expect to come out unscathed.

I full expect the JPMorgan "summit" to result in legislation that will constrict and constrain Bitcoin exchange activity in the USA. No big surprise there. We're in the "Then they fight you" phase of the Bitcoin struggle.

Boris Alatovkrap's picture

Boris is observation...

  1. BitCoin is cannot have "leadership" by definition. Same is for Libertarian Party (is really "Libertarian Party"!?) because liberty is self determination but fiat currency (Fed Reserve, BOE, ECB, Banc du Canadia, etc. orBitCoin) by definition is require regulation.
  2. BitCoin is has no backing. Is create from ether but is not create by tangible value. Is no more value than is fiat petro dollar or Ruble or Rupee. But is even less because is not even back by GDP or credit of backing nation.
  3. All bank is at once fearful of embrace BitCoin, but is also fearful of ignore BitCoin.
  4. Member of political class is control by member of bankster cabal, so in shadow, ill speaking is of BitCoin or any competition to monopoly money system.
  5. All attempt is make with light hand to discredit BitCoin, by mockery, by criminal investigation, not immediate to put BitCoin participant in jail, but to create fear, uncertainty, dubiosity and scare other participant or investor.
  6. Make legal argument without equitable basis. Make up new law to "protect" citizenry from self.

Boris is sadly prediction BitCoin is dead and crash by end of year... along with USD, Ruble, Hryvnia, Rupee, Yuan, Yen, Peso, etc. as WWIII is commence.

logicalman's picture

Always nice to hear from the optimist in the room!

Points well put (for anyone familiar with your 'English' that is!)

margaris's picture

Mr.Boris. Bitcoin can't die. As long as people use it, it is alive and well.

TPTB can't keep every human on the planet from using the bitcoin network to do transactions. It's NOT POSSIBLE.

Bitcoin value will fluctuate like crazy...yes...

 

I say what I haven't said in a long time: BTFD! Buy the fucking dip.

willwork4food's picture

No, my virtual Russian friend, Bitcoin will not die by years end. The powers that be just want to send a flare that dealing with illegal drugs (THEIR TURF) will not be accepted. If the powers that be wanted to kill Bitcoin they could have done it years ago.

silvermail's picture

Some idiots say: Bitcoin is a threat to the U.S. dollar.
At that time, they forget that Bitcoin is supported by the U.S. Senate and the U.S. Army.
http://bitcoinmagazine.com/8531/u-s-air-force-building-bitcoin-payment-g...
If someone thinks, that the system which represents a real threat to the hegemony of the dollar will have the support of the Senate and the U.S. Army, he is definitely a full idiot.

i-dog's picture

The boyz behind the curtain ALWAYS play both sides of a dialogue. It's how they force change.

They created Bitcoin and they also pretend to oppose it. The synthesis WILL be an electronic currency fully controlled by them.

Thanks for that nice link that exposes their stealthy background moves. Soon, all government payments will be electronic...and fully traceable/taxable at every step.

exartizo's picture

I like that word... "dubiosity".

RafterManFMJ's picture

Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” said DEA acting special-agent-in-charge James Hunt.

OMG they made SUBSTANTIAL PROFITS!? And made money from GASP! drugs? And money laundering? And they are not part of the Fascist-Corporate Elite!?

THIS WILL NOT STAND!!

They should plead for instant death, rather than torture, then death. What kind of imbecile tries to earn debt instruments, AKA FRN, without being in the club?

Nick Jihad's picture

This from the administration that has been selling guns to the Sinaloa cartel? No matter how cynical I get, I just can't keep up.

Kirk2NCC1701's picture

@redpill: ""It's a big fuckin' club, and you ain't in it." - G. Carlin

With all deference to Carlin (RIP, bro!), I believe he 'misspoke'... I'd argue that it's a small club, and we ain't in it.  A club of the "1-2 Percenters".

fonestar's picture

I just sent some of my Bitcoin to Czech Republic, converted it into Litecoin on BTC-E and got it back to my wallet in Canada.  Whole process took less than twenty minutes, totally outside of banks and governments.

Amazing technology.

whatthecurtains's picture

You started with nothing and ended with nothing.  Good job.

Skateboarder's picture

You do realize he only has two bitcoins lol.

fonestar's picture

I have many, many Bitcoins, hundreds of Litecoin and even bought some NMC just for the hell of it.

TruthHammer's picture

glad you are actually dumping and not just pumping.  Not surprised you actually have more LTC than BTC.  Keep FUD Pumping the good fight, but get out while you still can. 

 

It was never a currency, and its first adopter status is irrelevant.  Take the free money from "the greater fools" while you still can.

redpill's picture

Unfortunately true.  While a noble effort, Bitcoin's legacy could ultimately play out as the biggest pyramid scheme in the history of mankind once fed.gov finally decides to tighten the screws.

fonestar's picture

Your .gov is just one of many .govs on planet Earth.  

The sum total power of all of these .govs, their machine guns, aircraft carriers, attack helicopters, drones, satellite systems is less than one brilliant idea.

redpill's picture

Possible, but unfortunately that idea is not Bitcoin.  Believe me I wish it were.

Boris Alatovkrap's picture

Boris is special talent to pass spaghetti noodle into nose, through nasal passage, and back out through mouth. Is gross, time consuming, extremely full for pain, but is can be done, like BitCoin transactional.

Boris is consider first boil spaghetti noodle so is more softer.

TruthInSunshine's picture

In Glory Days of Mother Russia, black-out-drunk vodka fueled sex with gulag Mongoloid women in Siberia stayed in Siberia.

nmewn's picture

ROTFL!!!...I swear Boris, you kill me...lol.

Try it with some encryption sauce next time, a little moar expensive (just like a fee or tax or cost of doing biz, whatever) but makes zeee transaction smoother and doesn't tickle the back of the throat ;-)

CheapBastard's picture

... and back to square 1:

"If you don't hold it....."

GetZeeGold's picture

 

 

Boris owes me 3 monitors and 2 keyboards.....I've sent him a bill.

 

So far.....nothing.

MeelionDollerBogus's picture

maybe is Boris be invent Noodlecoin!

SAT 800's picture

The sum total power of all of those .govs, their machine guns, etc. etc., --is less than one brilliant idea";  Viper one, be advised, target claims to have secret weapon defense, "brilliant Idea"; "Viper, check; will open with chain gun from max. range". OH, too bad; your magic didn't work.