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2 Bitcoin operators charged illicit drug site bust

2:49 PM, Jan 27, 2014   |    comments
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NEW YORK (AP) - A federal magistrate judge says the top executive of a New York City-based Bitcoin company can be freed pending trial on charges relating to the black market website Silk Road.

Magistrate Judge Henry Pitman ordered electronic monitoring for 24-year-old Charlie Shrem. He was released to stay with his parents Monday over the objection of prosecutors. Shrem is chief executive officer of BitInstant and vice chairman of a foundation that promotes the Bitcoin currency system.

He was arrested Sunday at Kennedy Airport. Prosecutors say he conspired to commit money laundering by selling more than $1 million in Bitcoins to Silk Road lawyers.

They say he personally bought drugs on the website.

His lawyer says he is presumed innocent and has spoken online about the need to obey the laws regarding virtual currency.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

The top executive of a New York City-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, 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 New York said Shrem personally bought drugs on Silk Road and was fully aware that it was a website that let users buy illegal drugs anonymously, among other contraband.

Shrem's attorney did not immediately return a message seeking comment ahead of a court appearance scheduled for Monday. It wasn't immediately clear who would represent Faiella in court in Florida.

Authorities have said Silk Road's San Francisco operator generated more than $1 billion in illicit business from January 2011 through September on the website, which used Bitcoin, the tough-to-track digital currency, before it was shut down.

The website, which had nearly 1 million registered users by July, let users anonymously browse through nearly 13,000 listings under such categories as cannabis, psychedelics and stimulants.

It was shut down with the arrest of Ross William Ulbricht, who authorities say masterminded the operation while hiding behind the alias of "Dread Pirate Roberts," an apparent reference to a character in "The Princess Bride."

He was arrested in a branch of San Francisco's public library, where authorities said he was chatting online with a cooperating witness.

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.

(Copyright 2014 by The Associated Press. All Rights Reserved.)

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