Friday, 14 February 2014

Bitcoin Arrest!

Bitcoin Vice Chair Arrested

Vice chairman of the Bitcoin Foundation who lobbies on behalf of the digital currency was arrested. He is accused of conspiracy to commit money laundering and encouraging anonymous drug trading

Charlie Shrem, the Bitcoin’s vice chairman, was arrested at JFK airport. This news came as a shock for the digital currency lobby group and its supporters. Two of them, twins Winklevoss, are known for their early involvement with Facebook, and have recently become backers of the digital currency.

Aside from Shrem, one more individual, Robert Faiella, was also arrested and charged for the same crimes. It is known that he was operating a small Bitcoin exchange under the name BTCKing. The charges accuse both men of engaging in a scheme to sell over $1 million in Bitcoins to Silk Road members. If you remember, Silk Road was the online black marketplace shut down by the FBI last year.

Charlie Shrem was one of the top executives on the Bitcoin Foundation, and the staff of the foundation have been doing their best to distance the digital currency from its links to crime. They testified to the US Senate in 2013 and were lobbying regulators in Washington. They keep insisting that Bitcoin Foundation had never been involved in any of the allegations.

In the meantime, the US drug enforcement administration confirmed that charges depict their commitment to identifying people promoting the sale of illegal drugs. Both arrested men are charged with facilitating anonymous drug sales and earning substantial profits. It is clear that the charges stem from Charlie’s ownership of the BitInstant exchange – he is its CEO and co-founder. The exchange hit the headlines last May when the famous twins led a seed round that raised $1.5 million of investment. As you can understand, the timing of the charges is unfortunate for the Winklevoss, who are set to speak soon at a conference on digital currencies. They explained that when they invested in BitInstant in 2012, its management swore they would abide by all applicable laws. Although the exchange isn’t directly named in the indictment of Charlie Shrem, the twins are deeply concerned about his arrest. The Winklevoss reminded that they are just passive investors in BitInstant and are ready to do everything they can to help law enforcement agencies.

However, the papers revealed that Charlie Shrem is also charged with failing to report any suspicious activity regarding Faiella’s unauthorized transactions via the company. They are accused of developing a scheme to sell over $1 million in Bitcoins to criminals bent on trafficking drugs on Silk Road. Apparently, Bitcoins can be laundered and used to fuel criminal activity like any traditional currency, so law enforcement had to act immediately.

It was found that Robert Faiella offered digital currency for sale on the Silk Road website – this move would entail knowing of their drugs trade. The Bitcoins for sale were bought from the BitInstant exchange, and Shrem, as its compliance officer, was supposed to ensure its compliance of anti-money-laundering laws.

The accusations say that Shrem knowingly allowed Faiella to use BitInstant services to purchase Bitcoins for Silk Road members, and even personally processed all transactions and provided discounts on high-volume order. For some reason, Shrem never filed suspicious activity reports about the transactions, but instead helped Faiella circumvent the anti-money-laundering restrictions.

It should be noted that Winklevoss twins’ investment in the exchange was only a small part of their total investment in digital currency. So they can’t be happy about the news that Shrem and Faiella’s arrest affected the price of Bitcoin, which instantly dropped by 3% on the Mtgox exchange.

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