Bitcoin Exchange CEO Charlie Shrem: Charged with Money Laundering For Silk Road Clients

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Federal agents have arrested Charlie Shrem, CEO of Bitcoin exchange BitInstant, for money laundering in connection with online drug exchange Silk Road.

The U.S. attorney's office said Shrem helped someone he hadn't met in person, Robert Faiella, sell more than $1 million worth of bitcoins to Silk Road customers.

Shrem was arrested at JFK Airport Sunday. Faiella, his 52-year-old partner, allegedly ran an underground Bitcoin exchange using the alias BTCKing.

He was arrested at his home in Cape Coral, Fla. Both are charged with conspiracy to launder money and operating an unlicensed money transmitting business.

Additionally, Shrem faces a charge for not tipping off the government.

Shrem, 24, is a major player in the Bitcoin world. The BitInstant exchange, based in New York City, lets people buy bitcoins locally at more than 700,000 locations.

It received a $1.5 million investment last year from Cameron and Tyler Winklevoss. Shrem is also vice chairman of the Bitcoin Foundation, CNN reports.

The Winklevoss twins said in an emailed statement that they are "deeply concerned" about Shrem's arrest, and that they were assured his actions were legal.

Shrem allegedly sold Faiella the bitcoins that eventually made their way to drug buyers and sellers, according to an investigation by the Internal Revenue Service.

Though Shrem knew where the money ultimately ended up, he never reported it to the U.S. Treasury Department, according to the U.S. attorney.

Faiella was allegedly pumping them into Silk Road on a regular basis.

Federal documents cite emails between Shrem and Faiella that show how they worked together, although Shrem never knew Faiella by his actual name.

For example, when Faiella's frequent and large cash deposits raised eyebrows at a cash processing company, Shrem advised Faiella on how to avoid sounding alarms.

The IRS claims the partners exchanged $1.05 million in bitcoins over a 10-month period ending in October 2012. Faiella eventually ended the partnership.

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