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Bitcoin exchange CEO arrested for money laundering

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John R. Coughlin/CNN Money

NEW YORK (CNNMoney) — U.S. government agents have arrested Charlie Shrem, the CEO of Bitcoin exchange BitInstant, charging him with laundering money for customers of online drug bazaar Silk Road.

A U.S. attorney in the Southern District of New York said Shrem, along with alleged co-conspirator Robert Faiella, sold more than $1 million worth of bitcoins to Silk Road customers. Faiella, a Florida man who allegedly runs an underground Bitcoin exchanger using the alias BTCKing, was also arrested.

According to federal prosecutors, Shrem was arrested at John F. Kennedy International Airport in New York on Sunday, and Faiella was arrested at his home in Cape Coral, Fla., on Monday. Both are charged with money laundering conspiracy and operating an unlicensed money transmitting business.

Shrem 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 in the United States, as well as Brazil, Russia and elsewhere. It received a $1.5 million investment last year from the Winklevoss twins. Shrem is also vice chairman of the Bitcoin Foundation, one of the currency’s biggest supporters.

BitInstant’s website was down Monday after the announcement by federal law enforcement.

Proponents of the alternative currency are likely to view the arrests as an example of the government’s growing concern with bitcoins, which offer heightened privacy because they’re difficult to trace to individuals.

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