Federal agents busted a 24-year-old New York pitchman for the burgeoning bitcoin industry for allegedly scheming to sell the virtual currency to members of an underground drug operation.
DEA and IRS agents arrested Charlie Shrem at JFK International Airport on Sunday, according to court papers unsealed Monday.
Shrem, who is a part-owner of EVR, a Midtown bar, also personally bought drugs from the underground drug site Silk Road, it is alleged.
The Manhattan man appeared before a magistrate judge Monday in federal court and was released on $1 million bond — despite protests from prosecutors who said Shrem bragged about having a $6 million bitcoin fortune and that made him a flight risk.
Shrem, who is a founding member and vice chairman of a foundation to standardize, promote and protect bitcoin, appeared in court with his mom and dad. He must wear an electronic ankle bracelet and stay at his parents’ Brooklyn home, the judge ruled.
Shrem was forced to surrender his passport.
The dramatic arrest of Shrem, a person central to the bitcoin movement, came about 48 hours before supporters of the crypto-currency — including Cameron and Tyler Winklevoss, of Facebook fame — are scheduled to appear at a hearing on Tuesday before New York state’s Department of Financial Services to discuss regulating bitcoin.
The twins’ venture capital firm, Winklevoss Capital, helped Shrem raise $1.5 million in a seed funding last year for BitInstant, the bitcoin exchange platform at the center of the alleged complaint.
“We fully support any and all governmental efforts to ensure that money-laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of bitcoins,” Winkelvoss Capital said in a statement after Shrem’s arrest was announced.
Shrem worked with Robert Faiella, an underground bitcoin exchange operator, to sell more than $1 million in the currency to users of drug website Silk Road, it is alleged.
Both Shrem and Faiella have been charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business between December 2011 and October 2012.
At the time of the alleged transactions, Shrem was founder, chief executive officer and chief compliance officer of BitInstant, which acted as a PayPal for bitcoin.
Faiella, under the username “BTCKing,” allegedly received orders for bitcoins from users of the black-market bazaar and then filled the orders through Shrem’s company.
“I just want to let you know, I take care of you, bro,” Shrem told Faiella in an e-mail amid calls from a co-founder to ban Faiella from the site.