Bitcoin entrepreneur sentenced to two years in prison
A federal judge sentenced a leading bitcoin entrepreneur to two years in prison for helping a Florida man sell more than $1 million in bitcoins to customers on Silk Road, an online black market where users could anonymously buy and sell drugs and other illegal items.
Charlie Shrem, 24, of New York, was the chief executive officer of the bitcoin exchange company BitInstant.com and a former vice chairman of the Bitcoin Foundation, a group dedicated to promoting the digital currency. He was also sentenced to three years of supervised release and must forfeit $950,000 allegedly earned through the illegal transactions, court papers said.
BitInstant, the company Shrem founded in 2011, allowed customers to exchange cash for bitcoins anonymously. As the company's chief executive, Shrem was responsible for ensuring the bitcoin exchange complied with federal money laundering laws. By pleading guilty to one of the charges in September, Shrem avoided going to trial on more serious money laundering and violations of the Bank Secrecy Act.
Shrem "was knowingly, willfully, and to some extent excitedly, even passionately involved in activity that he knew was a serious violation of the law and that was promoting the evil business of trafficking in drugs," Judge Jed Rakoff said.
Prosecutors said Shrem worked with Silk Road dealer Robert Faiella, known by his online handle "BTCKing," of Cape Coral, Fla., who pleaded guilty in September to operating an unlicensed money-transmitting business that knowingly sent money to a criminal enterprise. Shrem personally processed Faiella's orders and gave Faiella volume discounts, court papers said. Faiella will be sentenced Jan. 20.
Federal agents shut down Silk Road, a sprawling online black market bazaar, on Oct. 2, 2013. The site operated on TOR, also known as The Onion Router, a website that routes users through multiple computers to conceal their locations and identities. Buyers and sellers on the site did business in bitcoin, a digital currency that gave users another layer of anonymity.
Bitcoin, launched in 2009, is a decentralized digital currency traded from person to person rather than through banks. It is generated by a computer algorithm and has no issuing or regulating country. The currency is not illegal in the USA and some businesses accept it as a form of payment.
BitInstant.com, one of the earliest bitcoin businesses, drew interest and investment from the tech-savvy Winklevoss twins, Cameron and Tyler. The brothers' Winklevoss Capital had invested money in the business, but they said they had no active role in the company.