(btckeychain / Flickr) Less than a year after raising $1.5 million for his Bitcoin exchange start-up BitInstant, CEO Charlie Shrem has been charged with money laundering.A news release from U.S.prosecutors in Manhattan said that Shrem knowingly facilitated illegal purchases on the now-shuttered underground drug marketplace Silk Road.Silk Road was a Web site that allowed users to buy everything from heroin to fake IDs.To help preserve users' anonymity, the site required all transactions to be conducted in bitcoins.According to the government, a man named Robert Faiella worked with Shrem to sell bitcoins to Silk Road users.The two men allegedly sold more than $1 million worth, with Shrem giving Faiella a volume discount on BitInstant's fees."Upon receiving orders for Bitcoins from Silk Road users," the government said, Faiella filled the orders through BitInstant, which "was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service."

According to the government, that runs afoul of U.S.money laundering laws, which require payment companies like BitInstant to collect information about their customers, monitor their transactions, and report "suspicious" transactions to the government.Shrem failed to do this, the government says.Faiella is also facing charges.Efforts to reach Shrem or his lawyer for comment were unsuccessful.The charges against Shrem represent the latest setback for BitInstant, which was once a high-flying start-up.Just nine months ago, BitInstant raised $1.5 million from a group led by Tyler and Cameron Winklevoss, brothers who have earned tens of millions of dollars in profits by investing in bitcoins.But a few weeks after taking "Winklevii" cash, BitInstant announced it was suspending operations.That triggered a class action lawsuit from BitInstant customers.Shrem serves on the board of the Bitcoin Foundation, the closest thing the payment technology has to an official voice.Stories tying Bitcoin with illicit activity are never good for the online payment technology, but the government's announcement included signs that the government continues to view Bitcoin itself as legitimate.

"Truly innovative business models don’t need to resort to old-fashioned law-breaking," Manhattan U.S.Attorney Preet Bharara said."When Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act."Bharara's statement suggests that Bitcoin exchange services that color within the lines of U.S.law — collecting information about their customers and reporting evidence of illegal transactions to the authorities — don't need to worry about running afoul of money laundering laws.Jerry Brito, a researcher at the libertarian Mercatus Center at George Mason Uniersity, argued that Shrem is part of "a first generation of exchanges and other Bitcoin-related businesses.When Bitcoin took off, they sort of found themselves at the center.A lot of these people who were technologists, and very young, found themselves at the center of a new disruptive technology that came under a lot of regulatory scrutiny."But while some of these early firms allegedly failed to comply with regulatory requirements, Brito said a new generation of Bitcoin exchanges, including Coinbase and Circle, are more sophisticated.

"Their boards are replete with folks who understand compliance and understand what they have to do," Brito said.As this post was being published, the BitInstant Web site was down.Update: The Winklevoss brothers commented by email: When we invested in BitInstant in the fall of 2012, its management made a commitment to us that they would abide by all applicable laws - including money laundering laws - and we expected nothing less.bitcoin online kopenAlthough BitInstant is not named in today’s indictment of Charlie Shrem, we are obviously deeply concerned about his arrest.bitcoin est il une monnaieWe were passive investors in BitInstant and will do everything we can to help law enforcement officials.ethereum weekly forecast

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.“We are surprised and shocked by the news today," said a spokesperson for the Bitcoin Foundation."As a foundation, we take these allegations seriously and do not condone illegal activity.” Disclosure: In 2012 I contributed a chapter to a book on copyright policy that was edited by Brito and published by Mercatus.best litecoin mining card 2014RELATED: What can you buy offline with Bitcoin?bitcoin input script1 × Buy Photo View Photo Gallery —About $6 billion worth of bitcoins are in circulation worldwide — enough to make many retailers take notice.bitcoin executive arrested

, that you can buy offline with the virtual currency.YOU ARE HERE: LAT HomeCollectionsJustice Department The chief executive of a Bitcoin startup backed by the Winklevoss twins was arrested Monday and charged with laundering money through a notorious drug-trafficking site.The Department of Justice said that it had charged Robert M. Faiella and Charlie Shrem with selling $1 million worth of Bitcoins to people attempting to buy and sell drugs on the Silk Road black market website.PHOTOS: 10 ways to use the sharing economyShrem is CEO of BitInstant, a Bitcoin exchange that counts the Winklevoss twins as its investors.ethereum 500 dollarsThe pair invested $1.5 million in the company last year.The BitInstant website was offline Monday morning.Shrem is also vice chairman of the Bitcoin Foundation and just this last weekend was a featured speaker at a Bitcoin conference in Miami.bitcoin за qiwi

Shrem was arrested at John F. Kennedy International Airport in New York and charged with money laundering, according to a news release from the Justice Department."Thecharges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world," said James J. Hunt of the U.S.Drug Enforcement Administration in the news release.bitcoin atm norway"Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way."SilkRoad was an online black market where people tried to anonymously buy and sell illegal goods such as drugs and guns.The FBI shut down Silk Road last October and seized millions of dollars worth of Bitcoins.Since that bust, federal law enforcement agencies have been using Silk Road's records to track down others involved in illegal activity.

That information apparently led them to Shrem and Faiella.Faiella, 52, of Cape Coral, Fla., and Shrem, 24, of New York City, were each charged with one count of conspiracy to commit money laundering and one count of operating an unlicensed money transmitting business.The charges would carry a combined maximum of 25 years in prison.Shrem faces an additional charge of failing to file a suspicious activity report, which could bring another five years in prison.According to the Justice Department, Faiella ran an underground Bitcoin exchange on Silk Road.When he received orders for Bitcoins, he would fill them through BitInstant and then sell them to Silk Road users for a profit.As CEO and chief compliance officer of BitIntant, Shrem allegedly knew the purpose of Faiella's exchanges.In addition, the government says Shrem himself purchased drugs on Silk Road.ALSO:Apple earnings: Was it really an iPad Christmas?Meet the 14-year-old from Encino who created BackchatLost in translation, or how I got around Tokyo with Google Translate Seizure Led to FloJo's DeathHis 104 scores make his caseRestaurant review: South Beverly GrillBrutal Murder by Teen-Age Girls Adds to Britons' ShockComaneci Confirms Suicide Attempt, Magazine Says