Watch CBS News

Bitcoin Operators Charged In NYC 'Silk Road' Drug Bust

NEW YORK (CBSNewYork/AP) -- The top executive of a Manhattan-based Bitcoin company and a Florida Bitcoin exchanger have been charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, which let users buy illegal drugs anonymously, authorities said Monday.

Charlie Shrem, 24, the chief executive officer of BitInstant and vice chairman of a foundation that promotes the Bitcoin currency system, was arrested Sunday at New York's Kennedy Airport while Robert Faiella was arrested Monday at his Cape Coral, Fla., residence, prosecutors said in a news release. Federal prosecutors in Manhattan said Shrem personally bought drugs on Silk Road and was fully aware that it was a drug-trafficking website.

It wasn't immediately clear who would represent Faiella and Shrem in court on Monday.

Bitcoin Operators Charged In NYC 'Silk Road' Drug Bust

As WCBS 880's Irene Cornell reported, authorities have said Silk Road's San Francisco operator generated more than $1 million in illicit business from January 2011 through September on the website, which used the tough-to-track digital currency called Bitcoin before it was shut down.

U.S. Attorney Preet Bharara said Faiella and Shrem conspired to sell more than $1 million in Bitcoins to criminals who wanted to sell narcotics on Silk Road between December 2011 and October. They are charged with with conspiring to commit money laundering and operating an unlicensed money transmitting business.

"Truly innovative business models don't need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act,'' Bharara said.

Bitcoins, which have been around since 2009, can be purchased using real money at an online store, or an "exchange." To purchase something with Bitcoins, a shopper transfers the value from his or her online Bitcoin wallet to someone else's.

James J. Hunt, acting head of the Drug Enforcement Administration's New York office, said the defendants were "hiding behind their computers" as they earned substantial profits by facilitating anonymous drug sales.

According to prosecutors, Faiella operated under the name "BTCKing" as he ran an underground Bitcoin exchange on the Silk Road website, where Bitcoins were the only form of payment accepted.

"The government has been successful in swiftly identifying those responsible for the design and operation of the 'Silk Road' website, as well as those who helped 'Silk Road' customers conduct their illegal transactions by facilitating the conversion of their dollars into Bitcoins," said IRS Special Agent-in-Charge Tony Weirauch. "This is yet another example of the New York Organized Crime Drug Enforcement Strike Force's proficiency in applying financial investigative resources to the fight against illegal drugs."

You May Also Be Interested In These Stories

(TM and © Copyright 2014 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2014 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.