Financial News

  • 28 January 2014, 9:31

Bitcoin Exchange Chiefs Charged Over Silk Road

Two executives who operate Bitcoin exchanges have been charged for selling more than $1m in the digital currency to users of the "black market" website Silk Road.

Charlie Shrem, the CEO of BitInstant, and Robert Faiella face charges of conspiring to commit money laundering.

Federal prosecutors said Shrem personally bought drugs on Silk Road and was fully aware that it was a drug-trafficking website.

Earlier this month, US prosecutors announced the forfeiture of $28m (£17m) worth of Bitcoins seized from Silk Road, a hidden online marketplace that was used to offer drugs and other illegal activities.

On Monday, a judge ordered electronic monitoring for Shrem, 24, and released him to stay with his parents pending trial.

Authorities say Silk Road's San Francisco operator generated more than $1bn in illicit business on the website, which used a privacy-protecting Tor network and the difficult-to-track Bitcoin currency before it was shut down.

US Attorney Preet Bharara said Faiella and Shrem conspired to sell more than $1m in the e-currency to criminals who wanted to sell narcotics on Silk Road between December 2011 and October.

"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," Mr Bharara said.

James 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 website.

Bitcoin was created four years ago in the wake of the global financial crisis and has slowly been approaching the mainstream.

Unlike other currencies, Bitcoin does not have the backing of a central bank or government.

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