BitInstant CEO / BTCKing Indicted for Money Laundering

[Rich Jones]

http://www.justice.gov/usao/nys/pressreleases/January14/SchremFaiellaChargesPR.php

I'm considering starting a slightly-higher-than-market rate cloud mining
operation to allow people to avoid the exchanges and mine their own coins
to avoid situations like this..

R
Manhattan U.S. Attorney Announces Charges Against Bitcoin Exchangers,
Including Ceo Of Bitcoin Exchange Company, For Scheme To Sell And Launder
Over $1 Million In Bitcoins Related To Silk Road Drug Trafficking
*FOR IMMEDIATE RELEASE*
 Monday, January 27, 2014
*Defendants Sold Bitcoins to be Used to Buy and Sell Illegal Drugs
Anonymously on the Silk Road Drug Trafficking Website*

Preet Bharara, the United States Attorney for the Southern District of New
York, James J. Hunt, the Acting Special-Agent-in-Charge of the New York
Field Division of the Drug Enforcement Administration (“DEA”), and Toni
Weirauch, the Special Agent-in-Charge of the New York Field Office of the
Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the
unsealing of criminal charges in Manhattan federal court against ROBERT M.
FAIELLA, a/k/a “BTCKing,” an underground Bitcoin exchanger, and CHARLIE
SHREM, the Chief Executive Officer and Compliance Officer of a Bitcoin
exchange company, for engaging in a scheme to sell over $1 million in
Bitcoins to users of “Silk Road,” the underground website that enabled its
users to buy and sell illegal drugs anonymously and beyond the reach of law
enforcement. Each defendant is charged with conspiring to commit money
laundering, and operating an unlicensed money transmitting business. SHREM
is also charged with willfully failing to file any suspicious activity
report regarding FAIELLA’s illegal transactions through the Company, in
violation of the Bank Secrecy Act. SCHREM was arrested yesterday at John F.
Kennedy International Airport in New York, and is expected to be presented
in Manhattan federal court later today before U.S. Magistrate Judge Henry
Pitman. FAIELLA was arrested today at his residence in Cape Coral, Florida,
and is expected to be presented in federal court in the Middle District of
Florida.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Robert Faiella and
Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent
on trafficking narcotics on the dark web drug site, Silk Road. 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. We will aggressively pursue those who would coopt new forms of
currency for illicit purposes.”

DEA Acting Special-Agent-in-Charge James J. Hunt said: “The charges
announced today depict law enforcement's commitment to identifying those
who promote the sale of illegal drugs throughout the world. Hiding behind
their computers, both defendants are charged with knowingly contributing to
and facilitating anonymous drug sales, earning substantial profits along
the way. Drug law enforcement's job is to investigate and identify those
who abet the illicit drug trade at all levels of production and
distribution including those lining their own pockets by feigning ignorance
of any wrong doing and turning a blind eye.”

IRS Special-Agent-in-Charge Toni Weirauch said: “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. 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.”

According to the allegations contained in the Criminal Complaint unsealed
today in Manhattan federal court:

>From about December 2011 to October 2013, FAIELLA ran an underground
Bitcoin exchange on the Silk Road website, a website that served as a
sprawling and anonymous black market bazaar where illegal drugs of
virtually every variety were bought and sold regularly by the site’s users.
Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only
form of payment accepted on Silk Road – to users seeking to buy illegal
drugs on the site. Upon receiving orders for Bitcoins from Silk Road users,
he filled the orders through a company based in New York, New York (the
“Company”). The Company 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. FAIELLA
obtained Bitcoins with the Company’s assistance, and then sold the Bitcoins
to Silk Road users at a markup.

SHREM is the Chief Executive Officer of the Company, and from about August
2011 until about July 2013, when the Company ceased operating, he was also
its Compliance Officer, in charge of ensuring the Company’s compliance with
federal and other anti-money laundering (“AML”) laws. SHREM is also the
Vice Chairman of a foundation dedicated to promoting the Bitcoin virtual
currency system.

SHREM, who personally bought drugs on Silk Road, was fully aware that Silk
Road was a drug-trafficking website, and through his communications with
FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange
service for Silk Road users. Nevertheless, SHREM knowingly facilitated
FAIELLA’s business with the Company in order to maintain FAIELLA’s business
as a lucrative source of Company revenue. SHREM knowingly allowed FAIELLA
to use the Company’s services to buy Bitcoins for his Silk Road customers;
personally processed FAIELLA’s orders; gave FAIELLA discounts on his
high-volume transactions; failed to file a single suspicious activity
report with the United States Treasury Department about FAIELLA’s illicit
activity, as he was otherwise required to do in his role as the Company’s
Compliance Officer; and deliberately helped FAIELLA circumvent the
Company’s AML restrictions, even though it was SHREM’s job to enforce them
and even though the Company had registered with the Treasury Department as
a money services business.

Working together, SHREM and FAIELLA exchanged over $1 million in cash for
Bitcoins for the benefit of Silk Road users, so that the users could, in
turn, make illegal purchases on Silk Road.

In late 2012, when the Company stopped accepting cash payments, FAIELLA
ceased doing business with the Company and temporarily shut down his
illegal Bitcoin exchange service on Silk Road. FAIELLA resumed operating on
Silk Road in April 2013 without the Company’s assistance, and continued to
exchange tens of thousands of dollars a week in Bitcoins until the Silk
Road website was shut down by law enforcement in October 2013.

*                      *                      *

FAIELLA, 52, of Cape Coral, Florida, and SHREM, 24, of New York, New York,
are each charged with one count of conspiracy to commit money laundering,
which carries a maximum sentence of 20 years in prison, and one count of
operating an unlicensed money transmitting business, which carries a
maximum sentence of five years in prison. SHREM is also charged with one
count of willful failure to file a suspicious activity report, which
carries a maximum sentence of five years in prison.

Mr. Bharara praised the outstanding investigative work of the DEA’s New
York Organized Crime Drug Enforcement Strike Force, which is comprised of
agents and officers of the U. S. Drug Enforcement Administration, the New
York City Police Department, Immigration and Customs Enforcement - Homeland
Security Investigations, the New York State Police, the U. S. Internal
Revenue Service Criminal Investigation Division, the Federal Bureau of
Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives,
U.S. Secret Service, the U.S. Marshal Service, New York National Guard,
Office of Foreign Assets Control and the New York Department of Taxation
and Finance. Mr. Bharara also thanked the FBI’s New York Field Office.

Mr. Bharara also noted that the investigation remains ongoing.

The prosecution of this case is being handled by the Office’s Complex
Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of
the prosecution, and Assistant United States Attorney Andrew Adams of the
Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.

The charges contained in the Complaint are merely accusations, and the
defendants are presumed innocent unless and until proven guilty.

14-024
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