One year ago today, former BitInstant CEO and early Bitcoin proponent Charlie Shrem began serving his two-year prison sentence. The former CEO of BitInstant, a popular Bitcoin exchange in the early days of Bitcoin, was arrested at JFK airport in January 2014. He was just 24 year old.
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$1 Million In Laundered Bitcoins
Later convicted of abetting more than $1 million in bitcoin sales to Silk Road users, and also cited as a Silk Road user himself, Shrem faced a detailed case against him. He was charged alongside Robert Faiella, who was known as BTCKing on the Silk Road.
“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” DEA agent James Hunt stated.
When arrested, Shrem was the Vice Chairman of the Bitcoin Foundation, which proved a big scandal for the beleaguered and rebranding Foundation. BitInstant, backed by the Winklevoss twins, was offline at the time.
Shrem, who worked as both Chief Executive Officer and Compliance Officer, was charged with operating an unlicensed money transmitting business (as was Faiella); failing to file suspicious activity reports, thusly in violation of the Bank Secrecy Act.
“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.” Manhattan U.S. Attorney Preet Bharara stated. “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.”
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.”
The complaint stated that Shrem knew Faiella’s business was on the Silk Road, and knew what the Silk Road was, and had even been a user. Shrem, never shy, often spoke of alcohol and marijuana use: “I won’t hire you unless I drink with you or smoke weed with you—that’s a 100 percent fact,” Shrem once told a reporter for Vocativ.
Charlie Shrem: Bitcoin’s First Felon
The charge of one count of conspiracy to commit money laundering carries a maximum sentence 20 year prison sentence, including the count of operating an unlicensed money transmitting business, a maximum five year prison sentence. Shrem also was charged with the willful failure to file a suspicious activity report, a maximum sentence of five years in prison; overall, he faced thirty years in prison. He received two years, a term he was “content” with and considered a “relatively short sentence.”
On March 25, 2015, five days before reporting to prison, Shrem published a blog called “So, I’m going to prison. Reflection from Bitcoins’ first felon.” He wrote:
“On March 30th, I’ll be self surrendering to Lewisburg Federal Prison Camp in Pennsylvania. It’s been a long hard fight, from getting arrested at JFK airport while landing home, to solitary confinement and being under house arrest the for the past 14 months. When the government indicted me and requested 30 years, I kept my head up with the help of friends, family, and the Bitcoin community. While some distanced themselves, most stood by and fought. I owe my life to those people. Of course I don’t look for sympathy, I did the crime and I will do the time. They say those who stand by you in the bad times, deserve to be with you in the good times. Good times are coming and I look forward to it. I also want to thank those select few in the SDNY District Court and NYSPT for treating me with dignity and respect.”
Its could very well be Shrem is released before his full two years is up, if he’s been on good behavior, which I am sure he has been. Shrem’s arrest came at a time when the War on Drugs is seemingly dwindling. The ambiguity of laundered funds, however, touches a nerve with the American public as it can be associated with terrorism, and likely would make most juries skirmish.
What Shrem plans on doing once he’s out of prison has yet to be seen. The Winklevoss twins, who had invested in BitInstant, publicly separated themselves from Shrem after the arrest. When he comes out, he will be entering into a Bitcoin industry that is much transformed from just one year ago, namely as a result of the entrance of some of the world’s largest financial institutions and technology multinationals into the space.
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